Executive Summary
Since the beginning of 2025, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping as its core, stepped-up efforts have been made to implement proactive and effective macroeconomic policies. China’s economy has developed steadily on a positive trajectory, and major economic indicators have performed well, demonstrating strong vitality and resilience. In H1, the Gross Domestic Product (GDP) grew 5.3 percent year on year, with a sustained uplift in social confidence as well as solid progress in high-quality development. Following the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the People’s Bank of China (PBOC) earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council. The PBOC has pursued an appropriately accommodative monetary policy, strengthened counter-cyclical adjustments, and employed a mix of policy tools to support the high-quality development of the real economy, thereby creating a favorable monetary and financial environment for sustained economic recovery and development.
First, money and credit maintained reasonable growth. In May, the required reserve ratio (RRR) was lowered by 0.5 percentage points, releasing approximately RMB1 trillion in long-term liquidity into the market. The PBOC kept liquidity adequate by using a mix of tools, including the open market operations (OMOs), medium-term lending facility (MLF) operations, and central bank lending and discounts. Financial institutions were encouraged to fully satisfy the effective credit needs of the real economy and to enhance the efficiency of fund utilization so as to improve the quality and efficiency of financial services for the real economy. Second, overall social financing costs were guided to move downward. The PBOC continued to improve the market-oriented interest rate adjustment framework. In May, the policy interest rate was cut by 0.1 percentage points, interest rates on structural monetary policy instruments were reduced by 0.25 percentage points, and interest rates on personal housing provident fund loans were also lowered by 0.25 percentage points. In addition, the PBOC strengthened implementation of the interest rate policy to bring down both deposit and loan rates. Third, the credit structure was improved. In May, a central bank lending facility of RMB500 billion was established to support service consumption and elderly care, central bank lending in support of sci-tech innovation and technological upgrading was increased by RMB300 billion, and a risk-sharing instrument for sci-tech innovation bonds was introduced, all in efforts to strengthen support for key domestic demand sectors, such as consumption and sci-tech innovation. While ensuring effective use of existing structural monetary policy instruments, the PBOC continued its efforts to develop technology finance, green finance, inclusive finance, old-age finance, and digital finance. Fourth, the RMB exchange rate remained basically stable. Upholding the decisive role of the market in the formation of the exchange rate, the PBOC gave play to the role of the exchange rate in adjusting the macro economy and the balance of payments. It implemented a mix of policies to keep expectations stable, and the RMB exchange rate remained basically stable despite the complex circumstances. Fifth, risk prevention and resolution were strengthened. Risk resolution in key areas was steadily promoted, and the system of financial risk monitoring, assessments, and early warnings was continuously improved.
The counter-cyclical adjustments of monetary policy achieved significant results. Financial aggregates witnessed steady growth. At end-June, outstanding aggregate financing to the real economy (AFRE) and broad money supply (M2) recorded year-on-year growth of 8.9 percent and 8.3 percent, respectively. Outstanding RMB-denominated loans registered RMB268.6 trillion. Social financing costs were at a historic low. From January to June, interest rates on new corporate loans and on new personal housing loans dropped by about 45 basis points and 60 basis points year on year, respectively. The credit structure continued to improve. The RMB exchange rate remained basically stable at an adaptive and equilibrium level. At end-June, the central parity of the RMB against the U.S. dollar was roughly on par with that at end-2024.
As the external environment is becoming more complex and severe, with weakening global growth momentum, rising trade barriers, and diverging economic performance among the major economies, China’s economic performance still faces multiple risks and challenges. At the same time, China’s economy is underpinned by solid fundamentals, multiple strengths, strong resilience, and vast potentials. The underlying conditions and fundamental trend supporting its long-term growth remain unchanged. It is essential to maintain strategic resolve, focus our efforts on pursuing our goals, and drive significant breakthroughs in strategic tasks that are crucial to advancing Chinese modernization. Looking ahead, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the PBOC will fully implement the guiding principles of the Third Plenary Session of the 20th CPC Central Committee and the Central Economic Work Conference. It will adhere to the general principle of seeking progress while maintaining stability and apply the new development philosophy fully and faithfully on all fronts. Firmly following the path of financial development with Chinese characteristics, the PBOC will further deepen financial reforms and a high-standard opening-up, and it will continue its efforts to promote high-quality financial development and to build China into a financial powerhouse. It will accelerate the pace of improving the central banking system and further optimize the monetary policy framework. The PBOC will work to strike a balance between short-term and long-term considerations, between growth stability and risk prevention, between internal and external equilibria, and between supporting the real economy and maintaining the soundness of the banking system. The PBOC will make macro regulation more forward-looking, targeted, and effective, maintain the continuity and stability of policies, and enhance their flexibility and predictability. It will enhance the consistency of the macro policy orientation, with a focus on stabilizing employment, businesses, markets, and expectations. The PBOC will strive to fulfill the year’s targets for economic and social development and to bring the 14th Five-Year Plan to a successful conclusion.
The PBOC will implement an appropriately accommodative monetary policy. It will flexibly adjust the intensity and pace of policy implementation in light of the economic and financial situations both at home and abroad as well as the performance of the financial market in a bid to keep liquidity adequate and to keep the growth of aggregate financing and money supply in step with the expected targets for economic growth and general price levels. This will help sustain a favorable financial environment. Promoting a reasonable price recovery will be an important consideration for the implementation of monetary policies so as to keep prices at a reasonable level. The PBOC will further improve the interest rate adjustment framework, strengthen the guiding role of central bank policy rates, improve the market-based interest rate formation and transmission mechanism, leverage the self-regulatory mechanism for market-based interest rate pricing, and strengthen implementation and oversight of interest rate policies. The PBOC will work to reduce the banks’ liability costs and to promote a decline in overall financing costs. It will also smooth the monetary policy transmission mechanism, improve the efficiency of fund utilization, prevent capital from circulating within the financial system without serving the real economy, and strike a balance between supporting the real economy through finance and maintaining the soundness of the banking system. It will give play to the role of monetary policy tools in adjusting both the aggregate and the structure, make good use of structural monetary policy instruments, and strengthen support for sci-tech innovation, consumption expansion, inclusive financing for micro and small businesses (MSBs), and foreign trade stabilization. Pursuing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies, the PBOC will let the market play a decisive role in the formation of the exchange rate to enhance the resilience of the foreign exchange market and to stabilize market expectations. It will take resolute steps to correct pro-cyclical market behavior, address any conduct that disrupts market order, and guard against the risks of exchange rate overshooting so as to keep the RMB exchange rate basically stable at an adaptive and equilibrium level. While exploring to expand its functions in macro-prudential regulation and financial stability, the PBOC will safeguard financial market stability and firmly defend the bottom line whereby no systemic financial risks will occur.
