Beijing signals a mix of monetary flexibility and fiscal urgency to counter slowing growth. Markets will watch how Panda bonds and liquidity tools are deployed this half.
In Beijing on August 2, the People’s Bank of China pledged to timely adjust monetary policy tools and support the issuance of Panda bonds, as stated in the statement.
The People’s Bank of China (PBOC) will continue to implement a moderately soft monetary policy and maintain adequate liquidity in financial markets, in line with the outcomes of a working meeting that defined the second half of the year.
Key directions of the statement
“consistently promote high-level opening of the financial market, advance domestic and international infrastructure cooperation, and expand liquidity management and risk hedging tools.”
– in the PBOC’s statement
“continue to financially support addressing debt risks of local government financing vehicles and promote their market-oriented transformation”
– in the PBOC’s statement
“Also planned is to help Shanghai strengthen inter-regulatory financial links and offshore financial services, and to anchor Hong Kong’s position as an offshore yuan centre.”
– in the PBOC’s statement
The meeting was chaired by PBOC Governor Pan Gongsheng, and there was also discussion of Politburo decisions – the party’s top body – on accelerating fiscal spending for the remainder of the year and adapting monetary policy to new conditions.
According to data released month by month, China’s economy grew 4.3% year on year in the second quarter, the slowest pace in more than three years and below the lower end of the target range 4.5–5.0%.
The Politburo, as reported by the official Xinhua News Agency, acknowledged the difficulties and challenges facing the economy but stressed the need to accelerate budget spending and increase the flexibility and predictability of monetary policy.
As part of the statement, it is also noted that China should continue an open stance toward international financial flows, intensify engagement with global partners, and support the development of financial instruments that enhance the economy’s resilience in the current environment.
Against the backdrop of these steps, analysts note signals for further actions in the second half of the year: from monetary policy flexibility to activating financial instruments and supporting infrastructure spending, which should spur growth and stabilize the country’s financial system.