On October 19, the 2026 Financial Street Forum Annual Meeting opened in Beijing.
CI Research provides a joint interpretation covering macro strategy, fixed income, foreign exchange, banking and non-bank sectors.
Macro: Monetary Policy Signals from the Financial Street Forum
In our earlier report "How to View the Strengthening Rate Cut Expectations," we proposed that the central bank could keep the LPR unchanged while shifting the policy rate anchor and maintaining low funding rates, thereby driving down the cost of some newly issued loans linked to DR (deposit-taking financial institution bond repo rate) while keeping existing LPR-linked loan rates stable, reducing the impact of concentrated repricing of bank assets on net interest margins. The speech at this forum further clarified the reform direction of shifting the anchor, and related liquidity tools and market opening measures also provide support for policy transmission.
First, open market operations are switching to overnight, and low funding rates are expected to gain a clearer policy anchor. Governor Pan Gongsheng noted in his speech that DR001 has effectively become the target rate for monetary policy regulation, and the next step will be to "study the appropriate timing" to switch the tenor of the main open market operation instrument to overnight, correspondingly establishing the overnight operation rate as the primary policy rate, making the operation tenor more consistent with the actual regulatory target. According to our earlier report's data, after the National Day holiday, the DR001 and DR007 midpoints had already fallen below 1.30% and 1.35% respectively, both below the 1.40% 7-day reverse repo rate. Combined with recent liquidity injections, we judge that the anchor shift could be combined with the continuation of low funding rates, stabilizing expectations for market financing costs and producing a certain rate-cutting effect on the money market and bond market.
Second, gradually introducing DR as a pricing benchmark for loan rates helps reduce some new financing costs and also helps domestic and international investors and institutions better understand China's monetary policy stance. Governor Pan Gongsheng proposed in his speech to push loan pricing from a relatively singular reference to LPR toward more diversified pricing benchmarks, with some financially capable enterprises able to negotiate with banks to choose DR001 or LPR, while LPR continues as an important pricing benchmark for small business and personal loans. Changes in funding rates can thus be transmitted more directly to relevant loans. With LPR unchanged, new loans linked to DR still have room for price reductions, while existing loans linked to LPR need not be adjusted accordingly. Considering that the bond market had already priced in strong rate cut expectations, the support for funding conditions from the operational framework adjustment may not necessarily push long-end yields further down. The official full name of LPR is "Loan Prime Rate." A well-known overseas consulting firm's September report this year one-sidedly interpreted the fact that most of China's newly issued loan rates are at or below LPR as systematic low-price credit. In reality, we believe that loan rates in practice are jointly influenced by funding costs, tenor and credit risk factors, and the phenomenon of rates temporarily falling below LPR should not be over-interpreted. Introducing the transaction-formed DR benchmark helps more clearly present the relationship between base funding costs and loan spreads, improving pricing transparency and international comparability.
Third, the anchor shift on the loan side requires more stable funding rates, and new liquidity tools provide institutional safeguards. When more corporate loans are linked to DR, short-term liquidity disturbances could more directly affect the real economy's interest payment costs, so the central bank needs to pay more attention to overnight rates operating stably around the policy rate. This expansion of the Standing Lending Facility (SLF) scope to include domestic foreign-funded legal entity banks, with the same arrangement explicitly applying to national banks, achieves full coverage of domestic deposit-taking financial institutions, helping improve the availability of temporary liquidity support and strengthening the interest rate corridor's guidance of funding prices. Meanwhile, the proposed non-bank institution large-scale redemption liquidity support tool will be activated in specific scenarios where asset management institutions face group liquidity risks and the bond market experiences a "redemption-selling" negative feedback loop, requiring macro-prudential conditions to be met and high-grade collateral to be provided. We believe the two tools respectively strengthen the banking system's daily liquidity management and non-bank institutions' liquidity safeguards under stress scenarios, helping reduce the spread of localized funding tightness to the bond market and improving the stability of interest rate regulation.
Fourth, market interconnection and two-way opening are being advanced simultaneously, helping reduce transaction costs and improve the convenience of RMB asset allocation. Interconnection between the interbank and exchange bond markets will facilitate cross-market bond issuance and trading, reducing transaction frictions and liquidity differences caused by market segmentation, and improving price discovery. Smoother market connections also help enhance the transmission of policy rates to bond prices. In the foreign exchange market, the central bank plans to pilot allowing 8 Chinese and foreign RMB overseas clearing banks to conduct proprietary trading in the domestic interbank FX market. This connects with previous reforms: in June this year, the central bank authorized 6 domestic banks to use the FX Trading Center platform to conduct offshore RMB FX trading in the Shanghai Free Trade Zone. From domestic banks participating in offshore trading to overseas clearing banks participating more deeply in the onshore market, two-way opening helps enrich trading entities, improve RMB liquidity and risk management conditions, and promote integration of onshore and offshore markets. Additionally, in June this year, the People's Bank of China established an overseas central bank repo tool, which received widespread attention and welcome. Foreign RMB clearing banks are an important part of the RMB cross-border clearing network, and the PBOC plans to include them as support recipients of the tool, helping foreign clearing banks better serve overseas RMB business. Looking ahead, the core of future interest rate trends remains fiscal strength, especially whether fiscal policy can effectively drive a recovery in nominal demand. The anchor shift and improved liquidity tools help maintain relatively low and stable financing costs, while fiscal policy simultaneously affects real demand and government bond supply. If next year's fiscal new spending is strong and funds are deployed quickly, driving improvement in household and local government cash flows and boosting demand and prices, even if short-end funding conditions remain accommodative, the downside space for long-end rates may be constrained, and larger government bond supply will test financial institutions' absorption capacity; otherwise, the opposite holds.
