China Merchants Macro: The primary task of monetary policy is to boost nominal growth rate

Core Viewpoints

1. Promoting stable economic growth and a reasonable rebound in prices is an important consideration for monetary policy.

At the international level, the report analyzes the increasing trade barriers, expectations of global growth slowdown, high volatility risks in artificial intelligence valuations, and geopolitical conflicts. Domestically, the policy focus has more clearly shifted towards "continuously expanding domestic demand + promoting a reasonable rebound in prices," emphasizing that the marginal improvements in CPI, core CPI, and PPI indicate that the synergistic effects of macro policies are forming, providing a policy support foundation for price recovery. Overall, boosting nominal growth is the current main contradiction.

1. In terms of policy thinking, the report continues the "moderately loose" tone, but the structure of tools has significantly deepened.

On one hand, total tools stabilize the liquidity base, with open market operations and a year-end excess reserve ratio of 1.5% showing overall stability in the funding environment; more notably, the resumption of open market government bond trading in October clearly states "promoting the yield curve to operate within a reasonable range," indicating that "stabilizing the curve" has moved from policy statements to an operational phase. On the other hand, the interest rate framework emphasizes the transmission loop of "policy interest rate - market interest rate - liability cost," combined with a slight reduction in the policy interest rate in 2025 and arrangements to lower costs through structural tools, pointing to a more likely "small steps + strong transmission" rhythm in 2026.

1. Structural tools have become the core highlight of this report.

Focusing on expanding domestic demand, the report constructs an executable chain of fiscal and financial collaboration through "re-lending + fiscal subsidies + risk-sharing tools": expanding and reducing the re-lending for equipment updates to 1.25%, increasing re-lending quotas for agriculture, small enterprises, and private enterprises, implementing fiscal subsidies in conjunction with re-lending for service consumption and elderly care, and establishing risk-sharing tools for technological innovation and private enterprise bonds. The column also systematically explains how policies can improve financing accessibility and credit environment through structural optimization from perspectives such as unifying green finance standards, merging asset management and deposits, and one-time credit repair policies. Overall, expanding domestic demand is more promoted through structural tools and risk-sharing mechanisms rather than relying on large-scale total stimulus.

1. For the policy projection in 2026, the tools and targets provided in the report indicate:

Under the baseline scenario, the policy interest rate will focus on stability, structural tools will continue to expand and lower costs, while managing liquidity and curve shape through open market and government bond trading; if price or domestic demand recovery weakens again, a slight interest rate cut cannot be ruled out.

Regarding the RMB exchange rate, the report emphasizes "enhancing flexibility + maintaining basic stability," tolerating two-way fluctuations and playing the role of an automatic stabilizer, stating that the exchange rate is not the main constraint variable of current monetary policy.

Main Text

1. Macroeconomic Situation Assessment

1. International Situation: Trade uncertainties, AI valuations, and geopolitical risks point to rising tail risks of financial volatility. Compared to many years where Q4 reports focused more on "uneven recovery/inflation stickiness/market volatility," the 2025 Q4 expression of external risks resembles a "risk checklist," placing trade barriers + geopolitical issues + AI valuations in the same logical framework: First, trade uncertainty is rising, and global growth is under pressure. The report bluntly states that "trade barriers are increasing" and cites WTO forecasts that the growth rate of global goods trade will sharply decline from 2.4% in 2025 to 0.5% in 2026.

Second, AI sentiment drives stock market rises, with valuations at high levels, and the risk of pullbacks is linked to geopolitical shifts and policy changes. The report points out that the rise in major economies' stock markets is "mainly driven by optimistic sentiment towards artificial intelligence and related industrial chains," and clearly warns: if AI development falls short of expectations, geopolitical tensions escalate, or policy adjustments lead to a shift in risk appetite, "it may increase market pullback pressure."

