1. Report Industry Investment Rating No information provided in the content. 2. Core Viewpoints of the Report - The construction of the "modern central bank" system depends on the improvement of the "dual - pillar" of monetary policy and macro - prudential management policy. This report focuses on the formation and evolution of China's policy interest rate system and systematically reviews the development and application of various monetary policy tools, aiming to establish a theoretical and practical framework for subsequent analysis of the interest rate transmission mechanism [2][7][21]. - The current policy interest rate of the central bank has shifted to the short - end, with the 7 - day reverse repurchase rate becoming the main policy interest rate, and the Medium - term Lending Facility (MLF) rate fading out of the policy interest rate sequence [8][24][28]. - The central bank's monetary policy toolbox is diverse, and the innovation of monetary policy has obvious stage divisions. Since 2024, there have been changes in the central bank's thinking on quantity - price operations and expected management of monetary policy [9]. - Since the end of 2024, the monetary policy has changed from "prudent" to "moderately loose", and in 2026, it continues to be set as such, with more emphasis on "flexibility and efficiency" [10][135]. 3. Summary According to Relevant Catalogs Introduction - "Building a modern central bank system" is an important part of "establishing a modern fiscal and financial system". Since its proposal, the central bank has carried out reforms in multiple directions, including the short - end concentration of policy interest rates, the introduction of new open - market operation tools, and the launch of targeted structural monetary policy tools. The regulatory authorities have also given clear expectations for future reform directions [17][19]. - The report series is launched to comprehensively sort out and interpret policy reforms, and the first report focuses on the review and direction deduction of monetary policy tools and policy interest rates [19][21]. Interest Rate System Framework: Starting from Policy Interest Rates Policy Interest Rate Latest Changes: Focusing on the Short - End - China's current interest rate system is divided into three levels: the central bank's policy interest rate (currently the 7 - day reverse repurchase rate), market benchmark interest rates (including the deposit - type financial institution pledged repurchase rate, treasury bond yield, and loan prime rate), and diverse market interest rates in the money, bond, and deposit - loan markets [8][24]. - In 2024, during the process of deepening interest rate marketization reform, the central bank clearly defined the 7 - day reverse repurchase rate as the main policy interest rate. The MLF rate has faded out of the policy interest rate sequence, with adjustments in its operation time and bidding method [28][29]. Policy Interest Rate Review: Retrospect of the Development of 7 - Day Reverse Repurchase and MLF - Policy interest rates have evolved from multiple co - existing rates to the 7 - day reverse repurchase rate. Before 2015, there were many types of policy interest rates. Around 2020, the central bank established a framework with the open - market operation rate as the short - term policy interest rate and the MLF rate as the medium - term policy interest rate. From 2024 - 2025, the 7 - day reverse repurchase rate became the only policy interest rate [37][39][40]. - The 7 - day reverse repurchase has evolved from sporadic use to the most core policy interest rate. It originated in 1998, with low - frequency use from 1999 - 2007 and a suspension from 2008 - 2011. Since 2016, it has become a regular operation, and since 2020, the 7 - day term has been the main one, with its policy attribute continuously enhanced [42][46][47]. - The MLF was created in September 2014 to hedge the decline in foreign exchange reserves. Its term has been unified to 1 - year, and its scale has increased significantly. Around 2020, its operation rate independently assumed the function of the medium - term policy interest rate. Currently, it has withdrawn from the policy interest rate position and returned to its function of liquidity injection [59][63][68]. Monetary Policy Toolbox Inventory Deposit Reserves: A Long - Term Liquidity Adjustment Tool for the Banking System - The system framework of deposit reserves has been continuously improved, with the scope of the reserve base expanding and the deposit reserve ratio system undergoing multiple reforms, including the implementation of a differential deposit reserve ratio system, targeted reserve requirement cuts, and the establishment of a "three - tier and two - preference" framework, which is now simplified