risk-resistance capacity of financial institu- quirement ratios for qualified county-level tions and encourage the financial institutions legal entities and encouraged them to use to enhance credit support to the weak links in their credit resources locally. Monitoring and the economy. Since the third quarter, the Pbc assessment were conducted on the reform ef- stepped up efforts to adjust the policy param- fects of rural credit cooperatives, which had eters to further encourage and guide finan redeem d the special bills, and significant cial institutions to increase credit support to progress has been made in this regard micro- and small-businesses the agriculture New progress was made in the market- rural areas, and farmers, and less-developed based interest rate reform areas in the central and western regions. and to enhance the financial support for the eco- The controls on lending interest rates of nomic structural adjustment and upgrading. financial institutions were completely re- moved. The self-regulatory pricing mecha- Full play was given to the role of agro nism for market interest rates was formally linked loans, rediscounting and the re- established. The centralized quote and pub- serve requirement ratio in guiding the lishing mechanism of loan prime rate(LPR) credit structural optimization and fur was formally launched. The LPR mechanism ther deepening the reform of rural credit represents an expansion of the market-based cooperatives Interest rate quotation from the money mar- The PBC expanded recipients of its agro- ket to the credit market. Interbank certifi linked loans across the country from the cates of deposit were issued, which became rural commercial banks, rural cooperative an effective way to explore the promotion of banks, rural credit cooperatives and village the market-based deposit rate reform and township banks established in counties and towns to those above-mentioned depos The rMB exchange-rate regime was fur- ther improved it-taking financial institutions established in cities. The PBC continued to apply low Following the self-initiated. controllable reserve requirement ratios on the small- and gradual principle and taking into account medium-sized financial institutions and the the economic and financial situation at home rural financial institutions, which provided and abroad, the PBC continued to advance credit support to the agricultural sector and the RMB exchange-rate reform. During the small businesses. The pilot reform program year, the RMB exchange rate saw a mild ap- of Rural Financial Business Division of the preciation but moved in both directions. The Agricultural Bank of China was advanced. flexibility of RMB exchange rate increased PBC continued to execute lower reserve re- and expectations of the RMB exchange rate 25■
25 risk-resistance capacity of financial institutions and encourage the financial institutions to enhance credit support to the weak links in the economy. Since the third quarter, the PBC stepped up efforts to adjust the policy parameters to further encourage and guide financial institutions to increase credit support to micro- and small-businesses, the agriculture, rural areas, and farmers, and less-developed areas in the central and western regions, and to enhance the financial support for the economic structural adjustment and upgrading. Full play was given to the role of agrolinked loans, rediscounting and the reserve requirement ratio in guiding the credit structural optimization and further deepening the reform of rural credit cooperatives The PBC expanded recipients of its agrolinked loans across the country from the rural commercial banks, rural cooperative banks, rural credit cooperatives and village and township banks established in counties and towns to those above-mentioned deposit-taking financial institutions established in cities. The PBC continued to apply low reserve requirement ratios on the small- and medium-sized financial institutions and the rural financial institutions, which provided credit support to the agricultural sector and small businesses. The pilot reform program of Rural Financial Business Division of the Agricultural Bank of China was advanced. PBC continued to execute lower reserve requirement ratios for qualified county-level legal entities and encouraged them to use their credit resources locally. Monitoring and assessment were conducted on the reform effects of rural credit cooperatives, which had redeemed the special bills, and significant progress has been made in this regard. New progress was made in the marketbased interest rate reform The controls on lending interest rates of financial institutions were completely removed. The self-regulatory pricing mechanism for market interest rates was formally established. The centralized quote and publishing mechanism of loan prime rate (LPR) was formally launched. The LPR mechanism represents an expansion of the market-based interest rate quotation from the money market to the credit market. Interbank certificates of deposit were issued, which became an effective way to explore the promotion of the market-based deposit rate reform. The RMB exchange-rate regime was further improved Following the self-initiated, controllable and gradual principle and taking into account the economic and financial situation at home and abroad, the PBC continued to advance the RMB exchange-rate reform. During the year, the RMB exchange rate saw a mild appreciation but moved in both directions. The flexibility of RMB exchange rate increased and expectations of the RMB exchange rate
