Central bank focused on expanding consumption, backing private firms

China's central bank will make efforts to expand consumption and reduce corporate financing costs as part of concerted commitments made by the country's financial regulators to bolster support for economic recovery in 2023.

"Financial support will be amplified for the domestic supply and demand system," the People's Bank of China, the country's central bank, said in a statement on Wednesday, after holding a meeting to better comprehend and implement key decisions of the Central Economic Work Conference, which concluded last week.

The PBOC statement came hours after the China Securities Regulatory Commission unveiled a package of measures to better serve economic recovery next year, including maintaining a steady performance of the capital market by ushering in more medium to long-term investors.

The moves indicated that top financial regulators might prioritize economic stability in a concerted approach in the new year, with focus on expanding domestic demand, supporting the private economy and stabilizing real estate enterprises, experts said.

"We will give full play to the function of monetary and credit policy tools to deliver strong support for the recovery and expansion of consumption, key infrastructure and the construction of major projects in line with national development plans," the PBOC said in the statement.

The central bank will work to tamp down corporate financing costs while keeping them generally stable by pushing ahead reforms on loan prime rates — the market-driven benchmark interest rates — and deposit rates, according to the statement.

The PBOC will implement prudent monetary policy in a precise and effective manner and increase policy strength, the statement said, keeping liquidity in the financial system reasonably ample with multiple monetary policy tools such as open market operations.

To ensure the maintenance of ample liquidity, the PBOC injected 511 billion yuan ($73 billion) in cross-year liquidity into the market via 14-day reverse repo operations as of Thursday, official data showed.

Recent developments indicated that monetary policy might remain moderately accommodative in 2023, thereby reducing the debt burden and financial cost for consumers and corporates and thus helping unleash pent-up demand, experts said.

Wen Bin, chief economist at China Minsheng Bank, said there is still room for further cuts of interest rates and lenders' reserve requirement ratios to boost social financing in 2023, adding that structural tools will be further tapped to strengthen support for key areas.

Apart from guiding more financial support into the fields of agriculture, technological innovation, green development and eldercare, the PBOC statement vowed to further address financing difficulties facing private, small businesses by promoting the use of a facility supportive of their bond financing.

The emphasis on supporting private enterprises is clear in the CSRC statement as well. Saying that as private enterprises accounted for the majority of A-share IPOs in recent years, the commission pledged further efforts to ensure equal treatment for State-owned enterprises and private enterprises in terms of market entry, information disclosure and continuous supervision.

Both of the regulators also underlined deepening financial reform and opening-up. The country will continuously promote bond market opening-up with measures to facilitate investments by overseas institutions to be put into place, the PBOC said, adding that it will also perfect management rules of the financial stability fund.

The CSRC said it will work to establish a regular cooperative mechanism with its U.S. counterpart on auditing supervision and optimize the trading calendar of the connect programs between the mainland and Hong Kong bourses while expanding the scope of eligible securities.

The regulators' emphasis on creating a more enabling environment for private enterprises and pushing financial opening-up at the institutional level is expected to help lift investor confidence in China's economy and financial markets, experts said.

"Markets have many reasons to turn positive," said Lu Ting, Nomura's chief China economist, citing the reassertion of respect for private entrepreneurs as one of the encouraging policy developments.