Strategy: Financial Street Forum Releases Positive Signals, Helping Repair Market Confidence
On October 19, the 2026 Financial Street Forum Annual Meeting opened in Beijing. This year's forum is themed "Openness, Cooperation, Inclusiveness — Building a New Ecosystem for Global Financial Development," with PBOC Governor Pan Gongsheng, National Financial Regulatory Administration Director Ding Xiangqun, CSRC Chairman Wu Qing, and SAFE Director Zhu Hexin attending and delivering keynote speeches. From a capital market perspective, we believe this forum released positive signals around monetary policy framework improvement, capital market reform, financial market stability and expanded opening. Against the backdrop of recently cautious investor sentiment and insufficient incremental capital, related measures are expected to enhance market liquidity, stabilize market expectations and boost investor confidence.
Improving monetary policy transmission and liquidity support mechanisms to support smooth financial market operation and deepening real economy transformation. Governor Pan Gongsheng proposed the following policy measures: 1) Advancing interest rate marketization reform. First, studying the appropriate timing to adjust the tenor of the main open market operation instrument to overnight, correspondingly adjusting the main policy rate to the open market overnight repo rate; second, promoting diversification of loan pricing benchmarks, allowing qualifying enterprises to negotiate with banks to choose DR001 or LPR as the floating rate loan pricing benchmark, and continuing to improve the LPR quotation mechanism; third, gradually replacing deposit and loan benchmark rates with market-based interest rate indicators. Regarding the policy rate anchor shift, the market had previously paid close attention. We believe the core of the anchor shift lies in improving interest rate regulation and transmission mechanisms. Due to different operation tenors, interest rate levels before and after the switch should not be directly compared, and whether it brings additional easing still requires observation of subsequent central bank operations. 2) Supplementing liquidity support tools. Planning to establish a non-bank institution large-scale redemption liquidity support tool to ease the mutually reinforcing pressure of bond market redemptions and selling under specific scenarios; expanding the SLF scope to include domestic foreign-funded legal entity banks, with the same operational arrangement explicitly applying to national banks. Related measures help strengthen the financial system's ability to cope with liquidity shocks. 3) Facilitating cross-border allocation of RMB assets. Promoting the implementation of interbank and exchange bond market interconnection, planning to pilot allowing 8 Chinese and foreign RMB overseas clearing banks to conduct proprietary trading in the domestic interbank FX market, and including foreign RMB clearing banks in the support scope of the overseas central bank-type institution repo tool. Related measures help reduce cross-market trading barriers, improve overseas RMB liquidity support, facilitate overseas institutions' allocation of RMB assets, and enhance the international attractiveness of China's financial markets. 4) Increasing fintech support. Issuing the "Guiding Opinions on Financial Support for Building Beijing (Beijing-Tianjin-Hebei), Shanghai (Yangtze River Delta), and Guangdong-Hong Kong-Macao Greater Bay Area International Science and Technology Innovation Centers," promoting relending, the bond market "tech board" and cross-border investment and financing policies to increase support and pilot first, while doing a good job in AI industry financial services and steadily promoting AI applications in the financial sector.
Affirming the allocation value of Chinese assets, releasing positive signals around stabilizing the market, attracting long-term capital and deepening reform. CSRC Chairman Wu Qing emphasized that China's economy is moving toward new and better development, and the supporting conditions and fundamental trends for long-term improvement remain strong, and proposed adhering to the principle of stability first, making every effort to maintain capital market safety and stability. Policy deployments mainly include six aspects: 1) Improving market stabilization mechanisms, encouraging buybacks and increases in holdings. Strengthening domestic and overseas risk monitoring and policy tool reserves, paying attention to new risks such as overseas leveraged products linked to A-share individual stocks; encouraging qualified listed companies to increase buybacks and holdings to maintain market stability and boost investor confidence. 2) Promoting medium and long-term capital entry into the market. Improving long-cycle assessment mechanisms, expanding medium and long-term capital sources, channels and entry methods, deepening public fund reform, and announcing that the first batch of 18 active ETFs would be approved for registration that day. Related arrangements help improve entry conditions for long-term capital such as insurance funds and pensions, broadening incremental capital sources for the market. 3) Deepening financing-side reform. Implementing STAR Market and ChiNext reforms, improving institutional inclusiveness for issuance, listing and M&A, and releasing revised administrative measures for listed company securities issuance registration and supporting rules at an appropriate time; steadily advancing the Beijing Stock Exchange 50 ETF, BSE IPO market value allocation, innovative evaluation standards and NEEQ tiered management optimization to better meet innovative enterprises' financing needs. 4) Improving listed company quality and securities institution competitiveness. In the first half of 2026, listed company net profits grew 19.5% year-on-year, with dividends and buybacks reaching 2.1 trillion yuan during the year. Subsequently, promoting the introduction of listed company supervision regulations, improving corporate governance and information disclosure mechanisms, supporting securities firms to accelerate integration through M&A and restructuring, and speeding up the building of internationally first-class investment banks. 5) Strengthening constraints on违规 reductions and investor protection. The original text mentions improving penalty rules for illegal share reductions, refining identification standards, and introducing guidance opinions on advance compensation in the securities market; preparing to establish a fund industry operation monitoring center, issuing AI safety and compliance application standards for the securities and futures industry, strengthening risk monitoring, regulating market order and protecting investor rights. 6) Expanding capital market opening. Improving QFII investment convenience, supporting domestic and overseas institutions in developing China asset-related indices and products, encouraging foreign institutions to conduct business in China and participate in innovative businesses; advancing mainland-Hong Kong market coordination, and accelerating the inclusion of RMB stock trading counters and REITs in Stock Connect.
