2005 First Quarter China Monetary Policy Implementation Report

Author: Monetary Policy Analysis Team of the People's Bank of China
Publisher:
Publish Date: 2005-07-01
Features: In the first quarter of 2005, China's national economy continued to develop steadily and rapidly. The effectiveness of enhanced and improved macroeconomic regulation gradually became apparent, with the growth rate of fixed-asset investment continuing to decline, consumption growth accelerating, and import and export trade expanding. Urban and rural residents' income further increased. In the first quarter, the gross domestic product (GDP) grew by 9.4%, and the consumer price index (CPI) rose by 2.8% year-on-year. In line with the unified deployment of the Party Central Committee and the State Council to strengthen and improve macroeconomic regulation, 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 employed various monetary policy tools to adjust the total volume of monetary and credit in a timely and appropriate manner, while further deepening the reform of foreign exchange management, steadily advancing the reform of financial enterprises, accelerating the development of financial markets, and facilitating the transmission mechanism of monetary policy.
1. Strengthen liquidity management and flexibly carry out open market operations.
2. Lower the excess reserve rate for financial institutions to further promote interest rate liberalization.
3. Adjust personal housing loan policies to promote the healthy and sustainable development of the real estate industry.
4. Strengthen guidance and credit policy direction for commercial banks.
5. Steadily advance the shareholding reform of state-owned commercial banks and the reform of rural credit cooperatives.
6. Accelerate the institutional development of financial markets and promote the development of direct financing, including launching pilot programs for credit asset securitization, allowing qualified international development institutions to issue RMB-denominated bonds domestically, and piloting the establishment of fund management companies by commercial banks.
7. Maintain the basic stability of the RMB exchange rate at a reasonable and balanced level to promote balance in international payments.
In the first quarter of 2005, the growth of monetary and credit was basically moderate, and financial operations remained stable. By the end of March, the M2 balance stood at 26.5 trillion yuan, up 14.0% year-on-year. The base money balance was 5.8 trillion yuan, up 14.1% year-on-year. In the first quarter, financial institutions added 737.5 billion yuan in RMB loans, a decrease of 97.6 billion yuan year-on-year. Money market rates steadily declined. By the end of March, the foreign exchange reserve balance was 659.14 billion U.S. dollars, an increase of 49.21 billion U.S. dollars from the previous year-end. The RMB-to-U.S.-dollar exchange rate was 8.2765 yuan per U.S. dollar, unchanged from the previous year-end.
Overall, the current economic and financial situation in China is positive, but there remain issues in economic operations, such as excessively large fixed-asset investment, tight supply of coal, electricity, and oil transportation, and the coexistence of low quality and waste in economic growth. Additionally, due to the rapid growth of China's trade surplus and foreign exchange reserves in the first quarter, the effectiveness of monetary policy faces severe challenges.
The People's Bank of China will continue to implement a prudent monetary policy in line with the spirit of the Central Economic Work Conference and the requirements of the third session of the third National People's Congress. It will reasonably regulate the total volume of monetary and credit, supporting economic development while preventing inflation and mitigating financial risks.
1. Further improve indirect regulation mechanisms to maintain reasonable growth in monetary and credit.
2. Continue to deepen interest rate liberalization to fully leverage the role of price levers.
3. Maintain a differentiated approach, prioritizing certain sectors while restraining others, to leverage the role of credit policy in accelerating structural adjustments.
4. Appropriately control medium- and long-term loans to promote optimization of the credit term structure.
5. Vigorously cultivate and develop financial markets, using financial product innovation as a breakthrough to expand channels for direct financing.
6. Accelerate the reform of financial enterprises.
7. Promote balance in international payments and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.