Financial Policies Bolster Real Economy Development

In the first three quarters, China's RMB loans increased by 16.02 trillion yuan

Financial policies strongly support the development of the real economy (Economic Focus)

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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 improvement.

On October 14, 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, China's RMB loans increased by 16.02 trillion yuan, and the total social financing scale increased by 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 outstanding social financing scale was 402.19 trillion yuan, 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, China's financial total volume grew steadily overall, 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 intensified 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 improvement. To support the economic recovery and improvement, the People's Bank of China has implemented three major monetary policy adjustments in February, May, and July.

On September 27, the People's Bank of China decided: from that day on, 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 monetary policy counter-cyclical adjustments and support stable economic growth, from September 27, the 7-day reverse repurchase operation rate in the open market will be adjusted from the previous 1.70% to 1.50%. The operation rates for the 14-day reverse repurchase and temporary positive and reverse repurchase in the open market continue to be determined by adding or subtracting points on the 7-day reverse repurchase operation rate 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, Chief Researcher at China United. This time, the People's Bank of China has made efforts from both the total amount and price aspects. In terms of the total amount, this reserve reduction is the second reduction within the 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, a year-on-year increase of 7.6%, and the balance of RMB loans was 253.61 trillion yuan, a year-on-year increase of 8.1%. While the amount has increased, the loan interest rate has remained at a historically low level. The weighted average interest rate for newly issued corporate loans in September was 3.63%, about 21 basis points lower than the same period last year; the interest rate for newly issued 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 historically low levels.The strong support of financial policies has driven down corporate financing costs, leading to a continuous recovery in business confidence and an improvement in investment activities. The person in charge of a petrochemical company in Huizhou stated that since the beginning of this year, the cumulative effect of a series of policies has become apparent, with corporate financing costs continuing to decline. The company's loan interest rate has dropped from 3.2% at the beginning of the year to 2.85%, and financial costs may further decrease after the latest round of reserve requirement ratio cuts and interest rate reductions. The company plans to allocate more resources to product research and development, market expansion, and talent recruitment.

With the recent introduction of a package of incremental policies, companies optimistic about China's economy have begun to increase their investments. A garment manufacturing company in Dongguan recently received an additional investment of 39 million Hong Kong dollars from its Hong Kong shareholders. The shareholder indicated that the additional investment is a recognition and confidence in China's economic development, vast market, good infrastructure and policy support, stable investment environment, and convenient production conditions. A foreign enterprise in Guangdong has nearly completed its first major petrochemical project built solely in China, and it is expected to invest an additional 10 billion yuan this year. The company's Global Senior Vice President expressed firm optimism about China and the development prospects of the Guangdong-Hong Kong-Macao Greater Bay Area, and will further expand the areas of cooperation.

The credit structure continues to optimize, and 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 company's relevant person in charge, thanks to the strong support of financial funds, the "unmanned aerial vehicle base and supporting facilities construction" project has now smoothly completed 30% of the construction progress and has been put into use gradually.

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

Under the policy support of scientific and technological innovation and technical transformation re-lending, a medical device company in Zhuhai quickly upgraded a 30 million yuan output factory building and introduced new equipment to solve the problem of limited production capacity, laying a good foundation for the subsequent sales end to explore 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 and new" 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 rates of the above loans are all higher than the growth rate of various loans during the same period.

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

"In recent years, the financial sector has introduced various structural policy measures, promoted structural reforms in the financial supply side, and optimized financial services, which have truly increased support for major strategies, key areas, and weak links. Structural policies are ultimately aimed at serving the real economy and solving key bottlenecks in the operation of the real economy," said Wen Bin, Chief Economist of China Minsheng Bank. With the gradual implementation of the package of incremental policies recently introduced, financial resources will flow more towards 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 substantial and brighter.

Reduce the repayment pressure on homebuyers and enhance consumption capacity.On September 26th, the Central Political Bureau of the Communist Party of China held a meeting that emphasized the need to address public concerns by adjusting housing purchase restrictions, reducing the interest rates on existing housing loans, and promptly improving policies related to land, finance, and finance to promote the construction of a new model for real estate development.

Recently, the People's Bank of China issued a notice guiding commercial banks to lower the interest rates on existing commercial personal housing loans once again and further improve the pricing mechanism for personal housing loan interest rates. Currently, each bank has published specific operational details and will implement a unified batch adjustment before the end of October.

Following the release of the notice by the People's Bank of China to lower the interest rates on existing personal housing loans, commercial banks have successively issued conversion announcements and clearly stated the interest rate adjustment plans, providing borrowers with a "reassuring pill."

On October 12th, the six major state-owned commercial banks, including the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications, and the Postal Savings Bank of China, issued announcements stating that they will adjust the interest rates on existing housing loans in batches on October 25th. According to the announcements, this adjustment targets commercial personal housing loans and will implement a batch adjustment on the interest rates of existing housing loans (including first, second, and subsequent sets).

Among them, in regions such as Beijing, Shanghai, and Shenzhen, where the interest rates on first-time home loans are higher than the LPR (Loan Prime Rate) minus 30 basis points, and in other regions where the interest rates on all existing housing loans are higher than the LPR minus 30 basis points, they will be uniformly adjusted to the LPR minus 30 basis points. In regions such as Beijing, Shanghai, and Shenzhen, where there is currently a lower limit for the interest rate加点 on newly issued commercial personal housing loans, the interest rates on second and subsequent housing loans that are higher than the corresponding policy lower limits will be uniformly adjusted to the local corresponding policy lower limits.

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

According to calculations, taking an existing housing loan of 1 million yuan, with a 25-year term and equal principal and interest repayment, as an example, assuming that the housing 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 estimated 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.

This year, the People's Bank of China has focused on promoting consensus among all 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 on existing housing loans and the minimum down payment ratio for housing loans, and extended the implementation period of 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 on 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 reduce the repayment pressure on homebuyers and enhance their consumption capacity.