Looking ahead, positive signals are increasing, and opportunities at the current position outweigh risks; we are not pessimistic about the outlook. In our October 15 report "Short-term Headwinds Are Strong, Waiting for Positive Signals," we noted that external disturbances and funding pressures overlap, and the short-term market is waiting for positive signals, but domestic fundamentals and medium-term logic have not changed, and the A-share market is still expected to continue its long-term, steady progress trend. This forum's deployments around market stabilization mechanisms, investment-side reform and liquidity support release positive policy signals to the market, helping stabilize market expectations and boost investor confidence. Among them, the PBOC's proposed non-bank liquidity support tool helps ease bond market redemption-selling pressure and reduce risk transmission to other markets; the CSRC's proposals to encourage buybacks and holdings increases, strengthen constraints on illegal share reductions, promote long-cycle assessment, deepen public fund reform and broaden capital entry channels are expected to improve entry conditions for long-term capital such as insurance funds and ease market funding pressure. Moreover, after earlier adjustments, the medium-term cost-effectiveness of overall A-share valuations has improved. As of October 16, the CSI 300 forward P/E was only 10.98x, significantly lower than major global markets (S&P 500/Nikkei 225/European indices/MSCI UK/India index forward P/Es were 18.87x/19.13x/13.95x/12.11x/19.09x respectively), and the CSI 300 dividend yield was about 2.82%, significantly higher than the 1.65% 10-year government bond yield, with stock-bond cost-effectiveness above the historical average. After a relatively long period of adjustment since the third quarter, A-share structural overvaluation has been substantially improved, and the ChiNext P/E (TTM) has fallen back to 31.9, at the 15.8th percentile since 2015. In terms of performance, A-share listed company results in the first half of this year continued to exceed investor expectations; we believe overall performance growth in 2026 is expected to be the best in nearly five years. The supporting logic for A-shares from global monetary order reconstruction and the technology narrative has not changed, and earlier adjustments have already fairly fully reflected the adverse effects of multiple recent unexpected imported risk challenges, so there is no need to be pessimistic about the medium-term trend of the A-share market. At the allocation level, returning to a "barbell structure." In our October 12 report "Returning to a Barbell Structure?", under an environment of limited aggregate growth elasticity, coexisting structural high prosperity and increased market risk appetite volatility, the "technology + dividend" barbell structure is expected to become an allocation choice balancing earnings growth elasticity, shareholder cash returns and portfolio stability. Specifically, focus on two main lines. 1) Areas where third-quarter earnings growth improves quarter-on-quarter: for example, some upstream non-ferrous metals, and technology hardware benefiting from AI prosperity and overseas demand. 2) High-dividend assets: domestic long-end rates are at historically low levels, listed companies overall maintain dividend yields and payout scale, and during periods of high investor wait-and-see sentiment, the high-dividend sector once again becomes an important choice for capital allocation. Chart: Summary of some policy statements at the 2026 Financial Street Forum Annual Meeting. Source: National Financial Regulatory Administration, CSRC, People's Bank of China, Securities Times, CCTV Finance, etc., compiled by CICC Research Department.
Fixed Income: Impact of the Interest Rate Anchor Transition
PBOC Governor Pan Gongsheng attended the 2026 Financial Street Forum Annual Meeting and delivered a keynote speech. At this forum, Governor Pan mentioned multiple upcoming policy measures, some of which the central bank had previously hinted at, such as establishing a non-bank institution liquidity support tool and promoting the implementation of interbank and exchange bond market interconnection. Regarding the non-bank institution liquidity support tool, the central bank this time clarified that the tool aims to establish a bond market stabilization mechanism, and set the activation scenario as when asset management institutions face group liquidity risks and the bond market experiences a redemption-selling negative feedback loop, while requiring macro-prudential requirements to be met and high-grade collateral to be provided for operations with the central bank, preventing financial market pricing distortion, forming a bailout illusion and maintaining market discipline. While announcing new measures, Governor Pan also responded to issues of recent market concern, especially regarding the transformation and improvement of the monetary policy framework, which the market highly关注. In fact, in recent years the central bank has continuously carried out multiple rounds of optimization of the monetary policy regulation mechanism, especially at the price level, successively through clarifying the 7-day reverse repo as the policy rate, downplaying the policy rate color of other tools including MLF, and building a narrow version of the interest rate corridor based on temporary reverse repo operation rates, strengthening the effectiveness and precision of interest rate regulation guidance. Based on the previous framework optimization, the new directions mentioned by the central bank this time focus more on "convergence" at three levels.
