① The central bank also pointed out the need to explore and expand the macro-prudential and financial stability functions of the central bank, effectively implement two monetary policy tools to support the stable development of the Capital Markets. Experts indicated that this statement significantly improves market expectations and enhances the market's outlook for a slow bull trend in the mid to long-term stock market; ② The Financial Regulatory Bureau emphasized the need to effectively prevent and resolve key risk areas, continuously improve the quality and effectiveness of financial regulation, and promote the high-quality development of the Banking and Insurance sectors.
On December 17, Financial Association reported (journalist Wang Hong) that after the Central Economic Work Conference, the financial regulation authorities began to announce plans for next year's work. The central bank pointed out the need to implement a moderately loose monetary policy, and experts stated that in 2025, the central bank will appropriately reduce the reserve requirement ratio and interest rates. The central bank also mentioned the exploration and expansion of the macro-prudential and financial stability functions of the central bank, effectively implementing two monetary policy tools to support the stable development of the Capital Markets. Experts noted that this statement clearly improves market expectations and enhances the market's outlook for a slow bull trend in the mid to long-term stock market.
The Financial Regulatory Bureau stated that it is necessary to effectively prevent and resolve risks in key areas, continuously improve the quality and effectiveness of financial regulation, serve the real economy and promote its recovery, and drive the high-quality development of the Banking and Insurance sectors. The Forex Administration emphasized the need to maintain the basic stability of the RMB Exchange Rates at a reasonable and balanced level, with experts predicting that the RMB Exchange Rates should be appropriately flexible in stages. In 2025, the central bank will also be on high alert regarding RMB Exchange Rates to avoid over-adjustments caused by "herd behavior."
Appropriately reduce the reserve requirement ratio and interest rates, prevent and resolve financial risks in key areas.
On December 16, the Central Bank Party Committee held a meeting to convey and study the spirit of the Central Economic Work Conference. The meeting emphasized the need to implement a moderately loose monetary policy. It will comprehensively use various monetary policy tools to appropriately reduce the reserve requirement ratio and interest rates, maintain ample liquidity, and ensure that the growth of social financing scale and money supply aligns with economic growth and the expected targets for overall price levels. It aims to guide banks to fully meet effective creditting demands and enhance the stability of credit growth. The implementation and transmission of interest rate policies will be strengthened to promote a stable reduction in the overall social financing costs. The resilience of the Forex market will be enhanced to stabilize market expectations and maintain the basic stability of the RMB Exchange Rates at a reasonable and balanced level. Wang Xin, director of the central bank's research bureau, also stated on the 14th that it is necessary to appropriately increase the support of monetary policy, reduce the reserve requirement ratio and interest rates at the right time, and increase the intensity of monetary creditting.
Dong Ximiao, chief researcher at Zhongan, stated that a "moderately loose" monetary policy means that the money supply will be reasonably abundant, interest rates will be low, the creditting environment will be fully optimized, and financial institutions will further increase their support for major strategies, key areas, and weaknesses. In 2025, the central bank will appropriately reduce the reserve requirement ratio and interest rates, guiding market interest rates to decline steadily while further enriching the toolbox of monetary policy instruments. There will be greater emphasis on the role of pricing tools such as interest rates, structural monetary policy instruments will be effectively used to direct more resources toward technology innovation, green development, and consumer finance, better stimulating the endogenous motivation and innovation vitality of the whole society, and enhancing effective market demand. The "moderately loose" monetary policy will further reflect the supportive position of monetary policy, continuously reducing the comprehensive financing costs for enterprises and residents, providing financial support for the continued recovery of the economy.
The meeting also pointed out that it is crucial to prudently and effectively prevent and resolve financial risks in key areas. It intends to explore and expand the macro-prudential and financial stability functions of central banks, innovate financial instruments, effectively implement two monetary policy tools to support the stable development of the Capital Markets, and maintain stability in the financial markets. In accordance with the principles of marketization and rule of law, there will be active support for prudently dealing with risks in local small and medium financial institutions, continuing to manage risks related to financing platform debts, and supporting the Real Estate market in stabilizing and recovering.
Zhong Zhengsheng, chief economist at Ping An Securities, pointed out that the phrase "explore and expand the macro-prudential and financial stability functions of the central bank" is worth attention, possibly reflecting the goal of "stabilizing the real estate and stock markets." The swap convenience (SFISF) and the repurchase Increase Stake & Buy Back relending tool introduced by the central bank in 2024 have already been implemented, which helps improve the liquidity of the stock market, enhance the leverage capability of non-bank institutions, and boost the willingness of listed companies and shareholders for Increase Stake & Buy Back, subsequently boosting investor confidence.
