RDP 2019-11: China's Evolving Monetary Policy Framework in International Context 3. The PBC's Objectives and Operational Framework

Monetary policy targets, and the instruments deployed in pursuit of them, are the practical expression of the high-level monetary objectives set for the central bank. Discussed in more detail below, a highly stylised outline of the major differences between China's monetary policy framework and those of advanced economy central banks is outlined in Table 5. The Chinese experience offers yet another illustration of how interagency relations and the structure of the economy and financial system have implications for how a monetary policy framework is implemented in practice.

3.1 High-level Policy Objectives

The PBC attaches high priority to price stability, but this serves as just one among many objectives for monetary policy in China. As in the past, this multi-objective policy framework continues to be a distinguishing feature of monetary policy in China. As former PBC Governor Zhou (2016) set out: ‘The single objective of maintaining price stability is an enviable arrangement, as it is simple, easy to measure and communicate. However, it is not yet realistic for China’. Instead, ‘The [PBC] has multiple objectives, which not only include such four annual objectives as ensuring price stability, boosting economic growth, promoting employment, and broadly maintaining balance of payments, but also cover two dynamic objectives, namely, financial reform and opening up, and financial market development’. Zhou further described the motivation behind the multi-objective framework as relating to China's current status as a transition economy:

… when China was transitioning from a central-planned economy to a market-based one, if reforms were not fully implemented, there would not have been enough instruments to conduct monetary policy and the transmission would also have been difficult and if the central bank only emphasized keeping inflation low and did not tolerate price changes during price reforms, it could have blocked the overall reform and transition … Once the PBoC's reform tasks are largely completed, the current objective function might change.

Beyond technical issues arising from an economy transitioning from a low level of economic and financial sophistication, another explanation for the multi-objective setting relates to the institutional setting for monetary policy. Ma (forthcoming) suggests that while the official mandate of monetary policy (as set out in The PBC Law) is narrowly focused on maintaining stability in the value of the currency, ‘[i]n reality, the central bank is obligated to support almost all economic objectives of the State Council’. Meanwhile, Zhou (2016) contends that the multi-objective framework is more naturally associated with reduced institutional independence, as accomplishing a wide range of objectives demands a higher degree of coordination and cooperation between the central bank and other government agencies.

Though no other major central bank is tasked with meeting as many monetary policy objectives as the PBC, the distinction between the PBC's multi-objective system and the narrower focus of advanced economy central banks need not be overstated. The latter are not singularly focused on price stability at the expense of all other considerations. Among the advanced economy central banks listed in this study, three (the US Federal Reserve, Reserve Bank of Australia, and most recently, Reserve Bank of New Zealand) operate under a formal mandate for monetary policy that requires more than just the maintenance of price stability. Other central banks with an official single mandate (price stability) either explicitly or implicitly have a secondary objective to minimise short-term output volatility as part of their framework, with the flexible or medium-term nature of many inflation-targeting frameworks one mechanism that allows for this. Moreover, all advanced economy central banks essentially seek to minimise output volatility in practice (e.g. Wadsworth 2017). To varying degrees, some also now recognise (explicitly or implicitly) financial stability considerations in their monetary policy frameworks.

Aside from the number of objectives, another distinguishing feature of China's policy framework is the extent to which they are interpreted through a time-varying, state-dependent reaction function. Zhou (2016) sets it out as follows:

… there are tolerance ranges for different policy objectives. Within these ranges, weights could be adjusted according to the deviation in the range interval. For example, during the crisis, China increased the weights on financial stability and soundness of financial institutions. During the period of high inflation, the weight on price stability would be increased; and when there is a large current account surplus or deficit, the weight on BOP would be commensurately increased. This is a dynamic optimization process in term of an intertemporal equilibrium model. Though this might make the objective function seem unstable, it is difficult to avoid, and would not become an obstacle for the central bank to pursue a multi-objective mechanism.

Communication by the PBC and other authorities in China over recent years appears consistent with the time-varying interpretation of the multi-objective framework. For instance, over the 2016–18 period, PBC monetary policy communication emphasised the financial stability objective more prominently, reflecting concerns over high debt levels and rising complexity in the financial system. More recently, the focus on ensuring full employment as an objective for monetary policy (and public policy more generally) appears to have sharpened, as reflected in the 2019 NPC meetings and in the 2019 ‘Government Work Report’ in which an ‘employment-first policy’ was articulated. This also suggested, perhaps for the first time, that the authorities were prepared to subordinate GDP growth to employment growth as a primary policy objective. As to the issue of how trade-offs across multiple objectives are managed, Yi (2018a) characterised the PBC's response in general terms: ‘China is an open economy, so we must give consideration to both internal and external equilibrium in formulating monetary policy. When there are contradictions between internal and external equilibrium, we need to strike a balance between them’.

