Financial Sector Embarks on High-Quality Growth

Author: LI Renzhi  SONG Xiaojun

China's 15th Five-Year Plan (FYP) attaches great importance to increasing the share of direct financing and accelerating the development of a world-class financial system. Financial data for the first quarter of 2026 point to a solid start: diversified financing channels play a greater role in supporting market participants, while the financial system is increasingly aligned with the goals of Chinese modernization and high-quality economic growth.

As of March 31, China's aggregate social financing (ASF) outstanding reached 456.46 trillion yuan, with new financing totaling 14.83 trillion yuan in the first quarter of 2026. This included 8.9 trillion yuan in new RMB loans to the real economy, 1.05 trillion yuan in net corporate bond financing, 3.54 trillion yuan in net government bond financing, and 117.3 billion yuan in domestic equity financing by non-financial enterprises.

Economic and Financial Conditions Continue to Improve Steadily

2026 marks the opening year of the 15th FYP period, and the Chinese economy has delivered a strong start. China's GDP expanded by 5% in 2025, reaching 140.19 trillion yuan, while the government has set a growth target of 4.5%–5% for 2026. In the first quarter of 2026, GDP growth reached 5% year-on-year, underscoring the resilience of the Chinese economy. On the supply side, industrial production and services activity remained robust, with the value-added output of industrial enterprises above designated size increasing by 6.1% and the services production index rising by 5.1%. New growth drivers continued to gain momentum: output in equipment manufacturing and high-tech manufacturing increased by 8.9% and 12.5%, respectively, while the information transmission, software, IT services, and leasing and business services sectors expanded by 10.6% and 12.2%.

Demand-side indicators also improved steadily. Fixed-asset investment increased by 1.7% year on year, underpinned by resilient manufacturing investment growth of 4.1% and accelerated infrastructure investment growth of 8.9%. Retail sales rose by 2.4%, accelerating by 0.7 percentage points from the previous quarter. External demand remained strong, with total imports and exports exceeding 11 trillion yuan, marking a 15% year-on-year jump and reaching a new all-time high for the same period. Inflationary conditions improved moderately, with the CPI rising by 1.0% and the PPI increasing by 0.5%.

In the first quarter of 2026, monetary policy remained appropriately accommodative, while overall financial conditions continued to support economic recovery. Broad money supply (M2) grew by 8.5% year on year, aggregate financing increased by 7.9%, and outstanding RMB loans rose by 5.7%, exceeding nominal GDP growth and indicating that financial expansion remained broadly aligned with economic activity. Meanwhile, narrow money supply (M1) increased by 5.1%, the strongest performance for the same period in five years, reflecting ample corporate liquidity and active business cash flows. Open market operations were conducted flexibly to offset short-term fluctuations related to holiday cash demand, fiscal tax payments, and government bond issuance, thereby ensuring stable liquidity conditions. The People's Bank of China rolled out 2 trillion yuan in Medium-Term Lending Facility (MLF) operations and provided 2.8 billion yuan of Standing Lending Facility (SLF) liquidity support on demand. Treasury bond trading operations also remained normalized, with cumulative net purchases reaching approximately 200 billion yuan, helping to maintain stable market interest rates.

Despite the broadly favorable outlook, several challenges remain. Real estate investment declined by 11.2% year on year, indicating continued adjustment pressures in traditional growth sectors. Private investment remained weak, declining by 2.2% in the first quarter, while capacity utilization fell to 73.6%, down 0.5 percentage points from a year earlier, suggesting pressure on potential growth. Domestic demand also showed signs of divergence: household sector loan growth amounted to only 296.7 billion yuan in the first quarter, while short-term consumer loans declined by 164 billion yuan, which means internal growth impetus still requires further reinforcement.

During the 15th FYP period, the financial system should play a more effective role in supporting high-quality economic development. First, China should continue to implement an appropriately accommodative monetary policy while strengthening coordination between fiscal and financial policies to stabilize household balance sheets, lower financing costs, and expand consumer finance support, thereby boosting consumer confidence and spending capacity. Second, greater efforts should be made to build a coordinated financing system that combines direct and indirect financing channels, strengthen patient capital supply, and improve financial support for technological innovation and new quality productive forces. Third, policies should continue to mobilize private capital and long-term institutional funds by encouraging pension funds, insurance capital, and wealth management products to participate more actively in capital markets. Finally, financial products such as insurance and wealth management services should become more inclusive and better tailored to household needs, helping broaden property income channels and reinforce a virtuous cycle in which finance supports consumption, consumption drives growth, and growth facilitates structural transformation.

