2004 Fourth Quarter China Monetary Policy Implementation Report

Author: Monetary Policy Analysis Team of the People's Bank of China
Publisher:
Publish Date: 2005-04-01
Features: In 2004, the world economy experienced a comprehensive recovery, and China's economy continued to grow steadily and rapidly. Strengthening and improving macro-control achieved significant results. Grain production saw an important turnaround, with grain prices stabilizing at a high level and then declining. The rapid growth trend of investment was curbed, the consumer market remained stable with a growing trend, and foreign trade developed rapidly. Household income, corporate profits, government revenue, and foreign exchange reserves increased substantially. In 2004, the gross domestic product (GDP) reached 13.7 trillion yuan, growing by 9.5%; the consumer price index (CPI) rose by 3.9%. In line with the unified deployment of the Party Central Committee and the State Council to strengthen and improve macro-control, the People's Bank of China continued to implement a prudent monetary policy, emphasizing the forward-looking, scientific, and effective nature of financial regulation. It comprehensively utilized various monetary policy tools to appropriately and moderately regulate the total money and credit supply, promoting commercial banks to implement policies that differentiated treatment while maintaining pressure on certain sectors. It also strengthened the construction of market-based regulatory mechanisms and accelerated the reform of financial enterprises.
1. Improve the open market operations system and carry out open market operations flexibly.
2. Increase the required reserve ratio for deposits and establish a differentiated reserve requirement system.
3. Fully leverage the role of interest rates in regulation.
4. Steadily advance the reform of interest rate liberalization.
5. Strengthen "window guidance" and credit policy guidance for commercial banks.
6. Deepen the reform of foreign exchange management systems to promote balance in international payments.
7. Actively and steadily advance the reform of financial enterprises.
In 2004, financial operations remained stable, with a slowdown in the growth of money supply and moderate loan growth, generally aligning with the expected goals of macro-control. By the end of 2004, the broad money supply (M2) stood at 25.3 trillion yuan, a year-on-year increase of 14.6%. The total new loans issued by financial institutions reached 2.26 trillion yuan, a decrease of 482.4 billion yuan compared to 2003 but an increase of 41.73 billion yuan compared to 2002. The base money supply stood at 5.9 trillion yuan, a year-on-year increase of 12.6%. Interest rates for deposits and loans by financial institutions gradually rose, and money market rates remained stable. The international balance of payments showed "dual surpluses." By the end of 2004, China's foreign exchange reserves reached 609.9 billion U.S. dollars, an increase of 206.7 billion U.S. dollars from the previous year. The exchange rate of the renminbi remained stable at 1 U.S. dollar to 8.2765 yuan.
Although some unhealthy and unstable factors in China's economic operation have been curbed—such as a slowdown in investment growth and a moderation in money and credit growth—the overall economy is moving in the direction of the expected macro-control goals, the achievements of macro-control remain phased, and conflicts and issues in economic and financial operations remain prominent. The foundation of agriculture remains unstable, pressure for a rebound in fixed-asset investment persists, inflationary pressure has not been fundamentally alleviated, and the effectiveness of monetary policy faces severe challenges. The foundation for the stable operation of the financial system is not yet solid.
In 2005, monetary policy will continue to maintain continuity and stability, with the expected target for money and credit being a 15% growth in both narrow money supply (M1) and broad money supply (M2), and the total new loans issued by financial institutions expected to reach 2.5 trillion yuan. The People's Bank of China will continue to implement a prudent monetary policy, fully implementing the scientific outlook on development, supporting steady economic growth while preventing inflation and guarding against systemic financial risks.
1. Further improve indirect regulatory mechanisms to maintain reasonable and steady growth in money and credit.
2. Flexibly use interest rate levers to promote overall balance and structural adjustments.
3. Maintain differentiated treatment and pressure, leveraging the role of credit policy in accelerating structural adjustments.
4. Optimize the term structure of loans to enhance the risk prevention capacity of financial institutions.
5. Vigorously cultivate and develop financial markets.
6. Accelerate the reform of financial enterprises.
7. Improve the formation mechanism of the renminbi exchange rate to maintain its basic stability at a reasonable and balanced level.