2013 ANNUAL REPORT diverged. The balance of payments position economic structural adjustment, to the sta continued to improve bilization of the upward inflation over the econd half of year, and to the containment Publicity and communication of the mon- of the excessive expansion of total debt and etary policy were strengthened to better leverage ratios. The loan structure was con- guide and stabilize the expectations. tinuously improved With the deepening of financial market development and rapid progress of internet- The money supply gradually returned to enabled information technology, the role of the expected annual targets expectations in the transmission of monetary At the end of 2013. the outstanding m2 policy has become more important. The stood at 110.7 trillion yuan, up 13.6 percent PBC has attached great importance to com- year on year and the growth rate decreas- munication with the market and guidance ing by 0.2 percentage points from the end of expectations. It used China Monetary of 2012. It was close to the target set at the Policy Report and China Regional Finan- beginning of the year, down by 2.5 percent cial Performance Report as the means to age points from the yearly high of 2013. Out communicate the monetary policy, as well standing MI was up 9.3 percent year on year as used multiple forms of media, including an increase of 2. 8 percentage points over that new media and new tools, such as Weibo, to at the end of 2012. Overall speaking, the en timely deliver the macroeconomic analysis terprise sector had ample funds. The central and policy operation of the central bank bank injected 389.9 billion yuan of cash in the market, in order to guide and stabilize 2013, at par with that of the previous year. the public expectations The rmb loans witnessed a steady and The Effect of Monetary Policy in 2013 faster growth Generally speaking, the prudent mone- At the end of 2013, the outstanding tary policy achieved good results. In the first RMB loans stood at 71.9 trillion yuan,a few months of 2013, the rapid expansion of year-on-year growth of 14. 1 percent, down monetary, credit and the aggregate financ- by 0.9 percentage points from the end ing to the real economy in the first several 2012. The growth rate took on an early months of the year was controlled, and their rise and an ensuing fall, which stood at ap overall annual growth rates were close to the proximately 14 percent after June. In 2013, expected targets. Stable monetary and finan- the new outstanding RMB loans were 8.89 cial environment contributed to the stable trillion yuan, increasing 687.9 billion yuan and sustainable economic development and from the level in 2012
2013 ANNUAL REPORT 26 diverged. The balance of payments position continued to improve. Publicity and communication of the monetary policy were strengthened to better guide and stabilize the expectations. With the deepening of financial market development and rapid progress of internetenabled information technology, the role of expectations in the transmission of monetary policy has become more important. The PBC has attached great importance to communication with the market and guidance of expectations. It used China Monetary Policy Report and China Regional Financial Performance Report as the means to communicate the monetary policy, as well as used multiple forms of media, including new media and new tools, such as Weibo, to timely deliver the macroeconomic analysis and policy operation of the central bank to the market, in order to guide and stabilize the public expectations. The Effect of Monetary Policy in 2013 Generally speaking, the prudent monetary policy achieved good results. In the first few months of 2013, the rapid expansion of monetary, credit and the aggregate financing to the real economy in the first several months of the year was controlled, and their overall annual growth rates were close to the expected targets. Stable monetary and financial environment contributed to the stable and sustainable economic development and economic structural adjustment, to the stabilization of the upward inflation over the second half of year, and to the containment of the excessive expansion of total debt and leverage ratios. The loan structure was continuously improved. The money supply gradually returned to the expected annual targets At the end of 2013, the outstanding M2 stood at 110.7 trillion yuan, up 13.6 percent year on year and the growth rate decreasing by 0.2 percentage points from the end of 2012. It was close to the target set at the beginning of the year, down by 2.5 percentage points from the yearly high of 2013. Outstanding M1 was up 9.3 percent year on year, an increase of 2.8 percentage points over that at the end of 2012. Overall speaking, the enterprise sector had ample funds. The central bank injected 389.9 billion yuan of cash in 2013, at par with that of the previous year. The RMB loans witnessed a steady and faster growth At the end of 2013, the outstanding RMB loans stood at 71.9 trillion yuan, a year-on-year growth of 14.1 percent, down by 0.9 percentage points from the end- 2012. The growth rate took on an early rise and an ensuing fall, which stood at approximately 14 percent after June. In 2013, the new outstanding RMB loans were 8.89 trillion yuan, increasing 687.9 billion yuan from the level in 2012
