China to Maintain Loose Monetary Policy in Second Half, Boost Panda Bond Issuance

People's Bank of China Releases Results of Second-Half Work Meeting

Panda Bond Issuance Reaches 160 Billion Yuan in First Half

Expansion Planned as Part of Efforts to Internationalize the Yuan

The People's Bank of China (PBOC), China's central bank, announced that it will maintain a loose monetary policy stance in the second half of the year, while also pledging to introduce additional stimulus measures in a timely manner to respond to economic conditions. As part of its efforts to internationalize the yuan, China also plans to provide institutional support for the issuance of "Panda bonds"—bonds issued in yuan by overseas institutions.

"Yuan Exchange Rate to Be Managed at a Reasonable Level"

Chinese yuan. Reuters Yonhap News

According to the state-run Global Times on August 2, the People's Bank of China stated in the results of its second-half work meeting released that day, “We will maintain a moderately loose monetary policy and implement more effective additional policies.” Through this, the central bank aims to strengthen counter-cyclical adjustment of the economy, expand domestic demand, and optimize market supply.

The PBOC explained that it would maximize the effects of existing policies, maintain ample market liquidity, and adjust credit supply in such a way that the growth rates of total social financing and the money supply align with the pace of economic growth. In addition, the bank pledged to timely adjust monetary policy tools in accordance with economic conditions and to lower financial intermediation costs in order to ease funding burdens on businesses and households.

With regard to the yuan’s exchange rate, the PBOC reaffirmed its position that while allowing the market to play a decisive role in currency formation, it will also manage the yuan at a reasonable and balanced level in a stable manner.

The central bank also announced plans to support the issuance of "Panda bonds," which are yuan-denominated bonds issued by overseas institutions in China, and to strengthen Shanghai’s function as a cross-border financial center, as well as Hong Kong’s hub role for offshore yuan. In addition, the PBOC said it would continue providing financial support to resolve the debt risks facing local government financing vehicles (LGFV), expand its macroprudential policies and financial stability tools, and actively utilize monetary policy tools to support the capital market.

"Total Social Financing Up 7.4% from Previous Year"

The People’s Bank of China (PBOC) headquarters in Beijing. Photo by Reuters Yonhap News Agency

The results of monetary policy implementation for the first half of the year were also released. As of the end of June, total social financing (TSF) grew 7.4% year-on-year, and broad money supply (M2) rose by 8.0%. Total social financing is a key macroeconomic indicator monitored by Chinese authorities, as it tracks the amount of funding flowing into the real economy.

The PBOC supplied short-, medium-, and long-term liquidity through reverse repos, the Medium-term Lending Facility (MLF), and treasury bond transactions. It also expanded relending quotas to support technological innovation, equipment upgrades, and assistance for agriculture and small and medium-sized enterprises. Loans in the so-called “five major financial sectors”—technology, green, inclusive, pension, and digital finance—increased by 11% year-on-year as of the end of June, outpacing the overall loan growth rate. The cumulative issuance of technology innovation bonds exceeded 2.8 trillion yuan.

Panda bond issuance in the first half of this year surpassed 160 billion yuan. This demand from foreign financial institutions has been driven both by low interest rates and by regulatory improvements implemented by the Chinese government. Previously, the state-run China Daily highlighted the PBOC’s efforts to improve the Panda bond framework, quoting the central bank’s strategy to “promote both the internationalization of the yuan and the opening-up of China’s bond market at the same time.”

Meanwhile, foreign media reported that this PBOC meeting was held following last week’s call by the Communist Party’s Politburo for faster fiscal spending on infrastructure projects. China’s economy has yet to break free from its slowdown this year. The gross domestic product (GDP) growth rate for the second quarter, announced last month, was 4.3%, marking the lowest level in over three years. This fell short of the government’s annual growth target of 4.5–5.0%. At its most recent meeting, the Politburo also acknowledged that the economy “faces difficulties and challenges.”

This content was produced with the assistance of AI translation services.