3.2 Intermediate Targets

Following the adoption of inflation targeting in New Zealand, the United Kingdom, Sweden and Australia in the early 1990s, monetary policy objectives in advanced economies have since found almost universal expression in a flexible inflation-targeting regime (Table 6). The precise manner in which the high-level objectives for monetary policy translate into inflation targets differs only to a degree across advanced economies. For instance, the ‘flexible’ element of a flexible inflation-targeting regime can incorporate differing time periods over which the inflation target is expected to be achieved (‘the time to target’), and for some central banks it can include target ranges (an ex ante concept, as in Australia and New Zealand) or tolerance ranges (an ex post concept, as in Canada and Sweden) around a numerical point target for inflation.

The widespread adoption of flexible inflation targeting was in no way preordained; for its part, developments in academic theory lagged behind the practical application. For most central banks, the introduction of inflation targeting followed recognition that previous monetary frameworks – where monetary aggregates or the exchange rate served as a nominal anchor – had been unsuccessful in delivering price stability or sustainable full employment. With the alternatives exhausted, inflation targeting was the next framework to be trialled. In a handful of cases – the United Kingdom, Sweden and Norway – it was a discrete event in the form of the breakdown of the European exchange rate mechanism that served as a catalyst. But for most countries the adoption of inflation targeting as a new monetary anchor was more evolutionary than revolutionary.

Evolution has also been a common thread in the setting of intermediate monetary policy targets in China, though these can be distinguished from intermediate targets in advanced economies by type, number and the frequency with which they are reviewed and reset. Most notably, at the present time there is some uncertainty as to whether monetary policy in China still operates with an official intermediate target.

In the period between 1984 (when the PBC's commercial activities were carved out) and 1997, credit served as the primary intermediate target for monetary policy due to the administrative control the PBC exercised over bank credit. This was a reflection of a financial system that was dominated by a highly concentrated banking sector (Huang et al forthcoming). So-called ‘Mandatory Direct Credit Plans’ set out targets for the price, quantity and allocation of credit. This included strict interest rate controls on both deposits and loans, bank-by-bank credit ceilings and provincial- and industry-level credit targets. Credit plans for state banks prepared by the PBC were submitted to the State Council for approval after reconciliation by the State Planning Commission. But regulatory leakage and other frictions increasingly bedevilled monetary policymaking, culminating in two destabilising outbreaks of credit growth and inflation (in the late 1980s and early-to-mid 1990s) and downward pressure on the exchange rate. In 1994, the year prior to the establishment of the PBC's founding legislation which declared that ‘[t]he aim of monetary policies shall be to maintain the stability of the value of the currency’, the exchange rate had depreciated by around 50 per cent (foreign exchange reserves stood at just US$20 billion), credit growth had expanded at a 45 per cent rate and inflation peaked above 25 per cent. Soon after, a wave of regional currency instability was unleashed during the east Asian financial crisis, an event that left a lasting impression on policymakers throughout the region.

Thus conditions were ripe in the mid-to-late 1990s for a substantial overhaul of China's monetary policy framework. Inflation targeting was still a bridge too far at this time, however. Given the PBC's legal powers had only just been established, it had not had time to earn credibility as an economic manager and interest rate pass-through mechanisms were absent, it is reasonable to question whether a conventional inflation-targeting regime could ever have succeeded in the prevailing conditions. Instead, M2 growth emerged as the main intermediate target of monetary policy in the mid 1990s, a position it held for around two decades. In more recent years, however, the primacy of the M2 target has been called into question. In March 2018, no target for M2 growth was announced by the authorities for the first time since at least the mid 1990s (Table 7).

By contrast, the role of credit as an intermediate target for monetary policy was de-emphasised much earlier. Following the emergence of M2 growth as the key target in the mid 1990s, the PBC abandoned direct controls over bank credit in 1998 in favour of an indirect system of credit management which was based on new instruments and more active management of existing instruments. Thereafter credit was often characterised merely as a ‘reference indicator’ for monetary policy, at least until 2012, when it was supplanted by the broader measure of total social financing (TSF)^[18] (Yi 2018a). This reflected recognition of the expanding role of non-bank financial institutions and the capital markets in influencing overall financial conditions in China.