The financing structure was diversified Lending rates of financial institutions saw slight fluctuations In 2013, the aggregate financing to the real economy reached 17.29 trillion yuan In December. the weighted average lend- representing an increase of 1.53 trillion yuan ing rate offered to non-financial institutions year on year. Among this total, the aggregate and other sectors was 7. 20 percent, up 0.42 financing to the real economy amounted to percentage points from the beginning of the 10.15 trillion yuan in the first half of year, year. The shares of loan with interest rates up by 2.38 trillion yuan year on year, and 7 14 lower than or flat with the benchmark rate trillion yuan in the second half of year, de- somewhat declined. The share of loans with creasing by 849. 7 billion yuan year on year. interest rates higher than the benchmark rate The new RMB loans accounted for 51.3 was 63. 40 percent, up 3.66 percentage points percent of the aggregate financing to the real from the beginning of the year economy in 2013, a historic low and down The flexibility of rMb exchange rate was 0.6 percentage points from the previous year. strengthened The credit structure continued to be opti- At the end of year, the central parity of mize RMB against the Us dollar was 6.0969, up Credit support to micro- and small-busi- 1, 886 basis points, or up 3.09 percent over nesses and to the agricultural sector. rural end-2012. According to calculations of the areas. and farmers maintained a strong mo- Bank for International Settlements(BIS), in mentum. At the end of the year, the outstand nd- 2013, the nominal effective exchange rate of loans issued by financial institutions to the RMB appreciated by 7 18 percent, while micro-and small-businesses grew by 14.2 the real rate appreciated by 7.85 percent percent year on year, outpacing the growth Outlook of the Monetary Policy in 2014 of total loans by 0. 1 percentage points. As of end-2013, the outstanding Rmb and foreign The PbC will follow the strategic ar currency-denominated agro-linked loans in- rangements of the CPC Central Committee creased 18.4 percent, outpacing the growth and the State Council, implement the deci- of total loans by 4.5 percentage points. sions of the 18th CPC National Congress Growth of new loans to the service sector the Third Plenum of the 18th CPC Central accelerated. The growth of loans to some Committee, and the Central Economic Work highly-polluting and high energy-consuming terence. follow the principle of making industries and to those sectors burdened with progress while maintaining stability,con overcapacity slowed down tinue reform and innovation, and implement 27■
27 The financing structure was diversified In 2013, the aggregate financing to the real economy reached 17.29 trillion yuan, representing an increase of 1.53 trillion yuan year on year. Among this total, the aggregate financing to the real economy amounted to 10.15 trillion yuan in the first half of year, up by 2.38 trillion yuan year on year, and 7.14 trillion yuan in the second half of year, decreasing by 849.7 billion yuan year on year. The new RMB loans accounted for 51.3 percent of the aggregate financing to the real economy in 2013, a historic low and down 0.6 percentage points from the previous year. The credit structure continued to be optimized Credit support to micro- and small-businesses and to the agricultural sector, rural areas, and farmers maintained a strong momentum. At the end of the year, the outstanding loans issued by financial institutions to micro- and small-businesses grew by 14.2 percent year on year, outpacing the growth of total loans by 0.1 percentage points. As of end-2013, the outstanding RMB and foreign currency-denominated agro-linked loans increased 18.4 percent, outpacing the growth of total loans by 4.5 percentage points. Growth of new loans to the service sector accelerated. The growth of loans to some highly-polluting and high energy-consuming industries and to those sectors burdened with overcapacity slowed down. Lending rates of financial institutions saw slight fluctuations In December, the weighted average lending rate offered to non-financial institutions and other sectors was 7.20 percent, up 0.42 percentage points from the beginning of the year. The shares of loan with interest rates lower than or flat with the benchmark rate somewhat declined. The share of loans with interest rates higher than the benchmark rate was 63.40 percent, up 3.66 percentage points from the beginning of the year. The flexibility