A view of the CBD area in Beijing Photo: VCG

The Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC), held from July 15 to 18, made systematic plans for further deepening reform comprehensively with an emphasis on building the high-standard socialist market economy.

The plenum stated that sound macro policy adjustment is essential for ensuring that China can fully harness the institutional strength of its socialist market economy.

The market-oriented reform of the interest rates in China has achieved substantial results, significantly reducing financing costs for the real economy.

In August 2019, the People's Bank of China (PBC), the central bank, promoted the reform of the loan prime rate (LPR) pricing, changing the pricing anchor of loans from the previous benchmark interest rates to the LPR.

In April 2022, the central bank oversaw the establishment of a self-regulatory mechanism for deposit interest rates too, as well as a market-oriented adjustment mechanism.

After the introduction of the LPR system, as of June 2024, the central bank lowered the LPR by a total of 86 basis points to 3.45 percent. The actual decline in the cost of borrowing for enterprises and residents far exceeded the decline in policy rates, and the overall social financing cost has remained stable, while keeping a downward trend.

The central bank provides continuous incentives and constraints for the adjustment of Chinese commercial banks' credit structure through implementing a set of structural monetary policy tools.

By fully leveraging these tools, including technological innovation and technological transformation refinancing, carbon-emission reduction support tools, inclusive pension special refinancing and other tools, the central bank guides the country's financial institutions to allocate resources accurately to key areas.

China has implemented a combined proactive fiscal policy. On one hand, the deficit rate was set at 3 percent in 2024 and the national fiscal deficit was capped at 4.06 trillion yuan ($570 billion). On the other hand, in addition to comprehensive tax cuts and fee reductions, the government will introduce further structural tax cuts and fee reduction policies.

These policies will focus on supporting technological innovation and the development of the manufacturing industry to meet the requirements of high-quality economic development.

While recognizing the achievements made by China's macroeconomic regulation system, it is also important to recognize that China is facing a complex and ever-changing external environment, as well as a heavy and complex domestic reform agenda. All these factors place higher demands on China's macroeconomic regulation capabilities.

The current period is critical for promoting the comprehensive advancement of Chinese modernization and the national rejuvenation. The convening of the Third Plenary Session of the 20th CPC Central Committee demonstrates China's firm determination to comprehensively deepen reform in the new era.

Under the guidance of the Third Plenary Session of the 20th Central Committee of the CPC, the formulation and implementation of China's macroeconomic policies will be sounder and more consistent, and financial and fiscal reforms will be further deepened to meet the needs of China's high-quality development.

With strong and effective policy support and institutional guarantees, China's economy will further unleash the dividends of reform, helping to promote high-quality development and the medium- to long-term stable growth of the Chinese economy, and pushing China's high-standard socialist market economy to a new level.

The author is scholar at Institute of World Economics and Politics, Chinese Academy of Social Sciences(CASS). [email protected]

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