First, convergence of the policy rate with the ultra-short-end rate commonly used by the market. The central bank this time mentioned "studying the appropriate timing to switch the tenor of the central bank's main open market operation instrument to overnight, and the open market overnight repo rate will accordingly become the main policy rate." Since open market operations became regularized, the 7-day reverse repo operation has been the central bank's most commonly used high-frequency injection tool, and the 7-day reverse repo rate was previously also explicitly designated as the policy rate. However, in interbank market repo financing behavior, the overnight repo trading scale accounts for a significantly higher proportion than other tenors including 7-day, with an overall share exceeding 90%. To better match the actual market business with the tenor structure of policy tools, at the Lujiazui Forum in June this year, the central bank mentioned timely adding temporary overnight reverse repo operation varieties, and subsequently conducted overnight reverse repo injections at seasonal disturbance points such as mid-month and month-end. In terms of interest rate regulation, the narrowed temporary overnight reverse repo rate corridor also mainly acts as guidance for the market overnight reverse repo rate, namely DR001. As Governor Pan stated, DR001 has effectively become the target rate for monetary policy regulation. We believe that further switching the commonly used policy injection tool from 7-day to overnight while setting the overnight repo rate as the main policy rate can better achieve effective connection between policy injection and actual market business, helping further improve the precision of policy rate regulation.
Second, convergence of loan rates with policy rates and bond rates. For a long time, China has had a situation where loan, money and bond rates operate in parallel. As early as 2019, to improve the effectiveness of monetary policy price transmission, the central bank promoted interest rate convergence, at that time using the MLF rate as a linking bond, with one end driving changes in money and bond market rates, and the other end setting the LPR quotation as based on the MLF rate plus a spread, and managing loan rates through LPR. But after the MLF's policy rate color faded, how loan rates could be re-linked to policy rates and other market rates such as bonds had no clear guidance. This time the central bank again mentioned promoting loan rate pricing benchmark reform, clarifying the transition from relatively singular LPR reference pricing to more diversified pricing benchmarks. This transition plan had also been anticipated by the market. In previous monetary policy execution reports, the central bank also mentioned promoting banks to explore diversified loan pricing benchmarks, and explicitly stated that loans priced with reference to DR001 had already been implemented. This time the central bank again mentioned that "some financially capable enterprises can, after negotiation with financial institutions, independently choose the interbank overnight repo rate or the loan prime rate as the floating rate loan pricing benchmark." On the bond market side, the central bank also simultaneously stated that "the pricing benchmarks for bonds and financial derivatives could also consider the interbank overnight repo rate as an option." It can be seen that DR001 has become a new multi-market convergence link.
Third, convergence of deposit rates. In the past, the central bank mainly regulated deposit rates by setting deposit benchmark rates supplemented by self-discipline mechanism constraints. The link between deposit rates and market-based rates was not close, and deposit rate adjustments often lagged behind bond and money market rates, posing certain challenges to bank net interest margins and the effectiveness of monetary policy transmission. To better leverage the market's role in interest rate decisions while strengthening the linkage between deposit costs, a core liability cost for commercial banks, and asset-side rates, the central bank indicated it would gradually exit deposit and loan benchmark rates and publish average deposit rates for various tenors as a reference for bank deposit pricing.
Overall, at this Financial Street Forum, the central bank's policy mechanism optimization for the next stage still mainly focuses on continuous improvement of the interest rate regulation mechanism, further clarifying the future role of the overnight reverse repo operation rate and DR001 as the core link between central bank policy and the money market, bond market, and deposit and loan markets. Under the previous operating model of multi-market interest rate convergence, adjustments in various asset-side rates were often not synchronized, and asset-side and liability-side rate adjustments also showed certain misalignment. This interest rate "derailment" to some extent weakened the effectiveness of policy regulation, and could even trigger fund idling phenomena such as low-interest loans being redeposited as high-interest deposits. The non-synchronized reduction of deposit rates and money market rates also to some extent prompted bank deposits to flow to non-bank institutions, amplifying instability in bank liabilities. We believe effective interest rate convergence is undoubtedly more conducive to the monetary policy interest rate regulation function, and can better unify the financing costs of the real sector across different markets through the interest rate dimension, reducing the possibility of risk-free arbitrage, improving fund use efficiency, and more efficiently supporting real economy recovery.
For the subsequent bond market outlook, since mid-to-late September, with central bank liquidity injection support, money market rates have overall operated at low levels, with the recent DR001 average approaching the May low again. Combined with the central bank's outright reverse repo excess renewal, this marginally strengthened market expectations for monetary easing. From historical data, DR001 still has some room to decline compared with the lows during the subprime and pandemic periods. Considering that real economy recovery still faces certain challenges and structural contradictions such as insufficient effective demand remain, we believe monetary policy may still need further easing to hedge economic growth pressure. With the central bank's switch of the policy rate anchor, there remains room for synchronized reductions in the future overnight policy rate and DR001. Risk: Economic recovery stronger than expected, monetary policy turning to tightening.