Like many aspects of China's monetary policy framework, the role of the exchange rate has also changed notably over time. This partly reflects that exchange rate stability has at times appeared to serve as both an objective and intermediate target of monetary policy. Prior to the 1994 devaluation, a de facto dual exchange rate system operated in China whereby the market-based rate deviated substantially from the official rate. The dual exchange rates were unified following the 1994 devaluation, and a crawling peg exchange rate regime began to serve as a nominal anchor for monetary policy. This was also around the time that ‘currency stability’ was codified as a high-level objective in the PBC's founding Law. The renminbi was then re-pegged to the US dollar in 1997 and reinforced with new capital controls. At the time of the 2.1 per cent revaluation in July 2005, the PBC announced the beginning of a managed floating exchange rate regime, where the exchange rate would trade ‘at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability’ (PBC 2005). The authorities continued to closely manage the exchange rate, reflected in China's foreign exchange reserve holdings swelling to US$4 trillion. Reserve sterilisation and capital controls were employed to reduce the impact of balance of payment flows on domestic monetary supply.

Greater tolerance by the Chinese authorities for the exchange rate to be determined by market forces, coupled with more balanced gross capital flows, has also allowed the PBC to step back from direct foreign exchange intervention in recent years, and the managed float regime has evolved to include a basket of exchange rates. While increased exchange rate variability and a phased reduction in capital controls should continue to see the exchange rate play a less prominent role in China's monetary policy framework, PBC officials have affirmed that exchange rate stability, assisted with capital controls, is likely to remain a focal point of monetary policy for some time. Indeed the ‘trilemma’ – the proposition that with free capital mobility, a self-determined monetary policy is feasible only if exchange rates are floating – continues to loom large in the operation of the monetary policy framework. As Yi (2018a) recently noted, ‘By ensuring basic stability of the value of RMB, we can help promote economic growth, and ther[e]by meeting the ultimate goal of monetary policy specified in the Law of the People's Bank of China’.

Historically, the role of inflation in the alternating mix of intermediate targets has tended to be more subservient to monetary aggregates and the exchange rate. More recently, the role of price stability in contributing to the high level objective of stability in the value of the currency (as per The PBC Law) has been interpreted by the PBC as follows: ‘To maintain currency stability has two tiers of meanings: internally it means to maintain prices stable and externally it means to keep RMB exchange rate basically stable at an adaptive and equilibrium level’ (Yi 2018a). Over the past fifteen years, the inflation target has variously been set at 3, 3.5 or 4 per cent (3 per cent in the most recent five years). In practice, a tolerance band of 0 to 3 per cent has tended to prevail. Inflation outcomes in China over the past decade (in terms of both levels and volatility) have been generally sound in this context (see Section 5 for further discussion).

One final distinction in China's intermediate targets vis-à-vis those in advanced economies relates to the frequency with which they are reset. Within the context of China's five-year plans, the State Council sets annual goals for macroeconomic outcomes. Each December at the Central Economic Work Conference, inflation and other targets are reviewed and restated, and subsequently ratified at the sitting of the NPC the following March.^[19] Annual adjustments to targets typically reflect the State Council's assessment of what is an acceptable trade-off between growth and inflation in response to the experience of the past year. Unlike inflation targets in most inflation-targeting monetary policy frameworks, the Chinese target is not a fixed objective but rather a guide that is adjusted as conditions evolve.^[20] By contrast, most central banks in advanced economies typically revisit their numerical inflation target sparingly and in the context of broader reviews of their monetary policy framework.^[21]

3.3 Operational Targets and Instruments: Emergence of a Hybrid Price–Quantity System

The PBC has long advocated for a price-based framework (where central bank policy and market interest rates play a larger role) to help improve the efficiency of China's macroeconomic management. But much like its peers in advanced economies, the PBC was faced with considerable uncertainty over when, and how rapidly, to transition from a quantity- to a price-based operating framework. It has moved gradually in response, taking into account the nature of China's institutional arrangement and the state of financial system development. The result is that today the framework is best characterised as a hybrid price–quantity system, but one in which administrative guidance continues to feature prominently.

