China: Lujiazui Forum: Price-based monetary policy and rules-based capital account opening

Research evidence excerpt

China: Lujiazui Forum: Price-based monetary policy and rules-based capital account opening

oans going to property and infrastructure declined

from more than 60% to around 10%, while the share going to the “five major areas of

finance” (金融五篇大文章), i.e., technology, green transition, inclusive finance, elderly

care and digital economy, rose to more than 70% (Exhibit 3). In our view, this extends the

governor’s 2024 message that aggregate credit indicators (and other quantity-based

indicators) are becoming less informative as intermediate targets of monetary policy.

Governor Pan highlighted two structural drivers. First, property and LGFV deleveraging

mechanically reduces loan demand from historically credit-intensive sectors. Second,

industrial upgrading is shifting financing demand toward technology and new-economy

sectors, which are more asset-light, R&D-intensive and uncertain. These sectors are less

suited to traditional collateral-based bank lending and more dependent on direct

financing (such as equity, bonds and venture capital/private equity). Weak loan or TSF

growth should therefore not be read mechanically as a tightening signal; it may

increasingly reflect lower credit intensity, changing sectoral demand and a larger role for

direct financing. In light of weak loan demand and Governor Pan’s comments on credit

growth, we revise down our 2026 full-year total social financing growth forecast to 7.6%

yoy (vs. 8.0% previously) and lower our forecasts for outer years as well.

4. Rules-based capital account opening with a broader and deeper RMB asset pool.

SAFE head Zhu Hexin’s speech suggests that capital account policy is moving toward

rules-based opening with greater transparency, but also broader monitoring across the

capital-flow process.