The People’s Bank of China announced on January 15 (Thursday) that it would lower rates on several structural monetary policy tools and introduce eight targeted support measures covering areas such as technological innovation, private enterprises, and agriculture. The authorities emphasized that monetary policy would remain “moderately loose” and indicated that there is still room for lowering the reserve requirement ratio and policy rates this year.
However, several economists have pointed out that this combination of policies indicates that the traditional credit mechanism is not working smoothly, with banks showing decreased risk appetite. Against the backdrop of weak domestic demand and ongoing real estate adjustments, the marginal stimulus effect of monetary policy on the economy is weakening.
During a press conference held by the State Council Information Office of China on Thursday, Deputy Governor of the central bank, Zou Lan, announced a 0.25 percentage point reduction in various structural monetary policy tool rates starting from January 19 and the establishment of a new private enterprise targeted re-lending tool with a scale of up to 1 trillion yuan.
According to information disclosed by the central bank, this round of policies includes increasing the scale of technological innovation re-lending by 400 billion yuan to 1.2 trillion yuan, raising the lending quota for agricultural and small farmers by 500 billion yuan, and providing low-cost funding support to small and medium-sized private enterprises through special tools. The central bank stated that this move aims to reduce financing costs in key areas and support weak points in the economy.
The central bank also revealed that by the end of March 2025, the total balance of loans injected through structural tools amounted to 5.9 trillion yuan. Analysts at Standard Chartered Bank believe that these types of tools currently account for about 13% of the central bank’s balance sheet.
American economist Davy J. Wong expressed that this policy mix reflects the simultaneous pressure of cyclical downturn and structural imbalances in the Chinese economy. “Weak domestic demand, lack of expansion and leverage by private enterprises and residents, cautious outlook on prospects, deflationary pressure, and risks in real estate and finance still exist.”
Sun Guoxiang, a professor at the Department of International Affairs and Business at National Hua University in Taiwan, pointed out that the policy exhibits a characteristic of “structural easing and targeted rate cuts running parallel,” indicating a preference by the authorities to support new areas of momentum through point-to-point tools rather than relying on comprehensive stimulation.
Regarding the market’s concern about comprehensive reserve requirement and rate cuts, Zou Lan stated that the central bank still has “some room” to adjust rates and reserve ratios, while emphasizing the importance of maintaining banks’ net interest margins.
Data shows that although there were signs of stabilization in the net interest margin of China’s banking industry in 2025, it still remains at historically low levels.
After the policy announcement, the yuan exchange rate temporarily weakened before stabilizing. The market generally believes that structural rate cuts may be a prelude to further loosening policies.
Davy J. Wong pointed out that there is still room for reserve requirement and rate cuts technically, but the constraints are evident, including emerging financial risks, pressured bank profitability, and diminishing effectiveness of monetary easing in a low inflation environment.
Sun Guoxiang indicated that the official emphasis on “room for adjustment” reflects more nominal operational leeway rather than effective policy space. In the context of real estate deleveraging and lack of confidence, a general rate cut may result in funds circulating within the financial system rather than entering the real economy.
Xu Tianchen, a senior economist at the Economist Intelligence Unit (EIU), told Reuters that in recent years, China has tended to front-load stimulus measures before the beginning of the year. Following adjustments in structural tools, a comprehensive policy rate cut is not out of the question.
This round of policies also includes lowering the down payment ratio for commercial office spaces to thirty percent and providing accompanying low-cost credit support. The central bank stated that this move will help revitalize existing assets and ease pressure in the real estate sector.
Wong believes that such measures may improve liquidity in the short term but may not address the core issues in the real estate market, including taxation, housing security mechanisms, and management efficiency.
Sun pointed out that reducing the down payment will help clear inventory in some cities’ commercial offices and provide a certain buffer for banks’ balance sheets. However, in a situation of high vacancy rates and low return rates, market confidence remains a decisive factor.
The central bank also disclosed that the balance of government bonds and local bonds held through repurchase operations is close to 7 trillion yuan, and it stated that it will flexibly conduct government bond transactions to align with an active fiscal policy.
Sun noted that heavy reliance on structural re-lending tools reflects that banks’ willingness to lend has become a significant constraint on credit expansion. With low net interest margins, pressure on non-performing assets, banks tend to allocate low-risk assets.
In this context, the central bank is trying to increase banks’ willingness to lend to specific areas through targeted relending and risk-sharing mechanisms to address the issue of sluggish credit transmission through aggregate tools.
A Reuters survey indicates that the market expects China’s economic growth rate to slow in 2026 compared to 2025 and remain at similar levels in 2027.
The interviewed experts mentioned that in a situation of weak consumer willingness and insufficient effective demand, it is challenging to achieve significant boost solely through monetary policy. Repairing the credit transmission mechanism still relies on broader institutional reform.