No single policy target or tool is used to either represent the overall stance of monetary policy in China, or facilitate its implementation: quantity-based, price-based and guidance-based targets and instruments all feature. Though generally used to reinforce the impact of one another, they can also be used for quite different objectives. Some could be considered analogous to those employed by advanced economy central banks, while others are more unique to China's implementation framework.

3.3.1 Quantity-based targets and instruments

3.3.1.1 Money base

The monetary base served as the main operational target for monetary policy in China from 1984 (when the PBC's activities began to focus solely on central banking functions) up until the early 2000s (e.g. Xie 2004; Goodfriend and Prasad 2006). For the better part of a decade thereafter, a hybrid operating target system started to emerge, with the money base (principally reserves) continuing to serve as an operational target alongside short-term repurchase (repo) rates. Over this time, instability in the traditional relationship between base money and the intermediate target, M2 growth, became notable. Factors contributing to this instability were not entirely dissimilar to those observed elsewhere (e.g. Liao and Tapsoba 2014; Sun 2015; Ma 2017): financial market deepening, particularly in the money and bond markets; the gradual liberalisation of bank lending and deposit rates (officially completed in 2015); substantial innovation in payments and wider financial system technologies; and the emergence of non-bank financial institutions (including so-called ‘shadow banks’). As part of the 13th Five-Year Plan (2016–21), transitioning more fully to a market-based operational framework was identified as a policy priority, and since then, the PBC has indicated that it considers the 7-day interbank repo rate (specifically the volume-weighted daily average of repo transactions between depository institutions) as the primary operating target for monetary policy.

3.3.1.2 Open market operations (OMO)

PBC repo and reverse repo agreements have emerged as the primary instrument in the PBC's OMO activity, replacing outright purchases and sales of government securities (which were dominant in the early 1990s) and central bank bills (which increased in significance from the late 1990s). Central bank bill issuance expanded particularly strongly in response to the PBC's desire to sterilise at least some of the effects of the rapid growth in China's foreign exchange reserves, but cost considerations lead to their phasing out in favour of adjustments to the required reserve ratio from the mid 2000s (Goodfriend and Prasad 2006; Ma, Yan and Liu 2011; Huang et al forthcoming). PBC repos (and reverse repos) range in maturity from 1 week to 1 year, and are secured against high quality collateral, principally central government and policy bank bonds. Around 50 primary dealers (mostly banks and a small number of securities companies) participate in the PBC's OMO. In 2016, the frequency of OMO activity increased from twice per week to daily, though in practice, the PBC refrains from OMO on days when it is comfortable with the overall interbank liquidity position, and to aid more generally in secondary market development. Taking both the PBC repo and ‘interbank’ repo market together, the largest net lenders in the financial system are the ‘Big Five’ state-owned banks, the three policy banks and the Postal Savings Bank of China, while other banks and securities and investment firms are typically net borrowers (Figures 1 and 2).^[22]

3.3.1.3 Reserve requirement ratio (RRR)

The RRR, whose usage is still not uncommon in emerging market economies but has long since been phased out in advanced economies, determines the proportion of deposit liabilities the PBC requires banks to hold with it. By varying RRRs, the PBC is able to affect interbank liquidity and the supply of funds available for lending by deposit-taking institutions.^[23] Although first introduced in 1984, RRRs were actively used to manage liquidity conditions only from the mid-to-late 2000s (in place of central bank bill issuance), principally as a lower-cost method of sterilising foreign exchange reserve accumulation. Since 2008, the PBC has adopted a formal tiering RRR system based on bank size (smaller banks have since been subjected to lower RRRs). Since 2011, the tiering was further refined to take into account other factors including the composition of individual bank loans and financial stability considerations. Since foreign exchange reserve holdings peaked in 2014, the PBC has substantially reduced RRRs, though there remains some uncertainty as to whether RRRs will be phased out altogether (assuming no further growth in foreign exchange reserves) or used to actively manage financial conditions in the banking system (Figure 3).^[24]

3.3.1.4 Supplementary lending facilities

Over recent years the PBC has expanded its range of bank lending facilities, for the purposes of fine-tuning liquidity operations and supporting national credit and fiscal priorities (Figure 4).^[25] Access to these supplementary facilities, which unlike OMO are infrequently used, requires domestic banks to post high-quality collateral^[26] and meet the PBC's macroprudential requirements. These facilities include the following:

