I’ve been tracking China’s initiatives, and below are some key developments I’ve gathered. However, this is not an exhaustive list, as both China and the PBOC have implemented many more measures.
In recent months, China’s central bank, the People’s Bank of China (PBOC), has implemented a series of measures to stabilize the Chinese yuan (CNY) amid various economic challenges.
Foreign Exchange Interventions
The PBOC has actively intervened in the foreign exchange market to support the yuan. In December 2024, the central bank maintained a stable midpoint rate, signaling its commitment to currency stability. Despite these efforts, the yuan experienced depreciation pressures, reaching a 16-month low against the U.S. dollar in early January 2025. Analysts attributed this decline to trade concerns and falling yields, anticipating further depreciation if additional tariffs were imposed by the U.S.
Liquidity Management
To ensure adequate liquidity in the financial system, especially ahead of the Lunar New Year—a period typically marked by high cash demand—the PBOC injected a record 2.2 trillion yuan (approximately $300 billion) through 14-day reverse repurchase agreements. This move aimed to maintain market stability during a time of increased cash withdrawals.
Interest Rate Policies
The PBOC has been cautious with its interest rate policies due to concerns over the weakening yuan and narrowing interest rate differentials with other major economies. In December 2024, the central bank kept its benchmark lending rates unchanged, balancing the need to support economic growth with the imperative to prevent further currency depreciation.
Market Stabilization Funds
In a bid to bolster the stock market and, by extension, the yuan, the PBOC announced plans to establish a swap facility providing financial institutions with access to at least 500 billion yuan (about $71 billion) in funding to purchase shares. This initiative reflects the central bank’s commitment to maintaining financial market stability.
State Insurers
China announced on January 223rd a plan to channel hundreds of billions of yuan from state-owned insurers into equities, marking the government’s latest effort to stabilize a struggling stock market.
The initiative, coordinated by six financial regulators, including the securities regulator, involves higher investments by insurers and mutual funds, reduced fees and broader corporate reforms.
Through these multifaceted approaches, the PBOC aims to uphold the yuan’s value and ensure economic stability amid ongoing domestic and international challenges.
However
There are no signs of overheating in the Chinese economy yet. Below is the yield curve for 10-year Chinese bonds, which has been trending downward for most of 2024. A rise in yields would signal increasing inflation or stronger demand, suggesting that investors are shifting their focus from bonds to China’s stock market. This would serve as a clear indication that fiscal stimulus is driving domestic demand. Until then, the CNY remains bearish, along with the AUD and NZD. As commodity currencies, the Australian and New Zealand dollars are highly dependent on China’s market.
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