Foreign Exchange: Exchange Rate Policy Continues, Cross-border Investment and Financing Convenience Expected to Improve
The Financial Street Forum released incremental policies in the foreign exchange field. On October 19, the 2026 Financial Street Forum Annual Meeting opened. PBOC Governor Pan Gongsheng delivered a keynote speech titled "Reflections on Several Issues of Current Market Concern," and PBOC Deputy Governor and SAFE Director Zhu Hexin delivered a keynote speech titled "Deepening Foreign Exchange Opening, Better Serving the New Development Pattern." Foreign exchange-related content mainly includes three aspects: first, reiterating the RMB exchange rate policy; second, the PBOC plans to include foreign RMB clearing banks in the support recipients of the overseas central bank-type institution repo tool, plans to pilot allowing 8 Chinese and foreign RMB overseas clearing banks to conduct proprietary trading in the domestic interbank FX market, and study multi-level custody and promote RMB bonds becoming global qualified collateral; third, SAFE plans to launch two package policies on current account facilitation and optimizing capital account FX management, and plans to expand the securities company foreign exchange settlement and sales business pilot (Chart 1). We believe the RMB exchange rate policy will maintain continuity, and the next stage of incremental reform will deepen from broadening and improving cross-border channels to further improving the convenience of RMB cross-border investment, financing and trading. These incremental policies can be understood in three categories: one is expanding the support scope of existing tools, one is further clarifying implementation arrangements for previous deployments, and one is supplementing new market functions along existing directions. In the short term, the forum mainly enhanced policy predictability, which is not yet sufficient to independently change the direction of the RMB exchange rate. We maintain our previous baseline judgment of moderate RMB appreciation next year, a slowing slope, and increased two-way volatility (see "Reiterating Policy Stance, Responding to External Concerns"). In the medium to long term, if the trading, financing and risk management conditions for RMB assets continue to improve, it is expected to reduce allocation costs for overseas institutions, which is a positive factor for RMB international use and financial market resilience.
Exchange rate policy continues the existing framework. Governor Pan reiterated that China implements a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies. "After 2017, the People's Bank of China exited normalized foreign exchange market intervention," using macro-prudential management tools under specific scenarios, and even direct FX intervention under extreme scenarios, to correct market "herd effects" and self-reinforcing irrational expectations. Regarding external discussion that the RMB exchange rate is undervalued, Governor Pan pointed out that China's trade development is rooted in the improvement of industrial international competitiveness. "China has no need and no intention to gain trade competitive advantage through exchange rate depreciation." Using individual international assessment conclusions as the basis for judging a country's exchange rate as undervalued or overvalued is a distortion and misuse of assessment results, and addressing global economic imbalances is the shared responsibility of deficit and surplus countries. The speech also mentioned that in 2025, global FX market average daily trading volume was nearly 10 trillion US dollars, with RMB FX average daily trading volume exceeding 800 billion US dollars, and about 80% of transactions occurring offshore, making it difficult for central banks to continuously influence medium-to-long-term exchange rate trends. We believe the above statements connect with the "People's Bank of China Policy Stance on the RMB Exchange Rate" released on October 8, emphasizing the continuity of existing policies. Governor Pan also pointed out that as exports upgrade toward mid-to-high end, foreign trade enterprises' bargaining power rises, and they increasingly use exchange rate hedging tools and RMB settlement, so China's trade sensitivity to exchange rate changes has明显 declined. In the first half of this year, the proportion of enterprises using derivatives for FX hedging reached 35.3%, 5.3 percentage points higher than 2025, and from January to July, RMB receipts and payments in goods trade accounted for 30% of total cross-border RMB and foreign currency receipts and payments in goods trade during the same period. Therefore, judging the RMB exchange rate requires not only looking at the trade surplus but also simultaneously examining the dollar environment, domestic growth and asset returns, and corporate settlement willingness and other variables.
The PBOC's incremental policies focus on tool expansion, market connection, and expanding the cross-border investment and financing functions of RMB assets. First, overseas RMB liquidity support is planned to expand. In June this year, the PBOC created an overseas central bank-type institution repo tool, allowing overseas central banks or monetary authorities, international financial organizations, and sovereign wealth funds to obtain RMB liquidity from the PBOC through repos of high-grade bonds such as Chinese government bonds. This time Governor Pan proposed that foreign RMB clearing banks are an important part of the RMB cross-border clearing network, and the PBOC plans to include them as support recipients of the tool, and support foreign clearing banks in obtaining RMB liquidity through onshore repos, lending, and issuing interbank negotiable certificates of deposit. According to the September 10 State Council Information Office press conference, the PBOC has authorized 42 banks in 36 countries and regions to serve as RMB clearing banks. Governor Pan stated that the PBOC recently authorized multiple foreign banks to serve as clearing banks, and the next step will be to continuously improve the RMB clearing bank network. We believe this is an extension of existing tools to new institutional groups. Clearing banks directly serve overseas RMB business, and including them as support recipients helps improve the financing convenience of holding RMB assets abroad.
