Latest Statement from PBOC Governor Pan Gongsheng: Current Social Financing Conditions Are in a Loose State

On March 22, People’s Bank of China Governor Pan Gongsheng delivered a keynote speech at the China Development Forum 2026 Annual Meeting, stating that China will continue to implement moderately loose monetary policy. The central bank will comprehensively use various monetary policy tools such as reserve requirement ratios, policy interest rates, and open market operations to maintain ample liquidity. Currently, China’s social financing conditions are relaxed, and the total financial volume is growing reasonably.

In response, ICBC International Chief Economist Cheng Shi said that current money market interest rates are at historic lows. China’s economy is at a critical stage of transitioning from old to new growth drivers. The focus of monetary policy operations has also undergone profound changes, shifting from aggregate regulation to coordinated efforts of aggregate and structural tools. On one hand, aggregate tools like reserve requirement cuts and interest rate reductions remain key to stabilizing total demand and price expectations. On the other hand, structural monetary policies have become important levers to guide financial resources toward areas with positive externalities such as technological innovation and green transformation.

Sheng Songcheng, Director of the China Chief Economist Forum Research Institute and Senior Academic Advisor at the China Europe International Business School Lujiazui Institute of International Finance, pointed out that monetary policy and fiscal policy are the two core tools of China’s macroeconomic regulation. Coordinating the efforts of both policies and implementing targeted measures will help ensure a good start for the 14th Five-Year Plan.

Reasonable Growth of the Financial Volume

Pan Gongsheng emphasized that the People’s Bank of China will adhere to a supportive monetary policy stance to create a favorable monetary and financial environment for stable economic growth, high-quality development, and smooth financial market operation.

“We will continue to implement a moderately loose monetary policy. Currently, China’s social financing conditions are relaxed, and the total financial volume is growing reasonably. We will balance short-term and long-term considerations, support real economic growth while maintaining the health of the financial system, and coordinate internal and external balance. We will use a combination of tools such as reserve requirement ratios, policy interest rates, and open market operations to ensure ample liquidity,” Pan Gongsheng said.

Cheng Shi analyzed that as a macro regulation tool centered on price signals, aggregate policies can simultaneously influence bank funding supply and micro-level financing demand, making them more suitable for stabilizing inflation expectations and restoring total demand. From an operational perspective, structural adjustments at the beginning of the year suggest that monetary easing in 2026 is more likely to be moderate and phased.

Regarding tool application, Cheng Shi believes that quantity-based tools, such as reserve requirement ratio cuts, will likely be prioritized to maintain reasonable liquidity and create an environment for structural policies to be effective. Currently, the average reserve requirement ratio for financial institutions is about 6.3%, with room for approximately 50 basis points of further reduction. Price-based tools, such as interest rate cuts, will be used cautiously. Although there is objective room for rate reductions, they are more likely to be small and gradual, with dynamic assessments based on policy transmission effects. The 7-day reverse repo rate is already at a historic low of 1.4%, but there is still room for a 10-20 basis point adjustment. On the central bank level, market expectations of a mild renminbi appreciation provide some space for liquidity injection. Banks have shown signs of stabilizing net interest margins since 2025, maintaining around 1.42% for two consecutive quarters, and with large-scale maturing three- and five-year deposits in 2026, there is room for rate adjustments. On the micro level, the new round of “Two New” policies in 2026 continues to support expanding domestic demand, including equipment upgrades for commercial complexes and shopping centers, with increased focus on key consumer goods, which helps boost confidence among enterprises and residents and enhances the effectiveness of monetary policy transmission.

From a structural monetary policy perspective, Cheng Shi pointed out that among the three main types of monetary policy tools, open market operations anchored to short-term interest rates are typically regarded as policy rates. The central bank uses the 7-day reverse repo rate as the short-term policy rate to provide short-term liquidity to commercial banks. However, considering operational characteristics and the term structure, the execution rate of re-lending also functions as a policy rate directly set by the central bank, transmitted through commercial banks, and corresponds to longer-term and specific-use funds. According to traditional interest rate transmission mechanisms, the central bank influences market expectations by adjusting short-term policy rates, which then propagate through the term structure to medium- and long-term interest rates, ultimately affecting financing costs for the real economy. Therefore, in the traditional framework, policy rates serve both as macro signals and as direct tools to influence real-sector financing costs. However, with overall interest rates declining, transmission elasticity weakening, and structural economic contradictions intensifying, a single interest rate tool struggles to achieve multiple objectives simultaneously. Recent policy practices show that short-term policy rates mainly anchor the interest rate center and stabilize market expectations, while re-lending rates are used for targeted reductions in financing costs in specific sectors.

Experts: Coordinated Policy Efforts

Sheng Songcheng emphasized that monetary policy and fiscal policy are the two core tools of China’s macroeconomic regulation. Coordinating their efforts and implementing precise measures will help ensure a good start for the 14th Five-Year Plan.

Sheng noted that fiscal and monetary policies, through innovative tools and mechanism coordination, demonstrate strong consistency and alignment in target objects, implementation timing, and rhythm.

Regarding policy consistency, Sheng pointed out that in the field of technological innovation, the People’s Bank of China has introduced re-lending for technological innovation and technological transformation, offering funds to financial institutions at preferential rates to guide increased credit support for these areas. The Ministry of Finance has simultaneously launched equipment upgrade loan subsidies to further reduce corporate financing costs.

In boosting consumption, the central bank has established service consumption and elderly care re-lending to guide financial institutions to increase credit in key consumption sectors. Fiscal policies have introduced measures such as double interest subsidies (for service industry loans and personal consumption loans), child-rearing subsidies, consumption vouchers, and promotion of “old-for-new” upgrades for durable consumer goods, directly improving cash flow for residents and enterprises.

Regarding the complementarity of innovative tools, Sheng explained that structural monetary policy tools (such as various re-lending programs) are essentially preferential rate loans provided by the central bank to commercial banks, representing a form of debt relief to the financial system, guiding banks to allocate funds to specific sectors. These tools mainly target the liabilities side of the real economy, with clear maturity and repayment requirements, emphasizing principal safety and risk control, focusing on reducing corporate financing costs and improving short-term cash flow, but are less suited for long-term capital investment and risk mitigation.

In contrast, fiscal policy tools more often resemble “equity” attributes. They involve fiscal injections to supplement the capital of the real economy or financial institutions, creating long-term capital reserves. For example, injecting capital into commercial banks through special national bonds to ease capital adequacy constraints and enhance lending capacity; supporting new policy financial instruments with fiscal funds; or issuing special bonds to provide capital for major projects, ensuring strategic implementation. These funds are not aimed at short-term returns but can directly bear risks and losses, aligning with long-term structural adjustment needs.

Sheng concluded that monetary policy, through medium- and long-term liquidity injections (such as reserve requirement ratio cuts) and policy rate adjustments, works in tandem with fiscal policy to ensure smooth issuance of government bonds and stabilize financing costs, thereby expanding aggregate demand. Both policies, through innovative tools focusing on technological innovation, consumption, and weak economic sectors, rely on the complementary “debt + equity” mechanisms to precisely promote structural adjustment and development.