1. Domestic situation: The policy focus has shifted to "expanding domestic demand + promoting reasonable price recovery," emphasizing "synergistic effects" to highlight policy coordination. The Q4 report significantly strengthens two sets of keywords in the domestic statements of the "trend outlook" section: first, the direction of macro policies, clearly proposing "continuously expanding domestic demand" and "developing new quality productivity," and placing "counter-cyclical + cross-cyclical" side by side, emphasizing the enhancement of macro governance effectiveness. Second, the coordination of prices and policies, clearly stating that the December CPI year-on-year is 0.8%, core CPI year-on-year is 1.2% (above 1% for four consecutive months), PPI year-on-year is -1.9 and has narrowed from the year's low, with month-on-month increases for three consecutive months, and emphasizing that "the synergistic effect of macro policies is continuously strengthening... will further... support reasonable price recovery."

II. Policy narrative

1. Aggregate tools: Stabilizing liquidity remains the foundation, but the addition of "government bond trading" shifts "stabilizing the curve" from a statement to actionable. The report describes the liquidity foundation for the year as being more "result-oriented," specifically stating: a 0.5 percentage point reserve requirement ratio cut, providing long-term liquidity of about 1 trillion yuan; open market operations "smooth out short-term fluctuations in fiscal revenue, government bond issuance, etc."; and an excess reserve ratio of 1.5% at the end of the year. More importantly, in October, open market government bond trading operations were resumed, with the stated purpose of "promoting the government bond yield curve to operate within a reasonable range." For the bond market, "curve management" now has more actionable tools, and the guiding significance for bond trading may be: the downward trend in interest rates may still exist, but the slope and speed are more constrained; if it drops too quickly or steeply, policies may prefer to correct through "tools" rather than "wording."

2. Interest rate framework: "Policy interest rate - market interest rate - liability cost" forms a closed loop, pointing to a more likely "small steps + strong transmission" approach in 2026. The report clearly states: in May 2025, the 7-day reverse repurchase rate will be lowered from 1.5% to 1.4%, and notes "a full-year reduction of the policy interest rate by 0.1 percentage points." Meanwhile, in subsequent chapters, the report describes the next phase's tasks with terms like "deepening interest rate marketization, improving transmission mechanisms, and reducing comprehensive financing costs." For 2026, this may mean that there is still room for policy interest rates, but it is more likely to be implemented in smaller increments, with greater emphasis on supporting measures (liability costs/self-discipline mechanisms/structural tools)

3. Structural tools: Expanding from "science and technology innovation" to "consumption and elderly care," with fiscal interest subsidies embedded, indicates that "expanding domestic demand" has entered an executable toolchain. First, service consumption and elderly care relending, the report states that it is necessary to "give full play to... the incentive and guiding role of relending" and "implement the fiscal interest subsidy policy for loans in the consumption sector"; it also provides that the loan balance for key areas of service consumption is 28 trillion yuan, and the household consumption loan balance (excluding housing loans) is 21.2 trillion yuan. Second, "five major articles," with a loan balance of 108.8 trillion yuan by the end of 2025, a year-on-year increase of 12.9%; the weighted average interest rate of newly issued loans in December 2025 is 3.35%, down 0.41 percentage points year-on-year; serving 82.18 million enterprises and individuals. The policy signals conveyed by these data mainly indicate that expanding domestic demand is no longer solely reliant on "total easing driving credit expansion," but rather on the combination of "structural relending + fiscal interest subsidies" to bind the price and direction of funds.

4. Policy path: Structure first, with coordinated fiscal support. The report clearly states the central bank policy for January 2026: first, to broaden the support areas for service consumption and elderly care relending, and "reduce the relending interest rate to 1.25%"; at the same time, the Ministry of Finance optimizes the interest subsidy policy, including digital, green, retail, and other consumption sectors. Second, to merge and establish a risk-sharing tool for technology innovation and private enterprise bonds, providing a total relending quota of 200 billion yuan, and clarifying that "central fiscal arrangements for risk-sharing funds... coordinate with central bank tools." This indicates that the beginning of 2026 did not first use "large policy interest rate actions" to make a statement, but directly placed "expanding domestic demand/promoting consumption/stabilizing financing for private enterprises" on structural tools and fiscal coordination. This is completely consistent with the Q4 report's narrative of "continuously expanding domestic demand and supporting a reasonable recovery of prices."

