China's central bank will rebuild how it supplies base money over the next five years, pairing a revamped reserve requirement regime with more flexible open market operations as it moves the policy framework away from quantity targets and toward interest rates.
"During the 15th Five-Year Plan period, the People's Bank of China will keep improving the base money supply mechanism, improve the deposit reserve system, and conduct open market operations more flexibly and precisely," Deputy Governor Lu Lei said at a State Council Information Office briefing in Beijing on Sept. 10. The PBoC will "gradually play down quantity-based intermediate targets and place greater emphasis on the role of interest-rate tools," he said.
The plan, released alongside the Financial Powerhouse Construction 15th Five-Year Plan, the PBoC's own 15th Five-Year Reform and Development Plan and nine supporting action programs, sets a 2030 goal of a working framework for a modern financial system with Chinese characteristics and a 2035 goal of completing it. Lu said the PBoC will strengthen the guiding role of the policy rate and steer short-end money market rates to trade more steadily around it, smoothing the chain from the central bank's policy rate to market benchmark rates and then to rates across financial markets.
The shift matters because it changes how Beijing manages liquidity, not just how often it moves. A reserve system that responds more flexibly to funding conditions gives the PBoC a finer dial for base money than periodic, headline-grabbing cuts, while rate-based targeting means the price of short-term funding — not the growth rate of a money aggregate — becomes the main signal for banks, bond investors and offshore holders of yuan assets.
The pivot away from quantity-based intermediate targets is the most consequential part of the blueprint for rates markets. Under the current framework, the PBoC has leaned on aggregate money and credit growth as intermediate guideposts; the plan instead makes the policy rate the anchor, with short-end money market rates expected to move in a narrower band around it.
That has a direct read-through for the government bond market. If the PBoC tolerates less drift between the policy rate and traded repo rates, the volatility that has periodically pushed Chinese government bond yields away from policy intent should compress, making the curve easier to price for domestic banks, insurers and foreign reserve managers. The last time the PBoC made a comparable framework change — moving the 7-day reverse repurchase rate to the center of its corridor in 2024 — short-end rates settled into a tighter range within months, and 10-year Chinese government bond yields drifted lower as the market repriced the policy path.
Lu also tied the framework to the exchange rate. "China implements a managed floating exchange rate regime and upholds the decisive role of the market in exchange rate formation, guarding against herd behavior and self-reinforcing irrational expectations," he said. "China has no need and no intention to gain trade advantage through currency depreciation."
That language gives the PBoC room for wider two-way moves in the yuan without inviting a depreciation race, a distinction that matters for exporters pricing contracts and for offshore investors deciding whether to hold unhedged CNH exposure. A more flexible yuan, anchored by a firmer policy rate, is the combination the plan is trying to engineer.
The blueprint also commits the PBoC to routine issuance of government bonds and central bank bills, part of an effort to build a deeper pool of high-grade yuan assets and develop the offshore market. Lu said the PBoC will keep supporting the healthy development of the offshore yuan market, optimize the layout of yuan clearing banks, and maintain a multi-tier liquidity supply mechanism across tenors so that offshore yuan liquidity stays ample and stable.
For offshore investors, regular issuance addresses a long-standing complaint: a shortage of high-quality, liquid yuan instruments outside the mainland. Central bank bill sales in Hong Kong have been used in recent years to absorb offshore liquidity and support the CNH exchange rate; making that issuance routine turns a tactical tool into a standing feature of the market's plumbing.
Structural policy remains the delivery vehicle for credit. Lu said outstanding balances in structural monetary policy tools supporting the five priority areas — technology, green, inclusive, pension and digital finance — reached 4.6 trillion yuan at the end of June, with loans in those areas up 10.9% year on year, outpacing overall loan growth. The PBoC cut rates on those structural tools and expanded relending quotas for technology innovation and small and medium-sized enterprises, and set up a separate relending facility for private companies.
The next test of the framework comes with the PBoC's quarterly policy operations and any adjustment to the reserve requirement ratio, which remains the main lever for a system the plan now says should be more flexible. For bond investors, the near-term question is whether short-end rates actually track the policy rate more tightly; for currency traders, it is whether a wider yuan band arrives with the liquidity tools to keep CNH funding stable. Both answers will show up in the data before the 2030 milestone does.
This article is for informational purposes only and does not constitute investment advice.