The meeting clearly proposed to expand the macro-prudential and financial stability functions of the central bank, significantly improving market expectations and enhancing the market's outlook for a slow bull trend in the medium to long term. "Finance is the bloodline of the real economy; when finance is stable, the economy is stable. Expanding the macro-prudential and financial stability functions of the central bank is conducive to enhancing the stability of capital markets and improving the ability of capital markets to serve the real economy," said Zhou Maohua, a researcher at China Everbright Bank's financial markets department.
Prevent and resolve risks, promote high-quality development of the Banking and Insurance sectors.
On December 13, the party committee of the Financial Regulatory Bureau held a meeting to convey and study the spirit of the Central Economic Work Conference. Among the tasks, preventing and resolving risks in key areas was placed as the top priority. The meeting pointed out that a strong effort must be made to ensure the delivery of homes, properly utilize the city's Real Estate financing coordination mechanism, expand and enhance 'white list' projects, and assist in building a new model for Real Estate development. It also called for a coordinated approach to risk disposal and the transformation and development of small and medium-sized financial institutions.
Enhancing the quality and efficiency of financial regulation is also a top priority. The meeting pointed out the need to deepen regulatory system reform and accelerate the construction of a financial regulatory system with Chinese characteristics. Continuous efforts should be made to address the shortcomings of regulatory systems, implement precise and efficient law enforcement, focus on key matters, important individuals, and critical behaviors to prevent substantive risks and solve practical problems. Strengthen inter-departmental coordination and central-local cooperation to gather a powerful force for stringent and strong regulation.
The meeting also stated to promote high-quality development in the banking and insurance industries. Actively guide banking and insurance institutions to reduce costs and increase efficiency, broaden capital replenishment channels, and enhance sustainable development capabilities. Promote high-level financial opening with higher standards and greater efforts to attract more foreign financial institutions and long-term capital to operate in China.
Maintain the Exchange Rate at a reasonable and balanced level basically stable.
On December 16, the State Administration of Foreign Exchange held a meeting to convey and study the spirit of the Central Economic Work Conference, proposing to prevent and resolve risks from external shocks. Improve the "macro-prudential + micro-regulation" dual management of the Forex market, maintain the basic stability of the RMB Exchange Rate at a reasonable and balanced level, and safeguard the basic balance of international payments.
The Central Economic Work Conference also mentioned 'maintaining the basic stability of the RMB Exchange Rate at a reasonable and balanced level.' Zhong Zhengsheng believes that this indicates the central government may not intend to devalue the RMB as a response to the potential tariffs the USA may impose on China. Since mid-November this year, as the RMB spot Exchange Rate broke the 7.2 mark, the Forex market has seen a resurgence of the 'two-price separation' between the middle price and the spot price, reflecting the central bank's continuing high priority on stabilizing the Exchange Rate.
Zhong Zhengsheng believes that as the economic and trade frictions between China and the USA intensify, even if China does not actively devalue its currency to hedge against the impact of tariffs, short-term pressure on China's exports and FDI is likely unavoidable, which will objectively increase the devaluation pressure on the Renminbi. At this time, if monetary policy adheres to a certain point of the Renminbi exchange rate, it will inevitably affect the pace of domestic monetary easing, influence the monetary policy's "self-centered" stance, and shake the foundation of "stable growth can stabilize exchange rates." Therefore, the Renminbi exchange rate should maintain appropriate flexibility at certain stages.
Zhong Zhengsheng predicts that in 2025, the central bank will remain vigilant regarding the Renminbi exchange rate to avoid excessive adjustments due to the "herd effect." At critical points where market devaluation expectations are extreme, the central bank may temporarily delay interest rate cuts and introduce policy tools to curb the devaluation of the Renminbi, including but not limited to: restarting the Renminbi counter-cyclical factor (recent signs have already emerged), lowering forex swap points through major bank operations, raising the foreign exchange risk reserve ratio, lowering the foreign exchange deposit reserve ratio, adjusting the macro-prudential regulation parameters for overall cross-border financing, and adjusting the macro-prudential regulation coefficient for domestic enterprises' overseas loans.