III. Overview of Column Highlights

The Q4 2025 "Column" focuses on topics such as fiscal-financial coordination, green finance, overall liquidity, and one-time credit repair.

Column 1: Fiscal-financial coordination supports expanding domestic demand—The policy implications of "toolbox upgrades" are stronger.

The column provides verifiable details of the January 2026 package for "coordinated efforts to expand domestic demand":

First, equipment updates. Relending for technological innovation and technological transformation will start from April 2024 (quota of 500 billion, interest rate of 1.75%), with multiple subsequent increases; by January 2026, relending will increase by another 400 billion, with a total quota of 1.2 trillion, and the relending interest rate will be reduced to 1.25%; the fiscal side will simultaneously optimize the scope of interest subsidies, including fixed asset loans related to equipment updates and loans for technological innovation.

Second, support for agriculture and small/private enterprises. In January 2026, the relending quota for supporting agriculture and small enterprises will increase by 500 billion, with a connection to rediscounting and a reduction in interest rates by 0.25 percentage points; and a separate relending of 1 trillion for private enterprises will be established under the support for agriculture and small enterprises relending; the fiscal side will introduce interest subsidies for small and micro loans.

Third, promoting consumption. Service consumption and elderly care relending (established in May 2025, quota of 500 billion, interest rate of 1.5%), fiscal interest subsidies for loans to service industry entities (covering 8 categories of consumption sectors, interest subsidy of 1 percentage point); In January 2026, the central bank will broaden the areas of support and lower the re-lending rate to 1.25%. The fiscal side will include consumption areas such as digital/green/retail in the scope of interest subsidy support.

This combination of "re-lending + interest subsidy/credit enhancement" essentially transforms the expansion of domestic demand from a slogan into a "practical credit supply mechanism," and clarifies the risk-cost sharing between the fiscal and central bank sides. For interest rates, this kind of synergy is more about "reducing tail credit/demand risks" rather than directly raising the growth center: it is more likely to create an environment with looser financing conditions and limited upward space for interest rates. The report also clearly states in its overall policy orientation to "continue to implement moderate easing" and "flexibly use reserve requirement ratio cuts and interest rate reductions, maintaining ample liquidity and relatively loose social financing conditions."

Column 2: Quality and Effectiveness of Green Finance - From "Scale Expansion" to Hard Constraints of "Standards/Incentives/Transparency"

The column emphasizes three main lines:

1. Unified Standards and Expansion: The 2025 "Green Finance Support Project Catalog" will unify standards for green loans/green bonds/green insurance, and expand the scope of green finance support to green trade and green consumption; at the same time, promote transformation finance, pushing for the implementation of transformation finance standards in industries such as steel, coal power, building materials, and agriculture.

2. Incentive Mechanisms: The carbon reduction support tool has a quota of 800 billion, and its effectiveness will be enhanced by expanding the support areas, increasing qualified institutions, and lowering re-lending rates; green loans/green bonds, mechanism construction, product innovation, carbon accounting, and information disclosure will be included in the evaluation indicators to strengthen the application of evaluation results.

3. Transparency and Collaboration: Aligning with international standards and domestic sustainable information disclosure requirements to enhance the transparency of the green finance market; emphasizing collaboration with industry departments such as the Ministry of Ecology and Environment and the Ministry of Industry and Information Technology to facilitate the transmission of industrial policies to the financial system.

This time, green finance is not just about "continuing support," but about clearly articulating unified standards + information disclosure + evaluation constraints. This will change the structural differentiation of credit spreads: within the same industry, "disclosure quality/clarity of transformation paths" will increasingly resemble quasi-financial indicators in pricing. The combination of "catalog + transformation finance standards" means that future expansions in the supply of green/transformation bonds are not equivalent to disorderly expansion, but are more likely to be structural expansions after compliance thresholds are raised.

