PBOC to optimize rate framework, modernize financial markets

People's Bank of China Governor Pan Gongsheng announced several key policy measures to modernize China's financial markets.

The PBOC will optimize its short-term interest rate operational framework, clarifying the 7-day reverse repo rate as the key policy rate and narrowing the interest rate corridor from 70 to 50 basis points.

This involves improving the ad hoc overnight repo/reverse repo facility and diversifying open market operations.

A new RMB repo facility will be created for foreign central banks, international financial organizations, and sovereign wealth funds, allowing them to obtain RMB liquidity with high-grade bonds.

A pilot for offshore RMB/FX trading will launch in the Shanghai Pilot Free Trade Zone to promote two-way opening-up of the foreign exchange market.

The central bank is also exploring a contingent liquidity backstop for non-bank financial institutions under systemic market stress, providing liquidity through swap operations while preventing moral hazard.

The Interbank Market Data Repository has officially launched.

Governor Pan detailed the profound evolution of China's financial structure, shifting from a bank-centric model towards increased direct financing.

In 2025, bond and equity financing combined surpassed loans for the first time.

The share of indirect financing in outstanding AFRE decreased significantly by end-2025, with direct financing rising to about one-third.

Capital allocation has also shifted: new loans to real estate and infrastructure declined from over 60 percent to around 10 percent over the past decade, while loans to five priority areas now exceed 70 percent.

This reflects China's economic pivot to high-quality development, emphasizing structural optimization.