Loosening monetary control measures to stimulate a struggling Chinese economy.

Loosening monetary control measures to stimulate a struggling Chinese economy.

China Goes All-In on Fiscal and Monetary Policy to Revive Its Economy

In a bold move to revive its economy, China has loosened key monetary policy tools, trying to overcome the impact of weak consumption, a prolonged property sector crisis, and the tough trade standoff with the U.S.

The nation's leaders are facing an uphill battle to rejuvenate growth, as domestic demand remains sluggish post-COVID-19 pandemic and the trade dispute takes its toll. This trade struggle has seen Donald Trump impose tariffs of up to 145% on many Chinese products, and Beijing retaliating with 125% duties on U.S. imports.

On Wednesday, the head of China's central bank Pan Gongsheng revealed that the government would lower the country's key interest rate and the amount banks need to hold in reserve to boost lending. The objective is to back technological innovation, bolster consumption, and promote inclusive finance, among other areas.

Furthermore, to stimulate demand, the bank will cut the rate for first-time home purchases with loan terms exceeding five years to 2.6%, down from 2.85%. This measure is aimed at boosting the real estate sector, once a major growth engine, but currently plagued by a persistent crisis.

These steps represent some of the most significant economic boosting measures taken by China since September. However, experts argue that a continued lack of actual stimulus funds is needed for a full economic recovery.

According to the Asset Management chief economist Zhiwei Zhang,* "the policy measures announced today are positive for the market and the economy. What is missing in this conference is new fiscal policy measures, which I believe may be delayed until the economy shows clear signs of slowdown from the trade war."

Similarly, Gary Ng, senior economist for Asia Pacific at Natixis, believes, "it will take more to support growth. If economic data does not improve, we will likely see more action down the road."

The trade ruckus between the heavily integrated U.S. and Chinese economies could potentially jeopardize businesses, inflate consumer prices, and trigger a global recession, as economists have warned.

Market analysts anticipate that China may eventually reconsider its conservative approach and unleash fresh stimulus, considering the impact of tariffs. As of last month, China targeted an annual growth rate of 5% for this year, the same and ambitious figure from last year.

China announced several aggressive measures in 2024 to reinvigorate its economy, including interest rate cuts, canceling restrictions on home buying, raising the debt ceiling for local governments, and bolstering support for financial markets. However, optimism waned when authorities failed to provide a clear figure for the bailout following a market rally.

Notably, the Chinese government is also adopting targeted liquidity support, new lending facilities, and stock market stabilization measures to counteract external uncertainties. This includes financial assistance for affected exporters and vulnerable businesses, and support for critical sectors, such as technology investment and consumption, which are vital for economic sustainability in the current climate.

Moreover, the China Securities Regulatory Commission (CSRC) introduced comprehensive monetary policy measures to maintain investor confidence, stabilize markets, support long-term liquidity, and encourage innovation-driven growth[1][2][3]. The government's strategy is to rely more on internal economic drivers amid global uncertainties by further supporting domestic demand through financial incentives and easier credit access.

Official tariff negotiations planned for early May 2025 indicate a potential easing of trade tensions, which could lead to tariff reductions and mutual concessions, improving the overall economic outlook and reducing external pressures [1].

1. China is heavily relying on fiscal and monetary policies to revive its economy, as domestic demand remains sluggish post-COVID-19 pandemic and the trade dispute takes its toll.
2. The trade struggle between the U.S. and China has seen tariffs of up to 145% on many Chinese products, and Beijing retaliating with 125% duties on U.S. imports.
3. Experts believe that China may eventually reconsider its conservative approach and unleash fresh stimulus, considering the impact of tariffs on the economy.
4. In 2024, China announced several aggressive measures, including interest rate cuts, cancellation of home buying restrictions, and bolstering support for financial markets to reinvigorate its economy.
5. Gary Ng, senior economist for Asia Pacific at Natixis, believes, "it will take more to support growth. If economic data does not improve, we will likely see more action down the road."
6. The China Securities Regulatory Commission (CSRC) introduced comprehensive monetary policy measures to maintain investor confidence, stabilize markets, support long-term liquidity, and encourage innovation-driven growth.
7. According to Zhiwei Zhang, chief economist at Asset Management, "the policy measures announced today are positive for the market and the economy. What is missing in this conference is new fiscal policy measures, which I believe may be delayed until the economy shows clear signs of slowdown from the trade war."
8. Official tariff negotiations planned for early May 2025 indicate a potential easing of trade tensions, which could lead to tariff reductions and mutual concessions, improving the overall economic outlook and reducing external pressures.

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