Second, the connection between onshore and offshore FX markets is deepening. In June this year, the PBOC authorized ICBC, ABC, BOC, CCB, BOCOM and CITIC, 6 banks, to use the China Foreign Exchange Trade System platform to conduct offshore RMB FX trading in the Shanghai Free Trade Zone. As of 19:00 on June 17, the 6 banks had conducted a total of 125 transactions worth 7.238 billion yuan. According to CFETS data, with the 6 pilot banks joining, the daily offshore RMB FX trading volume on the CFETS platform increased from about 1 billion US dollars in the early pilot period to 17 billion US dollars. This time Governor Pan proposed to pilot allowing 8 Chinese and foreign RMB overseas clearing banks, according to international financial market practice and trading conventions, to conduct proprietary trading in the domestic interbank FX market, and in the future further increase FX market opening based on pilot conditions. The former involves onshore entities participating in offshore RMB trading, while the latter involves offshore entities participating in the domestic FX market. Both will deepen the connection between the onshore and offshore RMB FX markets from different directions. Research by Funke et al. (2015) found that liquidity differences between the two markets help explain the level of the onshore-offshore exchange rate spread, and policy measures allowing cross-border RMB outflows played a particularly obvious role in reducing spread volatility. We believe that connecting the participating entities of the two markets may help improve offshore RMB liquidity and smooth the onshore-offshore spread.
Third, expanding the cross-border investment and financing functions of RMB assets. In June this year, the PBOC proposed enriching the supply of offshore RMB bonds and derivatives and continuously optimizing Bond Connect, Swap Connect, QFII and RQFII mechanisms and management. This time Governor Pan further proposed studying the implementation of multi-level custody arrangements in bond market opening, promoting RMB bonds to become global qualified collateral, supporting the development of offshore repo business, enriching offshore RMB government bond futures varieties, developing the interest rate swap market to better meet market entities' interest rate risk hedging needs, and continuously enriching the tool kit to cover short, medium and long tenors and provide stable, multi-level RMB liquidity support to the offshore market. The logic of this group of policies is relatively clear: after overseas investors buy RMB assets, they also need to be able to finance, hedge risks and trade smoothly. According to the September 10 State Council Information Office press conference, overseas entities hold more than 11 trillion yuan of domestic RMB financial assets, major offshore market RMB deposit balances are about 1.8 trillion yuan, and the offshore RMB bond scale reaches 2.5 trillion yuan. We believe the expansion of overseas RMB asset holdings places higher demands on offshore market trading, financing and risk management functions, and reform will place more emphasis on reducing the cost of the entire process of holding and trading RMB assets.
SAFE policies emphasize continued facilitation and greater attention to enterprises' independent allocation. Deputy Governor Zhu Hexin proposed at the Lujiazui Forum in June this year the "four deepenings" of capital account opening, namely deepening from channel opening to institutional opening, from business convenience to entity convenience, from FX management to domestic and foreign currency coordination, and from exchange settlement to full-chain management services, and stated that a package of incremental policies would be introduced on top of the 9 investment and financing facilitation policies already issued last year. This time Deputy Governor Zhu Hexin stated that a batch of incremental measures is planned to be集中 launched: first, launching a package of current account facilitation policies; second, launching a package of policies to optimize capital account FX management; third, promoting FX market opening and development, expanding the securities company FX settlement and sales business pilot, and supporting financial institutions in providing exchange rate risk management services for enterprises, especially SMEs. We believe this is a continuation of existing reform directions and further clarification of business arrangements. From the effects of existing policies, as of end-June this year, more than 50,000 enterprises with good credit nationwide that are exempt from review for FX business had grown about 30% from end-2025, handling more than 580 billion US dollars of FX business in the first half, doubling year-on-year. As of end-September, multiple package policies had benefited more than 150,000 business entities cumulatively, involving business amounts exceeding 3 trillion US dollars. This speech also contained a judgment worth noting: funds formed by the current account surplus are increasingly used through outward investment and asset allocation by entities such as enterprises and banks. From a stock perspective, among China's external financial assets, the proportion held by enterprises, banks and other entities rose from about 30% at end-2010 to nearly 70% at end-2025. The international investment position statement also reflects this change: the proportion of reserve assets in external financial assets fell from 70.3% at end-2010 to 31.8% at end-2025, and was 31.1% at end-June 2026 (Chart 2). We believe this reflects the increased demand of foreign trade enterprises and financial institutions and other entities for independent allocation of external assets. For enterprises, foreign trade income may be used not only for settlement but also for debt repayment, outward investment or overseas operations, so a high trade surplus does not necessarily form an equal-scale net settlement. From 2016 to 2025, China's current account cumulative surplus was about 2.87 trillion US dollars, while the current account bank customer FX settlement and sales cumulative surplus during the same period was about 578.5 billion US dollars, about 20% of the former. In 2025, the current account surplus was 735 billion US dollars, and the current account bank customer settlement and sales surplus was 308.3 billion US dollars, about 40% of the former. In the first half of this year, the current account bank customer settlement and sales surplus was 301.4 billion US dollars, equivalent to 80% of the current account surplus of 378 billion US dollars in the same period, significantly higher than in 2025 (Chart 3). FX facilitation, while serving cross-border fund flows and transactions, also places more emphasis on enterprises' independent allocation of FX funds. From the reform direction, we expect the convenience of enterprise fund use to continue improving, and the connection between trade, investment and financing policies will also strengthen. According to Deputy Governor Zhu Hexin's introduction, FX management has implemented differentiated management based on enterprise operations, credit and risk conditions, simplifying review procedures and improving convenience for honest and compliant enterprises, strengthening monitoring and supervision for higher-risk businesses, and will continue to strengthen cross-border fund flow monitoring, early warning and macro-prudential management.