to a "three - tier" framework [79][80][85]. - The central bank has adjusted the deposit reserve ratio in multiple stages according to the macro - economic situation, and the reserve assessment method has changed from the point - in - time method to the average method. The central bank has also adjusted the reserve interest rate multiple times [90][94][95]. Buy - out Reverse Repurchase: Created in October 2024 to Provide Medium - and Short - Term Liquidity - The buy - out reverse repurchase is different from the traditional pledged reverse repurchase in terms of bond ownership and bidding method. Its operation has become more transparent, with a monthly rhythm of providing different - term liquidity support at different times. It has become an important channel for the central bank to inject liquidity [98][100][101]. Treasury Bond Trading: Launched in 2024 to Release Medium - and Long - Term Liquidity - Treasury bond trading was launched in August 2024, suspended in January 2025, and restarted in October 2025. It can supplement the medium - and long - term liquidity of the banking system, and the central bank's trading of treasury bonds has an impact on its balance sheet [107][110]. Other Monetary Policy Tools Overview - The central bank's monetary policy toolbox is rich, including open - market operation tools (such as central bank bills, central bank bill swaps, etc.), central bank lending tools (such as rediscount and re - loans), and innovative tools (such as standing lending facilities, pledged supplementary loans, etc.). Some tools have faded out after fulfilling their historical missions [115][117]. Current Monetary Policy Orientation: "Moderately Loose" and "Flexible and Efficient" - Since the end of 2024, the monetary policy has changed from "prudent" to "moderately loose", and in 2026, it continues to emphasize "flexibility and efficiency". The "moderately loose" policy is necessary for economic recovery and coordination with fiscal policy [10][135]. - "Flexible and efficient" implies precise implementation of policies, especially considering the limited space for reserve requirement cuts and interest rate cuts. The Federal Reserve's three interest rate cuts in 2025 have opened up policy space for domestic interest rate cuts. Although the domestic deposit reserve ratio has limited downward space, there is still room for reform, and the use of diversified liquidity injection tools can replace reserve requirement cuts to some extent [137][139][141].

Core Insights - The "15th Five-Year Plan" emphasizes the strategic goal of accelerating the construction of a financial powerhouse, focusing on enhancing the central bank system, establishing a comprehensive macro-prudential management framework, and improving policy transmission mechanisms for supporting the real economy and mitigating risks [1][2]. Group 1: Central Bank System Improvement - The improvement of the central bank system is prioritized as a key task in the "15th Five-Year Plan," which aligns with the concept of a financial powerhouse that includes strong currency, central bank, financial institutions, international financial centers, financial regulation, and talent [2]. - The People's Bank of China aims to deepen financial supply-side structural reforms and enhance the monetary policy system, ensuring effective policy transmission [2][3]. - The reform during the "15th Five-Year Plan" will focus on systematic and forward-looking institutional design, with key breakthroughs in mechanism innovation [3]. Group 2: Comprehensive Macro-Prudential Management System - The establishment of a comprehensive macro-prudential management system is highlighted as a critical measure for preventing systemic financial risks [4][5]. - The central bank's approach includes monitoring and assessing systemic financial risks, enhancing risk prevention measures for key institutions and sectors, and expanding the toolbox for macro-prudential management [4]. - The role of the central bank as a lender of last resort is expected to extend beyond banks to non-bank institutions, indicating a heightened focus on macro risks in the coming five years [5]. Group 3: Policy Transmission Mechanism - Improving the monetary policy transmission mechanism is identified as a vital task for the "15th Five-Year Plan," aimed at enhancing financial services for the real economy [6]. - Challenges remain in the current transmission mechanism and medium-to-long-term interest rate adjustments, necessitating further reforms in interest rate marketization and collaboration between monetary, fiscal, and industrial policies [6][7]. - The macroeconomic regulation will emphasize "cross-cycle design," maintaining stability and continuity in fiscal and monetary policies to avoid future inflation and financial risks [7].

