China pledges to intensify efforts to fuel economic expansion by 2025.
Next year, China plans to adopt a more relaxed monetary policy coupled with a more active fiscal policy to boost economic growth, as stated by the Politburo recently.
The focus will be on boosting domestic demand and increasing consumer spending, according to Xinhua's reports from a Politburo meeting.
Before the annual Central Economic Work Conference, where key targets and policy objectives for the next year are set, the Politburo made these comments.
Following the Politburo meeting, stock markets climbed and China's government bonds rallied, with Hong Kong's Hang Seng index surging by 2.8%.
In 2025, according to Xinhua, the principle of progress while maintaining stability must be followed. This includes implementing a more proactive fiscal policy and a suitable monetary policy, refining the policy toolkit, and enhancing extraordinary counter-cyclical adjustments.
The housing and stock markets need to be stabilized, the Politburo suggested without providing specifics.
Looser Monetary Policy
The current monetary policy wording marks the first ease in stance since the end of 2010, according to Politburo meeting announcements.
ANZ's senior China strategist, Xing Zhaopeng, believes this indicates strong fiscal stimulus, significant interest rate cuts, and asset purchase in 2025. He also noted that the policy tone shows strong confidence against Trump's tariff threats.
China's economy has faced challenges this year, prompting policymakers to act in September. The central bank introduced its most aggressive monetary easing since the pandemic, reducing interest rates and injecting 1 trillion yuan ($140 billion) into the financial system.
Reaching China's 5% growth target for 2021 may be possible, but maintaining that pace in 2025, with Trump returning as President and threatening higher tariffs on Chinese imports, would be tough.
The central bank has a flexible five-tier system — "loose," "appropriately loose," "prudent," "appropriately tight," and "tight" — for monetary policies. China adopted an "appropriately loose" policy after the 2008 financial crisis and switched to "prudent" in late 2010.
In November 2021, China unveiled a 10 trillion yuan ($1.4 trillion) debt package to address local government financing issues and stimulate flagging economic growth. However, the debt measures are aimed at improving municipal balance sheets rather than directly injecting money into the economy.
Trump's Tariffs
China's economy relies heavily on manufacturing and exports this year, with consumer demand lagging. The property market crisis has severely affected consumer wealth, and most stimulus goes to producers and infrastructure.
Beijing is recommended to keep the growth target unchanged next year but increase fiscal stimulus to offset US tariff impacts and deflationary pressures.
Trump's tariff threats have affected China's industrial complex, which sells goods worth over $400 billion annually to the US.
More stimulus measures are expected, but details remain unclear, according to China's Finance Minister Lan Foan.
Economists urge Beijing to focus more on consumers, offer stronger financial support to low-income residents, and address structural issues with promised tax, welfare, and policy changes.
So far, however, Chinese authorities have prioritized upgrading the export-reliant manufacturing sector.
The more relaxed monetary policy and the more active fiscal policy are measures aimed at boosting business activities and improving the overall economic condition.
The loosened monetary policy and increased fiscal stimulus are crucial to counteract the impact of Trump's tariffs on China's economy.