Short-term enhancement of policy predictability, medium-to-long-term benefit for RMB international use. Overall, the reform direction shown at this forum is to enhance enterprises' autonomy in cross-border operations while maintaining market stability, and improve the investment and financing functions of RMB assets. In the short term, we believe this forum mainly enhanced policy predictability, not yet sufficient to independently change the direction judgment of the RMB exchange rate. US dollar interest rates, domestic fundamentals, asset returns and corporate settlement节奏 remain more direct drivers. We maintain our previous baseline judgment of moderate RMB appreciation next year, a slowing slope, and increased two-way volatility, while also needing to pay attention to possible阶段性 pressure from a stronger-than-expected dollar and external shocks. In the medium to long term, if the trading, financing and risk management conditions of RMB assets continue to improve, overseas institutions' allocation costs are expected to decline, and the investor structure may also become more diversified. Research by Bahaj and Reis (2026) found that central bank policies reducing the volatility of overseas enterprises' local currency financing costs help promote international use of the local currency, with empirical evidence using the PBOC's bilateral local currency swaps signed from 2009 to 2018 as samples. According to Governor Pan's introduction, RMB's share in international payments is about 3% to 4% according to SWIFT statistics, and if including amounts settled through the RMB cross-border payment system and banks' internal systems, it fluctuates roughly between 6% and 7%, stably ranking third globally. We believe this is a positive factor for RMB international use and financial market resilience, and subsequently we can monitor changes in offshore RMB deposits and bond balances, onshore-offshore spot spreads, and the midpoint of offshore interest rate volatility.
Chart: Comparison of FX-related policies at the June Lujiazui Forum and October Financial Street Forum. Source: People's Bank of China, State Administration of Foreign Exchange, CICC Research Department. Chart: Decline in the proportion of reserve assets in external financial assets. Note: Year-end data. Source: State Administration of Foreign Exchange, CICC Research Department. Chart: Current account and current account bank customer FX settlement and sales difference. Note: 100 million US dollars, 2026H1 is January to June. Source: State Administration of Foreign Exchange, CICC Research Department.
Banking: Financial Signals from the Financial Street Forum
On October 19, the 2026 Financial Street Forum Annual Meeting opened. The central bank announced it will launch a non-bank liquidity support tool and proposed reform directions such as diversifying loan pricing benchmarks and optimizing short-end policy rates. The central bank and 11 other departments simultaneously issued guiding opinions on financial support for building three major international science and technology innovation centers.
Establishing a new non-bank liquidity support tool. The central bank proposed "will establish a liquidity support tool to address large-scale redemptions by non-bank institutions," providing liquidity support through high-grade collateral when asset management institutions face group liquidity risks and the bond market experiences a redemption and selling negative feedback loop. We believe this means China has for the first time explicitly established a central bank support tool specifically addressing systemic liquidity risks in the bond market. Previously, the central bank had communicated with the market multiple times about this tool, and further clarifying the arrangement this time was in line with expectations. In terms of international experience, the Federal Reserve launched emergency tools during the 2008 financial crisis and the 2020 pandemic shock to provide liquidity support to non-bank institutions such as money market funds. Domestically, large-scale wealth management redemptions also occurred at the end of 2022. From end-Q3 2022 to end-Q1 2023, bank wealth management scale shrank by nearly 6 trillion yuan, triggering bond selling and rapid interest rate increases. We believe the new tool helps block the negative feedback of "bond decline-wealth management redemption-passive selling" and stabilize financial market expectations.
Diversification of loan rate benchmarks. The central bank proposed "transitioning to more diversified pricing benchmarks," allowing enterprises and financial institutions to negotiate and choose DR001 or LPR as the floating loan pricing benchmark, while promoting the exit of deposit and loan benchmark rates. We believe there are mainly three reasons: First, DR001 can more timely reflect bank funding costs, and compared with the less frequently adjusted LPR, it is more conducive to loan rates adjusting with changes in market funding prices. Second, as competition in the loan market intensifies, LPR's representativeness as the pricing benchmark for the most premium customer loans has declined. According to the PBOC's 2026 Q2 monetary policy execution report, 50.83% of loan rates were below LPR in June. Currently, the 1-year and 5-year-plus LPR are 3.0% and 3.5% respectively, while DR001 is recently about 1.3%. A loan pricing model using market funding rates plus a spread is also closer to the international practice of SOFR plus a spread. Finally, the original deposit and loan benchmark rates have not been adjusted since October 2015 and have basically exited in actual pricing. This reform further improves the interest rate marketization system. We believe that although DR001 is below LPR, benchmark rate diversification does not mean loan rate cuts; the policy mainly provides banks and enterprises with more flexible and market-based pricing options.
