The key sectors of China's economy have been benefiting from increasingly supportive monetary policies rolled out so far this year, which are helping ease the interest burdens on both enterprises and residents, and boost the country's effective demand.
The reductions of China's reserve requirement ratio and interest rate in 2024 were noticeably larger than the average level of the previous three years.
So far this year, China's central bank -- the People's Bank of China (PBOC) -- has lowered the loan prime rate (LPR) three times, and the accumulated reduction of the over-five-year LPR, on which many lenders base their mortgage rates, have reached 60 basis points.
The 2024 Central Economic Work Conference held in Beijing earlier this month said that in 2025 China will replace its previous "prudent monetary policy" with a "moderately loose" one, signaling the country's determination to promote economic recovery through supportive policies.
"The phrase 'moderately loose' signals that the next year's monetary policy will continue to be a combined policy package. It means that strong policy support will be maintained, so as to promote steady economic growth," said Zou Lan, head of the Monetary Policy Department of the PBOC.
The supportive monetary policy has already yielded noticeable results in boosting the liquidity of China's enterprises.
By the end of November, the balance of loans to the specialized and sophisticated enterprises that produce new and unique products stood at 4.25 trillion yuan (about 580 billion U.S. dollars), increasing by 13.2 percent year over year and the balance of loans to micro and small enterprises (MSEs) was 32.21 trillion yuan (4.41 trillion U.S. dollars), rising 14.3 percent from the same period last year.
An automotive part company in east Jinan City of east China's Shandong Province has recently received 10 million yuan (1.37 million U.S. dollars) in loan and the chief financial officer of the company said that the cuts of LPR are set to help ease the business operator's burden to pay the interest.
"For example, if we borrow 15 million yuan (2 million U.S. dollars) in a working capital loan, the LPR cuts will help us save about 120,000 yuan (16,440 U.S. dollars) in loan interest as a result of the change in the interest rate. We can also swap our higher-interest rate working capital loans for the lower-interest rate ones, which helps us cut loan interest by about 220,000 yuan (30,140 U.S. dollars)," said Liu Xiaohong, chief financial officer of Shandong Baichang Auto Parts Company Limited.
Chief researchers of financial companies said looser monetary policy is expected to help lower the interest repayment burdens on enterprises and residents, which is conducive to boosting effective demand.
"The reserve requirement ratio and interest rate have been cut more frequently so far this year and have been larger than before and larger than expected, leading to reductions in interest rates, which is conducive to easing the interest repayment burden on enterprises and residents, shoring up market confidence and boosting effective demand," said Dong Ximiao, chief researcher of Merchants Union Consumer Finance Company Limited.
Supportive monetary policies expected to help China promote steady economic growth
