Financial Policies Bolster Real Economy Development

Lowering interest rates to reduce corporate financing costs; optimizing credit structure to support key areas and weak links in the national economy; improving housing credit policies to alleviate the repayment pressure on homebuyers... In the first three quarters of this year, China's prudent monetary policy has been precise and effective, creating a suitable monetary and financial environment for the economic recovery and upward trend.

On October 14th, the People's Bank of China released relevant financial data for the first three quarters of this year. The data shows that in the first three quarters, the increase in RMB loans in China was 16.02 trillion yuan, and the cumulative increase in social financing scale was 25.66 trillion yuan, of which, RMB loans issued to the real economy increased by 15.39 trillion yuan. By the end of September, the stock of social financing scale was 402.19 trillion yuan, with a year-on-year increase of 8.0%, which is basically in line with the expected targets for economic growth and price levels. In the first three quarters, the total amount of finance in China grew steadily, providing strong and effective support for the high-quality development of the real economy.

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Corporate financing costs have decreased, and business confidence has continued to recover.

Since the beginning of this year, China has increased the intensity of macroeconomic regulation, and the prudent monetary policy has been flexible, moderate, precise, and effective. It has firmly adhered to a supportive monetary policy stance, strengthened counter-cyclical adjustments, optimized and improved the monetary policy framework, and comprehensively used tools such as interest rates, reserve requirements, re-lending, and government bond transactions to serve the real economy, effectively prevent financial risks, and create a suitable monetary and financial environment for the economic recovery and upward trend. To support the economic recovery and upward trend, the People's Bank of China has implemented three major monetary policy adjustments in February, May, and July.

On September 27th, the People's Bank of China decided: starting from that day, the reserve requirement ratio for financial institutions will be reduced by 0.5 percentage points (excluding financial institutions that have already implemented a 5% reserve requirement ratio). After this reduction, the weighted average reserve requirement ratio for financial institutions is about 6.6%. On the same day, the People's Bank of China announced that in order to increase the intensity of counter-cyclical adjustments in monetary policy and support stable economic growth, starting from September 27th, the interest rate for 7-day reverse repurchase operations in the open market will be adjusted from the previous 1.70% to 1.50%. The interest rates for 14-day reverse repurchase and temporary positive and reverse repurchase operations in the open market continue to be determined by adding or subtracting points to the interest rate for 7-day reverse repurchase operations in the open market, and the amount of addition or subtraction remains unchanged.

"Our country firmly adheres to a supportive monetary policy stance, increases the intensity of monetary policy regulation, improves the precision of monetary policy regulation, and creates a good monetary and financial environment for stable economic growth and high-quality development," said Dong Ximiao, the chief researcher of China United. This time, the People's Bank of China has exerted efforts in both total amount and price. In terms of total amount, this reserve requirement ratio reduction is the second reduction this year, and it is expected to release about 1 trillion yuan in long-term liquidity; in terms of price, the policy interest rate has been reduced by 20 basis points, which is the largest decrease in nearly 4 years.

A series of monetary policies have promoted the stable growth of loans. By the end of September, the balance of RMB and foreign currency loans in China was 257.71 trillion yuan, with a year-on-year increase of 7.6%, and the balance of RMB loans was 253.61 trillion yuan, with a year-on-year increase of 8.1%. While the amount has increased, the loan interest rate has remained at a historical low level. The weighted average interest rate for new corporate loans issued in September was 3.63%, about 21 basis points lower than the same period last year; the interest rate for new personal housing loans was 3.32%, about 2 basis points lower than the previous month and about 78 basis points lower than the same period last year, both at historical lows.

The strong support of financial policies has promoted the decrease of corporate financing costs, the continuous recovery of business confidence, and the improvement of investment activities. The person in charge of a petrochemical company in Huizhou said that since the beginning of this year, the cumulative effect of a series of policies has been evident, corporate financing costs continue to decline, the company's loan interest rate has dropped from 3.2% at the beginning of the year to 2.85%, and the financial cost may further decrease after this round of reserve requirement ratio reduction and interest rate reduction. The company plans to invest more resources in product research and development, market expansion, and talent introduction.

With the recent introduction of a package of incremental policies, companies optimistic about China's economy have started to increase investment. A garment company in Dongguan recently received an additional investment of 39 million Hong Kong dollars from its Hong Kong shareholders. The shareholder said that the increase in investment is due to recognition and confidence in China's economic development, huge market, good infrastructure and policy support, stable investment environment, and convenient production conditions. The first major petrochemical project built by a foreign-funded company in Guangdong has been basically completed, and it is expected to invest an additional 10 billion yuan this year. The company's global senior vice president said that he firmly believes in China and the development prospects of the Guangdong-Hong Kong-Macao Greater Bay Area, and will further expand the field of cooperation.

The credit structure continues to be optimized, and the financial support for the real economy is more substantial.Not long ago, at the World Manufacturing Conference, Wuhu United Aircraft Technology Co., Ltd. showcased innovative unmanned helicopters and other products. According to the person in charge of the company, thanks to the strong support of financial funds, the "drone base and supporting facilities construction" project has now smoothly completed 30% of the construction progress and has been put into use in succession.

