The financial landscape of China has witnessed remarkable stability and progressive growth as we approach the end of 2024. In this period, various monetary policies have been employed effectively, leading to a substantial increase in financial volume compared to previous yearsAs of December 2023, the country observed an 8.0% year-on-year increase in social financing scale, alongside a 7.3% growth in broad money supply (M2) and a 7.6% rise in Renminbi loans, all exceeding the nominal economic growth rateThis indicates not just a robust banking sector but also a consumer base increasingly reliant on loans for both personal and business endeavors.

One notable aspect of this financial stability is the steady decline in loan interest ratesBy December 2023, the new corporate loan rate was approximately 3.43%, down by 0.36 percentage points from the previous yearSimilarly, the residential mortgage rate fell to about 3.11%, experiencing a more significant drop of 0.88 percentage points

This reduction in loan rates is particularly crucial for businesses and individuals, as it enhances access to credit and encourages investment and consumption, fueling economic growthFurthermore, the structure of loans has evolved positively, with long-term loans to the manufacturing sector increasing by 11.9% and loans to specialized and innovative enterprises rising by 13.0%. Small and micro-business loans also saw an impressive increase of 14.6%, all outpacing the growth rate of total loans during the same period.

Moreover, the Yuan has maintained a stable exchange rate against a basket of currencies, hovering around the index of 100, facilitating a balance between domestic and international economic considerationsThe authorities' measures to stabilize the currency appear to have been effective, ensuring that the fluctuations of the Yuan do not negatively impact either domestic inflation or export competitiveness.

In line with these developments, China's foreign exchange management in 2024 has also shown positive results

Cross-border trade and investments have become more active, reflecting a growing confidence in both the domestic economy and international marketsThe total amount of foreign-related income and expenditure by non-bank sectors, including corporations and individuals, reached a staggering $14.3 trillion in 2024, signifying a growth of 14.6% compared to 2023 and marking a historical recordSimultaneously, trading volumes in the domestic Renminbi foreign exchange market exceeded $41 trillion, reflecting a robust trading environment.

The balance of payments has remained approximately stable, with a current account surplus of $241.3 billion in the first three quarters of 2024, translating to 1.8% of China’s GDPThis surplus is deemed to reside well within internationally recognized balanced ranges, allowing China to navigate the complexities of the global economy with relative easeInitial estimates suggest that the fourth quarter will continue to demonstrate a reasonable current account surplus, further solidifying the Chinese economy's resilience.

As for China's international investments, growth is on a fast track, with the value of foreign assets exceeding $10 trillion by the end of September 2024. Notably, there remains a net inflow of direct investments to China as well as capital from securities investments

Additionally, the foreign exchange reserves have stabilized above $3.2 trillion, ensuring that the currency remains robust and balanced in the global marketplace.

The Deputy Director of China’s State Administration of Foreign Exchange, Li Bin, affirmed the positive trends in the economy, suggesting a continued stabilization and improvement in the foreseeable futureHe indicated that the pattern of overall balance in international payments is unlikely to change, enhancing the resilience of the foreign exchange market, with the Renminbi expected to maintain its stability under existing conditions.

Additionally, Xuanchang Neng, a prominent economist, commented on the complex international landscape in 2024, characterized by sudden fluctuations in the dollar index, which have been influenced by numerous factorsHe noted that China's foreign exchange market displays impressive resilience, as the Renminbi has shown a two-way fluctuation dynamic, ultimately sustaining its stability amidst turbulent conditions and outperforming many other major currencies

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This resilience, Neng argued, has also provided favorable conditions for China to implement independent monetary policies, thereby significantly contributing to economic stability and foreign trade continuity.

The capital markets further reflect the encouraging outlook for the Chinese economyThese markets are seen as both a barometer of investor confidence and a critical channel for financial resource allocation, closely tied to broader economic developmentIn response to market conditions, including existing regulations that hinder corporate borrowing for stock purchases and the liquidity challenges faced by related securities institutions, the People’s Bank of China has established two support tools aimed at stabilizing capital market progressionThis initiative intends to enhance the financing and investment capabilities of relevant institutions, thereby fostering compliance with new management requirements.

As of late 2024, the accumulated operations involving swaps by equity, fund, and insurance companies surpassed 100 billion Yuan

In terms of proactive measures, financial institutions have entered into stock repurchase and increase shareholdings loan agreements with over 700 listed companies and major shareholders, accumulating amounts exceeding 30 billion YuanThe total cap for repurchase and incremental plans disclosed across the entire market is nearing 300 billion Yuan, demonstrating a solid commitment to instill confidence among investors and sustain market stability.

However, the recent sharp decline in long-term government bond yields raises questionsZhao Lan, the head of the Monetary Policy Department at the People’s Bank of China, remarked that since the nominal interest rates on long-term bonds remain fixed, shifts in market interest expectations often lead to relative volatility in secondary market transaction prices, indicating that investing in government bonds is not risk-freeGiven the relatively nascent development of the Chinese bond market, which has yet to navigate significant turbulence, not all investors and managers, especially the general public, are fully acquainted with the hidden market price risks associated with high returns from government bonds.

In response to such challenges, the People’s Bank of China has increased its macro-prudential management, issuing repeated alerts about risks, fortifying market regulation, and temporarily halting secondary market purchases when primary market issuance is less frequent