Sat, July 13

The Central Bank’s Expansion of Its Balance Sheet

The People’s Bank of China (PBOC), the central bank, has significantly expanded its balance sheet by nearly 5 trillion yuan in just half a year, increasing from 40.8 trillion yuan in July 2023 to 45.6 trillion yuan by January 2024. This substantial increase is a reflection of a robust financial manoeuvre, signifying a deeper involvement in the economy’s liquidity and monetary policy adjustments. This article will dissect the implications of this expansion, focusing on both the liabilities and assets sides of the balance sheet, and explore the broader economic indicators and policy directions that underpin these changes.

Liabilities: A Closer Look

The increase in liabilities, particularly the rise in debts to other deposit-taking corporations, marks a significant shift. From July to December 2023, this specific liability rose by about 3.2 trillion yuan, highlighting an aggressive strategy of lending to banks. This move is central to understanding the PBOC’s efforts to manage liquidity and stimulate economic activity. By lending to banks, the central bank ensures that financial institutions have the necessary funds to lend to businesses and individuals, thus supporting economic expansion and development.

The Path of Money Circulation

The central bank’s approach to monetary policy involves creating money that is subsequently lent to banks. These banks then lend to corporations and individuals, who, after generating income, deposit excess funds back into the banking system, thus completing the cycle of money circulation. This process has been further emphasized in the latter half of 2023, with the issuance of financing bonds and the initiation of trillion-yuan national bonds, alongside tools like the Medium-term Lending Facility (MLF) and Pledged Supplementary Lending (PSL), which act as conduits for injecting liquidity into the economy.

Assets: Foreign Exchange Holdings

On the asset side, the central bank’s foreign exchange holdings have remained relatively stable, increasing slightly from 21.6 trillion yuan in January 2023 to 22.1 trillion yuan by January 2024. Despite fluctuations in global trade and currency markets, this stability reflects a deliberate policy choice to maintain a balanced approach to managing the country’s foreign exchange reserves, which continue to account for about 50% of the central bank’s assets.

Economic Growth and Policy Implications

The PBOC’s balance sheet expansion coincides with China’s broader economic policy aims, including stimulating consumption and investment, reducing social logistics costs, and transitioning from an export-driven economy to one that is more focused on domestic consumption and investment. This shift is evidenced by significant policy measures aimed at encouraging large-scale equipment upgrades and promoting consumer goods recycling. Moreover, the emphasis on lowering logistics costs and enhancing the transportation infrastructure aligns with efforts to stimulate both consumption and investment as dual engines of economic growth.

Looking Ahead: The Dragon Year and Economic Recovery

As we analyze the signals from the recent Central Financial and Economic Affairs Commission meeting, it’s clear that consumption and investment are pivotal to China’s economic targets for the year. The central bank’s monetary policy tools, which have been actively adjusted to support these objectives, are crucial for creating and sustaining demand. However, it’s important to recognize that monetary policy alone cannot drive economic recovery; it serves as a tool to facilitate broader economic strategies.


The PBOC’s expansion of its balance sheet by nearly 5 trillion yuan in such a short period is a significant indicator of China’s monetary policy direction and its commitment to supporting economic growth. This expansion is part of a comprehensive strategy to stimulate consumption and investment, reduce costs, and enhance the efficiency of the economy’s internal mechanisms. As China navigates the challenges and opportunities of the post-pandemic world, the central bank’s policies will continue to play a crucial role in shaping the trajectory of economic recovery and long-term development.