Monetary policy benchmark rate anchor shift. The central bank proposed "studying the appropriate timing to switch the tenor of the central bank's main open market operation instrument to overnight, and the open market overnight repo rate will accordingly become the main policy rate." Currently, the central bank's main policy rate is the 7-day reverse repo operation rate, while DR001 has effectively become the target rate for PBOC monetary policy regulation. Previously, the central bank launched temporary overnight reverse repo tools in July 2024, and improved the overnight tool mechanism in June 2026, narrowing the interest rate corridor range to 50bp. We believe that in the future switching the main policy rate tenor from 7-day to overnight will help unify the tenor of the policy operation rate and the market target rate, improve the precision of regulating short-end funding prices, reduce money market funding rate volatility, and enhance the transmission efficiency of monetary policy to the bond market and loan market. The policy focus is on improving the price-based monetary policy framework rather than releasing new rate cut signals. We believe the policy focus of this Financial Street Forum is not on directly releasing aggregate easing signals, but on longer-term financial stability and development. The policies are generally positive for the long-term sound operation of the banking industry: First, reducing interest rate volatility risk. The non-bank liquidity support tool helps reduce bond market liquidity shocks, ease banks' unrealized losses on bond positions and wealth management redemption risks, and enhance balance sheet stability. Second, improving the interest rate pricing mechanism. Loan benchmark diversification helps banks independently and reasonably price loans based on funding costs, creating conditions for maintaining reasonable net interest margins. Third, expanding space for fintech development. Policies supporting the construction of three major international science and technology innovation centers are expected to drive technology enterprise financing demand, expanding banks' new business growth space through technology loans, bonds, wealth management investment and AIC equity investment. Risk: Uncertainty in the actual timing and effects of policy implementation.
Chart: Negative feedback from wealth management redemptions at end-2022 led to interest rate volatility. Source: Wind, CICC Research Department. Chart: More than 50% of loans are already below LPR. Source: Wind, CICC Research Department. Chart: DR001 volatility明显 declined this year. Source: Wind, CICC Research Department.
Non-Bank: Preventing Risks, Deepening Reform, Promoting High-Quality Non-Bank Development
On October 19, the People's Bank of China, National Financial Regulatory Administration, CSRC and other departments attended the Financial Street Forum Annual Meeting, delivering keynote speeches on risk prevention, deepening reform, improving quality and efficiency, and expanding opening. We believe the forum's policies overall continue previous directions, helping promote securities, public funds, insurance and other non-bank institutions to move away from extensive operations and enter a new cycle of high-quality development. What are the incremental capital market policies mentioned for the first time at this forum? 1) Preparing to establish a fund industry operation monitoring center, transferring private fund share registration to the monitoring center, substantially strengthening private fund supervision. 2) "Highly vigilant against new risk points such as overseas leveraged products linked to A-share individual stocks," explicitly increasing attention to new product forms including northbound TRS. 3) Steadily launching BSE IPO market value allocation, linking subscription qualification and quota to held market value, solving the problem of large-scale fund freezing while prompting investors to allocate BSE stocks in advance, activating sector liquidity. 4) Issuing the "Guiding Opinions on Advance Compensation in the Securities Market (Draft for Comment)," where relevant institutions can voluntarily provide advance compensation for investor losses, protecting investor interests. 5) Formally implementing the "Implementation Rules for Administrative Penalties in Cases of Illegal Transfer of Securities," including acquirers together with major shareholders and directors, supervisors and senior managers in strict supervision.
What are the contents regarding the capital market and related industries? First, preventing risks and enhancing the capital market's internal stability, improving the risk monitoring system, enriching market stabilization tools, and strengthening risk pre-judgment in key areas; second, guiding the capital market to strengthen science and technology innovation supply, improving technology enterprise identification and screening, and guiding resources to gather in innovation fields; third, protecting investor interests, adhering to both ex-ante constraints and ex-post compensation; fourth, strengthening the functional role of intermediary institutions, better assuming gatekeeper responsibilities and the function of serving the real economy; fifth, orderly expanding high-level capital market opening. What are the contents regarding the insurance industry? First, comprehensively strengthening supervision and risk prevention, seriously investigating and handling key persons, matters and behaviors causing major financial risks, highlighting key links to improve regulatory capacity; second, promoting institutional reform and improving market order, studying and improving differentiated assessment and evaluation systems, and advancing reduction and quality improvement of small and medium-sized institutions according to local conditions; third, improving the adaptability of financial services, solidly doing a good job in the "five major articles" of finance; fourth, continuing to promote high-level opening and international cooperation; fifth, continuing to promote the construction of technology insurance mechanisms.
Overall, the above content is mostly deepening and detailed deployment of previously proposed policies. Risk: Continued volatility in the equity market; policy uncertainty; new premium income below expectations.
Chart 1: Chairman Wu's Financial Forum speech highlighted "strengthening risk prevention and enhancing the capital market's internal stability." Source: CSRC, CICC Research Department.
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