Monetary Policy Insights - The press conference did not involve short-term monetary policy adjustments, but there remains a possibility of future interest rate cuts or reserve requirement ratio reductions[3] - The central bank's current stance is supportive, implementing moderately loose monetary policy based on macroeconomic data assessments[3] Financial Sector Achievements - During the 14th Five-Year Plan period, China's financial sector has made significant progress in reforming the financial system and enhancing service quality to the real economy[4] - The total assets of the banking sector, along with the scale of the stock and bond markets, rank among the highest globally, indicating progress towards becoming a financial powerhouse[4] Capital Market Developments - The new securities law and related regulations have strengthened the legal framework of China's capital markets, contributing to a fair and just market environment[8] - The total market capitalization of A-shares has surpassed 100 trillion yuan, reflecting a solid foundation for a long-term bull market[8] Technology Sector Impact - The market capitalization of the technology sector now exceeds 25% of the total A-share market, indicating its growing importance compared to traditional sectors like banking and real estate[9] - Enhanced awareness among listed companies regarding shareholder returns has led to significant increases in dividends and share buybacks, contributing to wealth effects in the market[9] Investor Engagement and Risk Management - Reforms in public fund management have improved investor experience and increased the participation of long-term funds in A-shares, with a 30% increase in holdings compared to the end of the 13th Five-Year Plan[10] - The regulatory focus on risk prevention and investor protection is expected to reduce market volatility and enhance investor confidence[11]

Core Insights - The Chinese financial sector has made significant progress during the "14th Five-Year Plan" period, with comprehensive reforms and improvements in financial institutions, markets, and products [2][4][5] Group 1: Support for the Real Economy - Financial institutions have provided an additional 170 trillion yuan to the real economy over the past five years, with annual growth rates of 27.2% for scientific and technological loans, 21.7% for manufacturing medium- and long-term loans, and 10.1% for infrastructure loans [2] - The balance of inclusive loans to small and micro enterprises has reached 36 trillion yuan, which is 2.3 times that at the end of the "13th Five-Year Plan," with interest rates decreasing by 2 percentage points [2] Group 2: Capital Market Developments - In the past five years, the total financing through stock and bond markets has reached 57.5 trillion yuan, with the proportion of direct financing increasing by 2.8 percentage points to 31.6% [3] - Over 90% of newly listed companies are technology firms or have high technological content, with the market capitalization of the A-share technology sector exceeding 25% [3] Group 3: Financial Reforms and Openings - The financial supply-side structural reform has been continuously promoted, enhancing the multi-level financial market and optimizing the financial structure [4] - The People's Bank of China has focused on establishing a dual-pillar regulatory framework for monetary and macro-prudential policies, supporting the construction of a strong financial nation [5] Group 4: Risk Prevention and Control - Significant progress has been made in preventing and resolving financial risks, with a focus on managing high-risk institutions and addressing real estate and local debt risks [6] - The bond default rate in the exchange market has been maintained at around 1%, reflecting effective risk control measures [6] - The regulatory capacity and risk prevention capabilities have been enhanced, successfully addressing multiple external shocks and improving the resilience of the foreign exchange market [6]

Core Viewpoint - The People's Bank of China (PBOC) is focused on building a modern central banking system to support high-quality economic development and financial stability during the 14th Five-Year Plan period [1][4]. Group 1: Monetary Policy Framework - The PBOC aims to construct a scientific and robust monetary policy system, optimizing the intermediate variables of monetary policy and clarifying the central bank's policy interest rates [4]. - Emphasis will be placed on using price-based regulatory tools, such as interest rates, to enhance the effectiveness of monetary policy [4]. - The PBOC will continue to enrich its toolbox of monetary policy instruments, creating a conducive liquidity environment and implementing various structural monetary policy tools to optimize credit allocation [4]. Group 2: Macro-Prudential Policy Framework - The PBOC is enhancing its macro-prudential policy framework and systemic financial risk prevention and resolution mechanisms [4]. - There will be improvements in the financial risk monitoring, early warning, and resolution systems, with a focus on macro-prudential management in key areas [4]. - The regulatory framework for systemically important financial institutions is being strengthened, significantly improving the ability to prevent systemic financial risks [4]. Group 3: Financial Market Development - The PBOC is working on establishing a more comprehensive financial market and infrastructure system, including the launch of a "Technology Board" in the bond market [4]. - The bond market is seeing a continuous increase in product variety, steady growth in scale, and enhanced activity levels [4]. - There is a comprehensive strengthening of financial market regulations and supervision, with an orderly connection between Chinese and global financial markets, leading to a steady increase in foreign participation [4]. Group 4: Financial Openness and Internationalization - The PBOC is committed to building a higher-level open financial system, deepening high-level financial openness, and promoting the internationalization of the Renminbi [5]. - Efforts are being made to establish a multi-channel, widely covered, and self-controlled cross-border payment system [5]. - The PBOC aims to actively participate in global economic governance and cooperation, contributing to the formulation of international financial rules and standards [5].