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This study investigates how monetary policies impacted China's capital (stock and bond) markets during 2010–16 by employing the dynamic conditional correlation GARCH (DCC-GARCH) model. The results indicate that both the 2013 credit crisis and the 2015 stock market crash are closely related to monetary policies. In 2013, excessive lending in the banking sector and the government's monetary policies affected the bond market. Consequently, the credit crisis occurred in the bond market and then expanded to the stock market. To solve the problem of money shortages, the government began to use traditional monetary policies and new monetary instruments to frequently release liquidity. The released liquidity quickly entered capital markets, causing an investment frenzy on the stock market, increasing risk and eventually resulting in a stock market crash. Furthermore, although the co-movement between capital markets changed over time, it would maintain positive or negative correlation for a period. Therefore, when the government implements policies in either of the markets, these policies not only affect the target market, but also impact the other market through their co-movement. (China/GIGA)