Column 3: A Merged Perspective on Total Liquidity - Explaining Deposit "Relocation" with "Deposits + Asset Management" to Mitigate Misinterpretation

The report directly addresses the discussion of "deposit outflows," proposing to observe the liquidity of the financial system through the merger of asset management products and bank deposits:

Since the second quarter of 2025, the scale of asset management has accelerated, with the growth rate reaching the highest since the new asset management regulations at the end of October; by the end of the year, the total assets of asset management reached 120 trillion, a year-on-year increase of 13.1%, with an annual increase of 13.8 trillion (2.2 trillion more than the previous year).

Structurally, bank wealth management and public funds have large shares and rapid growth, with year-end growth rates of 10.6% and 14.3%, respectively.

The growth of asset management is explained as a trade-off between returns and risks for residents/enterprises under interest rate marketization. Since 2024, deposit rates have declined, while the overall yield of cash management-type wealth management products remains higher than deposit rates, and other asset management products offer even higher yields, leading to a shift of funds from deposits to wealth management/funds, indicating that new assets in asset management are mainly directed towards interbank deposits and certificates of deposit The central bank's "communication goal" here is very clear: to pull the market out of the illusion that "deposit outflows = tightening liquidity," emphasizing that this is a reallocation of assets within the same financial system. This type of narrative typically points to the fact that fluctuations in the funding environment stem more from structural and maturity mismatches rather than a depletion of total funds.

Column 4: One-time Credit Repair - A Typical "Inclusive Expansion of Domestic Demand" Type of Financial Infrastructure Transformation

The report mainly emphasizes the background and specific operations of one-time credit repair:

By the end of 2025, the credit reporting system will include 810 million individual credit information records, providing an average of over 20 million external inquiry services daily. The current pain point is that the retention period for overdue information of repaid individuals is 5 years; some individuals, despite having fully repaid their debts, still have overdue records displayed, affecting their subsequent financing availability. The core of the policy is that for overdue information during the period from January 1, 2020, to December 31, 2025, with a single overdue amount ≤ 10,000 yuan, if individuals fully repay their overdue debts by March 31, 2026 (inclusive), the credit reporting system will no longer display this information.

This is a typical approach to improving financing availability through credit infrastructure, allowing a portion of individuals who have repaid their debts but are long-term constrained by historical overdue records to return to a financing state more quickly. It aligns with the logic of "expanding domestic demand": enhancing the availability of consumption/small loans and improving credit constraints in the household sector.

Conclusion and Insights

Regarding possible monetary policy operations in 2026, without introducing external data and solely using the "goals" and "tools" provided in the Q4 report for extrapolation, there may be the following scenarios: First, the baseline scenario: the policy interest rate remains the mainstay, structural tools continue to expand and reduce costs (with a recent reduction in the re-lending rate to 1.25% and a risk-sharing tool of 200 billion), while stabilizing funds and the curve through open market operations and government bond transactions. Second, conditions for interest rate cuts: if the trend of "supporting a reasonable recovery in prices" weakens again, or if the recovery of domestic demand falls short of expectations, there may still be a slight downward adjustment in the policy interest rate. The report itself emphasizes the need to "increase counter-cyclical and cross-cyclical adjustment efforts" and "continuously expand domestic demand." Third, policy constraints: after strengthening the macro-prudential and financial stability framework, the constraints of "stabilizing finance" become stronger, and policies may lean more towards a "combination approach" rather than a one-time large stimulus.

For the RMB exchange rate, the core statements of the Q4 report are generally concentrated on three points: adhering to a market supply and demand basis, referencing a basket of currencies, and maintaining a managed floating exchange rate system; enhancing exchange rate flexibility; and maintaining basic stability of the RMB exchange rate at a reasonable and balanced level, while emphasizing the role of the exchange rate as an "automatic stabilizer."

Compared to previous years' Q4 reports, the notable aspect of the exchange rate statements in the Q4 2025 report is that in the past few years, there was more emphasis on "basic stability," while this report places greater emphasis on "enhancing flexibility." This means that the exchange rate can fluctuate in both directions, and the policy tolerates a certain degree of market adjustment, without aiming for a unilateral direction.

China Merchants Macro Reflection

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