• The medium-term lending facility (MLF) was introduced in 2014 to supply banks with funding over periods of 3 to 12 months in support of their lending to priority sectors, such as small private enterprises. Borrowing is conducted at interest rates slightly above the PBC's repo rate. A ‘targeted’ variant of the MLF was introduced in January 2019, with a longer duration (renewable for up to three years) and a slightly lower interest rate than the standard MLF.
• The pledged supplementary lending facility (PSL) was introduced in 2014 but for the purpose of providing the three policy banks with longer-term funding (three to five years) to support the government's housing redevelopment projects and other initiatives. The costs associated with this facility are not disclosed in a standardised fashion.
• As described below, banks may also have access to the PBC's standing-lending facility (SLF), which was introduced in 2013 to form the ceiling of the defacto interest rate corridor. Unlike the MLF and PSL, which have functioned to provide longer duration financing to support lending to the real economy, the SLF is designed more to satisfy unexpected short-term liquidity shortfalls. However, as is the case with ceiling facilities maintained by advanced economy central banks, take up of the SLF has been minimal and likely constrained by ‘stigma’-related concerns on the part of potential borrowers.

3.3.2 Price-based targets and instruments

To help guide the repo rate as an operational target, the PBC introduced an interest rate corridor system in 2015 that is somewhat wider, but otherwise similar, to those in use by advanced economy central banks. The upper limit of the corridor is represented by the interest rate on the PBC's SLF, which since late 2015 has made cash available to qualified borrowers (on a secured basis) at interest rates of around 3.5 per cent, about 1 percentage point above the PBC's repo rate. The lower bound of the corridor is represented by the interest rate paid on excess reserves (IOER), which has remained at 0.72 per cent. Within this range, the PBC lends cash to eligible banks at the 7-day PBC repo rate, which is currently a little above the midpoint of the upper and lower corridor bounds. The 7-day interbank repo rate – a key operating target – reflects the (weighted-average) cost of short-term secured borrowing for financial institutions. Eligible financial institutions have no real incentive to borrow at a higher rate than the SLF, or invest at a lower rate than the IOER. Indeed in practice, the 7-day interbank rate has remained well inside the corridor bounds since its introduction (Figure 5). In the period from mid 2015 to mid 2018, when Chinese authorities were particularly concerned with excessive leverage and growing opacity in the financial system, the PBC tended to maintain a slight structural liquidity deficit in money markets as reflected in the interbank repo rate trading above the PBC's repo rate. But as monetary policy settings have eased somewhat since mid 2018, the PBC has supplied an increasing quantity of funds, allowing the interbank repo rate to drift lower.

Since the introduction of the interest rate corridor system and more active management of liquidity conditions in the Chinese money market, volatility in short-term interest rates has fallen (Figure 6). Short-term interest rate volatility in China is now similar to that observed in advanced economies (Ma forthcoming). At the same time, foreign asset holdings have declined relative to domestic assets (partly reflecting moderating current account surpluses), and volatility in the exchange rate has increased as the authorities have retreated from direct intervention (Figure 6). These divergent trends in interest rate and exchange rate volatility are broadly consistent with the pattern observed in advanced economies as the monetary policy framework transitioned from exchange rate to interest rate targeting.^[27] Nevertheless, as acknowledged by the PBC and described in detail below, the transition toward a fully price-based operational framework is far from complete.^[28]

Though the PBC has long sought for interest rate (price) adjustments to have a larger role in the implementation of monetary policy, the task of interest rate liberalisation in China over the past 25 years has proven complex. Progress has been gradual. The intensity of prudential regulation and other financial stability-related policy measures (such as deposit insurance in 2015) has progressively stepped up to help ensure the process of interest rate deregulation has not given rise to risks associated with excessive price competition among banks as seen in advanced economies in the 1970s and 1980s. Key elements of this progress have included the liberalisation of money and bond market rates ahead of bank lending and deposit rates (so-called ‘dual track liberalisation’),^[29] while lending rates have been officially liberalised ahead of deposit rates (with remaining restrictions officially lifted in 2012 and 2015 respectively). Up until recently at least, bank deposit and lending rates have continued to be anchored by benchmark rates, which fall under the purview of the State Council, with the PBC afforded discretion mainly over changes to the floating bands around the benchmarks (Figure 7). The most recent example of the PBC's efforts to improve the transmission of interbank rates to bank lending rates can been seen with the introduction of the loan prime rate (LPR) in late 2019, in place of the benchmark loan rate which had been unchanged since 2015. The LPR reflects the lending rates that banks offer to their best clients and are set with reference to rates on MLF operations, which are under the PBC's direct control.^[30] Nevertheless, the process of unifying heavily guided bank loan and deposit interest rates with liberalised financial market rates is a work in progress.