Since the beginning of this year, the People's Bank of China has focused on the key links of high-quality development, established a re-lending for scientific and technological innovation and technological transformation, and increased financial support for scientific and technological innovation and equipment updates and transformations, allowing more credit resources to flow into key areas and weak links of the national economy.

Under the policy support of scientific and technological innovation and technological transformation re-lending, a medical device company in Zhuhai quickly upgraded a factory with a production value of 30 million yuan and introduced new equipment to solve the problem of limited production capacity, laying a good foundation for the subsequent sales end to develop the market and enhance market competitiveness.

Data shows that as of the end of September, the balance of medium and long-term loans in the manufacturing industry was 13.88 trillion yuan, a year-on-year increase of 14.8%, of which the balance of medium and long-term loans in high-tech manufacturing industry increased by 12.0% year-on-year. The balance of loans to "specialized, refined, and innovative" enterprises was 4.26 trillion yuan, a year-on-year increase of 13.5%. The balance of inclusive small and micro loans was 32.90 trillion yuan, a year-on-year increase of 14.5%. The growth rate of the above loans is higher than the growth rate of all loans in the same period.

"Inclusive small and micro loans, medium and long-term loans in the manufacturing industry, and loans to 'specialized, refined, and innovative' enterprises are all significantly higher than the growth rate of general loans. The credit structure continues to be optimized, and the financial support for major strategies, key areas, and weak links continues to be strengthened," said Dong Ximiao.

"In recent years, the financial sector has introduced various structural policy measures to promote the supply-side structural reform of finance, optimize financial services, and truly increase support for major strategies, key areas, and weak links. The ultimate goal of structural policies is to serve the real economy and solve key bottlenecks in the operation of the real economy," said Wen Bin, Chief Economist of China Minsheng Bank. With the gradual implementation of a package of incremental policies recently introduced, financial resources will flow more to major strategies, key areas, and weak links in the future, and the financial support for the high-quality development of the real economy will be more abundant and brighter.

Reduce the repayment pressure on homebuyers and enhance consumption capacity.

The Political Bureau of the CPC Central Committee emphasized at the meeting held on September 26 that it is necessary to respond to the concerns of the people, adjust housing purchase restrictions, reduce the interest rates of existing mortgages, and urgently improve policies on land, finance, and finance to promote the construction of a new model of real estate development.

Recently, the People's Bank of China issued a notice guiding commercial banks to lower the interest rates of existing commercial personal housing loans again and further improve the pricing mechanism for personal housing loan interest rates. Currently, banks have issued specific operational matters and will implement batch adjustments before the end of October.

After the notice of the People's Bank of China to reduce the interest rates of existing personal housing loans was issued, commercial banks have successively issued conversion notices and clearly stated the interest rate adjustment plan, giving borrowers a "reassuring pill".On October 12th, six major state-owned commercial banks in China, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China, announced that they will adjust the interest rates of existing housing loans in batches starting October 25th. According to the announcement, this adjustment targets commercial individual housing loans and will implement batch adjustments to the interest rates of existing housing loans (including first and subsequent sets).

Specifically, in regions such as Beijing, Shanghai, and Shenzhen, where the interest rates for first-time home loans and all existing housing loans are higher than the LPR (Loan Prime Rate) minus 30 basis points, they will be uniformly adjusted to the LPR minus 30 basis points. In areas like Beijing, Shanghai, and Shenzhen, where there is currently a minimum add-on for newly issued commercial individual housing loan interest rates, the interest rates for second and subsequent housing loans that are higher than the corresponding policy minimum will be uniformly adjusted to the local corresponding policy minimum.

Data shows that as of the end of July, the weighted average interest rate for all existing housing loans was approximately 4.06%. In the first eight months of this year, the average interest rate for newly issued housing loans nationwide was 3.61%. According to the initiative, after the batch adjustment of existing housing loan interest rates, it is expected to drop to about 3.55%. The adjustment will result in a decrease of about 0.5 percentage points from the previous 4.06%, with the expected reduction being an average value, and the specific reduction will vary for each contract.

It is estimated that for an existing housing loan of 1 million yuan with a 25-year term and equal principal and interest repayment, assuming the loan interest rate is reduced from 4.4% to 3.55%, the borrower's interest expenditure can be saved by about 5,600 yuan per year. After the batch adjustment is completed, it is expected that this policy will benefit 50 million households and a population of 150 million, saving existing housing loan families about 150 billion yuan in expenditure per year.

Since the beginning of this year, the People's Bank of China has focused on promoting consensus among various parties to stabilize the real estate market. In May, it optimized housing credit policies, established re-lending for affordable housing, and promoted the de-stocking of existing commercial housing. In September, it further reduced the interest rates for existing housing loans and the minimum down payment ratio for housing loans, and extended the implementation period for some real estate financial policies.

"The effects of previous policies are gradually becoming apparent, and the real estate market has had a positive response," said Dong Ximiao. The policy of reducing the interest rates for existing housing loans involves multiple departments, and it is not easy for all departments to reach a consensus and promote the smooth implementation of this adjustment. This move will significantly alleviate the repayment pressure on homebuyers and enhance their consumption capacity.