of RMB exchange rate was strengthened At the end of year, the central parity of RMB against the US dollar was 6.0969, up 1,886 basis points, or up 3.09 percent over end-2012. According to calculations of the Bank for International Settlements (BIS), in 2013, the nominal effective exchange rate of the RMB appreciated by 7.18 percent, while the real rate appreciated by 7.85 percent. Outlook of the Monetary Policy in 2014 The PBC will follow the strategic arrangements of the CPC Central Committee and the State Council, implement the decisions of the 18th CPC National Congress, the Third Plenum of the 18th CPC Central Committee, and the Central Economic Work Conference, follow the principle of making progress while maintaining stability, continue reform and innovation, and implement
2013 ANNUAL REPORT the sound monetary policy. It will stick to in providing services to the real economy the stance of keeping aggregates at stable First,a combination of quantitative, levels and optimizing the structure, maintain price, and other monetary policy instruments the stability and continuity of policy, make will be used and the macro-prudential policy macroeconomic management more forward- framework will be improved to keep liquie looking, targeted and coordinated, strike a ity at a reasonable level and to realize proper balance among preserving stable economic growth of money, credit, and the aggregate growth, adjusting the economic structure, financing to the real economy. In 2014, the and promoting reform and preventing risks, broad money supply(M2) is expected to and make fine-tuning and pre-emptive ad- grow by around 13 percent justments whenever appropriate, and contin- Second the stock of credit assets will be ue to provide a stable monetary and financial revitalized and the use of new loans will be environment for the structural adjustment optimized to support structural adjustment and upgrading. Meanwhile, measures will transformation and upgrading be taken to optimize the financial resource Third. the market-based interest rate re allocation, improve and optimize the financ- form and the RMB exchange-rate regime ing and credit structure. The management reform will be further promoted to improve of monetary policy will be combined with the efficiency of financial resource allocation deepening reform, focusing on raising the and to improve the macroeconomic manage efficiency of resource allocation and expand- ment framework ing the consumer dominance to allow the Fourth. continued efforts will be made to market to play a decisive role in resource promote the sound development of financial allocation. Taking into consideration of the markets, enhance support for direct financ deepening financial reform and innovation, ing, and expand financing channels available PBC will further improve the approach to for small-and micro-businesses macroeconomic management, unclog the Fifth, effective measures will be adopted transmission mechanism, and improve the to mitigate systemic financial risks and pre efficiency and capacity of the financial sector serve stability of the financial system 28
2013 ANNUAL REPORT 28 the sound monetary policy. It will stick to the stance of keeping aggregates at stable levels and optimizing the structure, maintain the stability and continuity of policy, make macroeconomic management more forwardlooking, targeted and coordinated, strike a balance among preserving stable economic growth, adjusting the economic structure, and promoting reform and preventing risks, and make fine-tuning and pre-emptive adjustments whenever appropriate, and continue to provide a stable monetary and financial environment for the structural adjustment and upgrading. Meanwhile, measures will be taken to optimize the financial resource allocation, improve and optimize the financing and credit structure. The management of monetary policy will be combined with deepening reform, focusing on raising the efficiency of resource allocation and expanding the consumer dominance to allow the market to play a decisive role in resource allocation. Taking into consideration of the deepening financial reform and innovation, PBC will further improve the approach to macroeconomic management, unclog the transmission mechanism, and improve the efficiency and capacity of the financial sector in providing services to the real economy. First, a combination of quantitative, price, and other monetary policy instruments will be used and the macro-prudential policy framework will be improved to keep liquidity at a reasonable level and to realize proper growth of money, credit, and the aggregate financing to the real economy. In 2014, the broad money supply (M2) is expected to grow by around 13 percent. Second, the stock of credit assets will be revitalized and the use of new loans will be optimized to support structural adjustment, transformation and upgrading. Third, the market-based interest rate reform and the RMB exchange-rate regime reform will be further promoted to improve the efficiency of financial resource allocation and to improve the macroeconomic management framework. Fourth, continued efforts will be made to promote the sound development of financial markets, enhance support for direct financing, and expand financing channels available for small- and micro-businesses. Fifth, effective measures will be adopted to mitigate systemic financial risks and preserve stability of the financial system
