China’s top leaders plan to loosen monetary policy and expand fiscal spending next year, as Beijing braces for a second trade war when Donald Trump takes office next month.
The 24-man politburo led by President Xi Jinping announced it will embrace a “moderately loose” strategy for monetary policy in 2025, marking its first major shift in stance since 2011. The body also adopted stronger language on fiscal policy, according to the official Xinhua News Agency, saying it’ll be “more proactive” — a step up from “proactive.”
Signaling greater resolve to shore up confidence, officials at the December meeting also pledged to “stabilize property and stock markets,” and ramp up “extraordinary counter-cyclical policy adjustment” — Communist Party speak for using more uncommon tools to boost the economy.
“The wording in this politburo meeting statement is unprecedented,” said Zhaopeng Xing, senior strategist at Australia and New Zealand Banking Group, saying that points to strong fiscal expansion, big rate cuts and asset buying. “The policy tone shows strong confidence against Trump’s threats,” he added, referencing the president-elect’s vow to impose a 60% tariff on Chinese exports.
The offshore yuan erased losses to trade 0.1% stronger on bets China’s economy will recover due to monetary and fiscal stimulus. The yield on 10-year government bonds slid two basis points to 1.938%. Regional currencies also got a boost from the politburo readout, with Australian dollar rising 0.3% and New Zealand’s currency trimming losses.
China’s economy has shown signs of stabilising in recent months after authorities rolled out a broad stimulus package since late September. Looming US tariffs, however, dented the prospects of exports and added pressure to the world’s second-largest economy to counter any shocks from a potential trade war.
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The politburo’s December conclave typically sets the agenda for the larger central economic work conference that crafts priorities for the following year, such as the annual growth goal. That meeting is set to begin on Wednesday, Bloomberg News reported last week.
While China has gone through several tightening and loosening cycles in monetary policy recent years, it’s stuck with the overarching characterization of “prudent” policy since 2011. At that time, authorities shifted away from the previous stance of “moderately loose” adopted during the global financial crisis, to cool rising inflation.
The latest departure reflects an urgency to step up the easing mode adopted by the central bank after an expected post-pandemic boom failed to materialize. That push has seen the People’s Bank of China slash interest rates and lower the amount of cash banks must set aside in reserves several times, although authorities have found it hard to spur greater borrowing.
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“Additional policy tools are expected to have significant improvement in volume, quality and effect,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. “Chances for GDP growth target to be set at around 5% have increased significantly.”
Chinese stocks, Yuan stage late pebound on politburo pledges
Chinese stocks listed in Hong Kong rebounded in the final hour of trading as the nation’s top leaders eased monetary policy and said they’ll take steps to boost consumption.
The Hang Seng China Enterprises Index erased a small loss to climb more than 2%. The offshore yuan rebounded to trade 0.1% stronger on bets China’s economy will recover due to the monetary and fiscal stimulus. The yield on 10-year government bonds slid two basis points to 1.938%.
The politburo, comprising the ruling Communist Party’s most senior 24 officials and led by President Xi Jinping, announced it will embrace a “moderately loose” strategy next year, in a sign of greater easing ahead that will likely be welcomed by investors hungry for more stimulus.