Continued Deepening of High-Level Financial Opening

China's capacity for global financial resource allocation has continued to strengthen. Between 2021 and 2025, China's current account transactions averaged USD 7.8 trillion annually, an increase of 42% compared with the 2016–2020 period, providing a stable source of funding for outward investment. During the same period, the average annual deficit in the non-reserve financial account reached USD 374.2 billion, broadly offsetting the current account surplus and contributing to a balanced international payments position. Against this backdrop, China's outward investment continued to expand. Average annual outward investment reached USD 503.7 billion over the past five years, up 11% from the previous five-year period, while China's stock of external assets reached USD 11.8 trillion by the end of 2025, an increase of 33% compared with five years earlier. Outward direct investment totaled USD 3.6 trillion and spanned 190 countries and regions, while outward portfolio investment and other investments reached USD 2.0 trillion and USD 2.4 trillion, respectively, providing important liquidity support for global financial markets.

The appeal of Chinese assets has also continued to rise, with foreign investment into China staying stable and resilient. By the end of 2025, China's stock of external liabilities had reached USD 7.7 trillion, including USD 4.0 trillion in inward direct investment. Inward portfolio investment totaled USD 2.4 trillion, up 20% from five years earlier. As the financial market opening deepens, access channels for foreign investors broaden, and the strategic allocation value of RMB assets strengthens, global investors have shown increasing interest in Chinese assets. Foreign financial institutions are now deeply integrated into China's financial system, where domestic and foreign institutions complement one another and compete constructively, thereby improving financial efficiency and service quality. Currently, 43 of the world's top 50 banks have established operations in China, while nearly half of the world's 40 largest insurance companies have entered the Chinese market. Foreign-funded banks and insurers now hold more than 7 trillion yuan in total assets within China. Meanwhile, approximately 80% of nationwide Chinese banks have introduced foreign strategic investors to strengthen corporate governance and management practices. Chinese financial institutions have also expanded into more than 70 countries and regions, further deepening bilateral trade and cross-border investment cooperation.

During the 15th FYP period, China's financial opening is expected toadvance toward a higher level of institutional opening to enhance the quality of opening-up and strengthen the international competitiveness of the financial system. First, China should accelerate the development of a rules-based institutional opening framework by improving arrangements related to market access, cross-border capital flows, data governance, and regulatory coordination, thereby shifting from "channel-based opening" to "rules-based opening." Second, efforts should continue to improve the market-oriented, law-based, and internationalized business environment by strengthening property rights protection, information disclosure standards, and financial legal frameworks, reducing institutional transaction costs and improving policy transparency and predictability to attract high-quality global capital, financial institutions, technologies, and talent. Third, leveraging China's more than USD 6 trillion in merchandise trade and its vast domestic market, the country should further expand openness across goods, services, and capital markets to generate more diversified cross-border financial demand. Finally, by advancing high-quality Belt and Road cooperation and strengthening ties with emerging markets, China can expand cross-border investment and international financial service networks while enhancing its role in global financial governance.

Continued Advancement of RMB Internationalization

The international standing of the renminbi within the global monetary system has continued to strengthen. Since the launch of the pilot program for cross-border RMB settlement in 2009, the RMB's functions in international payments, reserves, and transactions have expanded significantly. The renminbi became the world's fifth-largest foreign exchange trading currency in 2022 and rose to become the second-largest trade financing currency globally in 2024. In 2024, cross-border RMB receipts and payments handled by banks reached 64.1 trillion yuan, up 22.6% year-on-year; in the first half of 2025, the total reached 34.9 trillion yuan, representing a further 14% increase. In terms of international reserve status, the RMB was officially included in the IMF's Special Drawing Rights (SDR) basket in 2015, and its weighting was raised to 12.28% in 2022, ranking the third among SDR currencies. The renminbi has now become the world's seventh-largest reserve currency and, on a full-caliber basis, the third-largest global payment currency.

The RMB's role as a regional international currency has also deepened steadily. China has continued to expand bilateral local-currency swap arrangements and local-currency settlement cooperation, thereby improving the framework for cross-border RMB circulation and offshore usage. Focusing on neighboring economies and Belt and Road partner countries, China has strengthened central bank cooperation and improved the offshore RMB environment, reducing exchange rate volatility and dependence on the US dollar in cross-border transactio