BOX Advancing the Market-based Interest Rate Reform Interest rate is the price of capital, and capital is an important factor of production Only with reasonable capital price, can the market play a decisive role in resource allocation. This means the reform of market-based interest rate is of key importance in the financial reform. In 2013, according to the overall arrangements of the CPC central Committee and the State Council. the pbc advanced the market-based interest rate reform by relaxing interest rate control, strengthening institutional building and promoting financial product innovations, and achieved important progress First, controls on lending interest rates were completely removed. After the policy measure was approved by the State Council, the PBC announced that, starting from July 20, 2013, the controls over interest rates of loans offered by financial institutions would be lifted. The lending-rate floor, which was 70 percent of the benchmark lend ing rate, was removed. Financial institutions could independently determine their lending rates based on commercial principles. Controls over interest rates of bill dis- counts were removed. Instead of adding a certain amount of basis points to the central bank discount rate, the financial institutions could price bill discounts independently The lending rate ceiling for rural credit cooperatives was cancelled. To strictly imple ment the differentiated housing mortgage policy and to promote the sound develop- ment of the real-estate market, the floating band of household mortgage rates was not adjusted. As the controls on lending interest rates were fully lifted, the room for finan- cial institutions to negotiate prices with their clients was further expanded, which was helpful for financial institutions to enhance their pricing ability, adopt differentiated pricing strategy and strengthen financial support to the real economy and economic restructuring and upgrading Second, a self-regulatory pricing mechanism for market-based interest rates was established and improved. The self-regulatory pricing mechanism is a market self- regulatory and coordination mechanism composed of financial institutions, which aims at applying self-regulatory management on interest rates which are indepen- dently determined by financial institutions in the money, credit and other financial markets, under the precondition that they comply with the relevant interest-rate
29 Advancing the Market-based Interest Rate Reform Interest rate is the price of capital, and capital is an important factor of production. Only with reasonable capital price, can the market play a decisive role in resource allocation. This means the reform of market-based interest rate is of key importance in the financial reform. In 2013, according to the overall arrangements of the CPC central Committee and the State Council, the PBC advanced the market-based interest rate reform by relaxing interest rate control, strengthening institutional building and promoting financial product innovations, and achieved important progress. First, controls on lending interest rates were completely removed. After the policy measure was approved by the State Council, the PBC announced that, starting from July 20, 2013, the controls over interest rates of loans offered by financial institutions would be lifted. The lending-rate floor, which was 70 percent of the benchmark lending rate, was removed. Financial institutions could independently determine their lending rates based on commercial principles. Controls over interest rates of bill discounts were removed. Instead of adding a certain amount of basis points to the central bank discount rate, the financial institutions could price bill discounts independently. The lending rate ceiling for rural credit cooperatives was cancelled. To strictly implement the differentiated housing mortgage policy and to promote the sound development of the real-estate market, the floating band of household mortgage rates was not adjusted. As the controls on lending interest rates were fully lifted, the room for financial institutions to negotiate prices with their clients was further expanded, which was helpful for financial institutions to enhance their pricing ability, adopt differentiated pricing strategy and strengthen financial support to the real economy and economic restructuring and upgrading. Second, a self-regulatory pricing mechanism for market-based interest rates was established and improved. The self-regulatory pricing mechanism is a market selfregulatory and coordination mechanism composed of financial institutions, which aims at applying self-regulatory management on interest rates which are independently determined by financial institutions in the money, credit and other financial markets, under the precondition that they comply with the relevant interest-rate BOX