China's Central Bank Strengthens Monetary Policies Amid Global Challenges

The People's Bank of China (PBOC) has announced plans to intensify monetary policy adjustments and enhance coordination with fiscal policies to bolster economic growth amid mounting external and domestic pressures. In a summary of its quarterly monetary policy committee meeting released on September 26, 2025, the PBOC acknowledged that while China's economy has been progressing steadily, it now faces increased challenges such as rising global trade barriers and weakening global economic momentum.

The central bank emphasized the need for a balanced and flexible approach to monetary policy, incorporating both broad and targeted tools to ensure policy effectiveness and adaptability. It committed to maintaining ample liquidity, encouraging credit expansion by financial institutions, and monitoring bond market developments, especially long-term yields. The PBOC also stressed the importance of well-managed policy strength and timing, given the uncertain global landscape, including inflation and monetary policy changes.

Despite signs of economic slowdown in August, authorities have so far refrained from large-scale stimulus, supported by stable exports and a buoyant stock market. However, analysts anticipate further monetary easing and fiscal measures in the near term to support the recovery.

In August 2025, China's manufacturing activity contracted for the fifth consecutive month, with the official Purchasing Managers' Index (PMI) registering 49.4, below the growth threshold of 50. This continued decline highlights economic headwinds such as weak domestic demand, uncertainty around U.S.-China trade relations, cooling exports, a struggling property sector, and fiscal strain on local governments.

Non-manufacturing activities, including services and construction, showed slight growth with a PMI of 50.3. The combined composite PMI was 50.5, up marginally from July. Analysts warn that the broader economic outlook depends on export performance and potential fiscal support in the fourth quarter. Industrial profits fell for the third month in July, and lending declined as household mortgage demand weakened. Meanwhile, job insecurity is rising, partly due to a court ruling enforcing social insurance contributions, which could lead to job losses. Urban unemployment rose from 5% in June to 5.2% in July. Additionally, extreme weather has caused $2.2 billion in infrastructure damage, further impacting fiscal conditions.

PBOC Governor Pan Gongsheng highlighted a data-driven approach to monetary policy, stating that the central bank would use a range of tools to ensure liquidity, lower funding costs, and sustain economic growth. He emphasized that China's monetary policy is currently supportive, with an emphasis on domestic imperatives while balancing both domestic and external situations.

The PBOC's recent announcements underscore its proactive stance in addressing both domestic and international economic challenges. By committing to flexible and data-driven monetary policies, the central bank aims to sustain economic growth while maintaining financial stability. The effectiveness of these measures will depend on their implementation and the evolving global economic landscape.