3.3.3 Administrative (‘window’) guidance

Administrative (‘window’) guidance – directives delivered to the financial sector by the PBC of its own accord or reflecting the wish of the State Council – offers a particularly notable difference in how monetary policy is currently implemented in China vis-à-vis advanced economies. Window guidance allows the PBC to maintain a strong degree of influence over both the volume of credit extended by the banking system, and the sectors that can obtain loan financing. Although formal credit quotas were abolished in 1998, and non-banks have accounted for a rising share of credit over time, the PBC's macroprudential assessment (MPA) process gives its window guidance activities additional substance.^[31] For instance, compliance with national credit initiatives is one of the criteria that feed into the overall MPA score that can determine the eligibility and cost of accessing the PBC's liquidity facilities. Window guidance continues to serve macroeconomic policy objectives and aids in reinforcing microeconomic industry policy initiatives, which in recent times have centred on supporting micro- and small-sized enterprises.^[32]

Footnotes

Total social financing includes bank credit, non-bank forms of credit intermediation (like trust and entrusted loans), and capital market issuance. [18]

The NPC meets annually in March to discuss and approve the government's policy agenda for the coming year. At this time, the Premier presents the ‘Government Work Report’, which contains the government's economic and reform priorities for the year (including various targets), and the government simultaneously releases a report from the National Development and Reform Commission and the Ministry of Finance's budget. [19]

Developing economies often adjust their targets downward in steps when trying to establish inflation credibility. [20]

Strictly speaking, the Bank of England and more recently the US Federal Reserve revisit their inflation targets annually, but these annual updates do not represent wholesale reviews. [21]

In the interbank repo market, central government and policy bank bonds are most commonly pledged as security, though collateral and haircuts depend on bilateral agreements between repo counterparts. China's interbank repo market is comprised of pledged repos and title-transferred repos, both of which settle t + 0 or t + 1. In the case of the former, collateral bonds are not transferred to the lenders while they are for title-transferred repos. The pledged repo market is considerably more active than its title-transferred counterpart. See also Kendall and Lees (2017). [22]

The precise impact on lending behaviour depends in part on the extent to which excess reserves are plentiful. [23]

The interplay between the PBC's foreign exchange intervention and its use of RRR adjustments attracted considerable attention in 2015, when in an effort to slow the depreciation of the exchange rate without slowing the economy, the PBC's withdrawal of renminbi from domestic money markets was initially coupled with RRR cuts. Some market participants viewed as this a form of monetary easing, which appeared to support expectations for further exchange rate depreciation and capital outflows. Supplementary lending facilities were subsequently introduced, partly as a means of injecting domestic liquidity to offset the PBC's exchange rate smoothing operations without creating the impression of monetary easing. [24]

As noted earlier, Article 23 of The PBC Law (2003) provides for some degree of discretion the tools used by the PBC when implementing monetary policy. [25]

Eligible collateral includes central bank bills, bonds of the central government, policy banks and high-grade corporates, and high quality loans. [26]

For instance, see Stevens (2013) for a review of the Australian experience. [27]

As Yi (2018a) recently observed: ‘Price control has been more important than it used to be, but at the same time … quantity control is not yet discarded and remains very important. Hence at present, both quantity and price controls are playing their part’. [28]

Liberalisation of market rates has been important in creating momentum for bank rate liberalisation, as the yields on fixed income securities introduced an element of competition for banks seeking deposit funding. [29]

Under the new arrangements, the LPR is based on quoted submissions from a panel of 18 banks reflecting the lending rate they offer their best customers, quoted as a spread to the MLF. See Reserve Bank of Australia (2019). [30]

At the beginning of 2016, the PBC introduced the MPA to help address macroprudential risks in the financial system. The assessment uses a scoring system (0–100) for 16 indicators across 7 categories to assess the soundness of banking institutions and their compliance with national directives. [31]

It is an open question as to the extent to which the sheer size of China complicates the transmission of guidance down to the local level, notwithstanding the PBC's cross-country branch structure. [32]