PBoC's Pan to speak in Hong Kong after flagging 47% direct financing share

People's Bank of China Governor Pan Gongsheng will address the Hong Kong Fixed Income and Currency Forum at 8:55 AM Tuesday, three weeks after detailing how direct financing surpassed bank loans to become the largest source of new credit in 2025.

"The historic transformation of China's financial structure is characterized by shrinking household credit, slower growth in corporate lending offset by faster expansion of direct financing, and rapid growth in government financing," Pan said at the Lujiazui Forum on June 17, according to a transcript published by Sina Finance.

In 2025, bond and equity financing together accounted for 47 percent of new additions to total social financing, surpassing the 45 percent share held by bank loans for the first time. That marked a dramatic reversal from historical norms, when newly added indirect financing consistently represented more than 80 percent of the increase in total social financing. By the end of 2025, the outstanding stock of indirect financing had fallen to roughly two-thirds of total social financing, down from nearly all in the 1990s.

The shift carries implications for global investors allocating to China's $47 trillion financial system. Pan's Tuesday remarks may offer further guidance on how the PBoC plans to nurture equity and bond market development, accelerate capital account convertibility, and manage the transition from a bank-dominated system to one where markets play a larger role — a process he described as an "inevitable outcome" of financial supply-side reform.

Direct Financing to Keep Rising

Over the next five to 10 years, the share of direct financing is expected to continue rising, Pan said at Lujiazui, resulting in a more diversified system where equity, bond and bank financing complement one another. Equity financing is expected to become a major driver, supported by continued reforms to the registration-based IPO system that lower listing thresholds and streamline procedures for technology companies and small and medium-sized enterprises. Government bond issuance will remain the cornerstone of direct financing, with proactive fiscal policy expected to sustain steady growth in issuance through 2035.

Corporate bond financing is likely to become another growth engine, with issuance of specialized instruments — including technology innovation bonds, green bonds and rural revitalization bonds — expanding rapidly. Pan also flagged plans to accelerate financial product innovation, introduce floating-rate bonds and green convertible bonds, and expand the range of differentiated investment funds to accommodate varying risk appetites.

The credit rating system will continue to improve, and bond default resolution mechanisms will become stronger, Pan said. Greater connectivity between domestic and international bond markets will further improve market liquidity and the efficiency of capital allocation.

Hong Kong's Role in Yuan Internationalization

The PBoC will continue advancing capital market opening and renminbi internationalization, Pan said, while improving macroprudential management and cross-border capital flow monitoring. The goal is to achieve a "dynamic balance between high-level opening-up and secure development," he said.

Hong Kong, as the primary offshore renminbi hub, stands to benefit directly from these trends. The city's fixed income and currency markets have deepened in recent years, with offshore renminbi bond issuance and CNH trading volumes rising as China gradually liberalizes its capital account. Pan's appearance at the forum shows the PBoC's commitment to using Hong Kong as a gateway for internationalizing the yuan.

For global investors, the implications extend beyond fixed income. A deeper and more liquid Chinese bond market — the world's second-largest at roughly $20 trillion — creates new opportunities for portfolio allocation and currency hedging. The PBoC's push to enrich the offshore renminbi product ecosystem could also accelerate the yuan's use in international pricing, settlement and reserve holdings, a process that has progressed slowly despite China's status as the world's second-largest economy.

Tuesday's speech will be watched for any updates on the pace of monetary easing, given that China's economic recovery remains uneven and deflationary pressures persist. Markets will also look for guidance on the PBoC's approach to managing the yuan exchange rate, with USD/CNH trading near levels that have historically prompted the central bank to step in with stronger fixing rates or liquidity measures.

This article is for informational purposes only and does not constitute investment advice.