China signals bolder stimulus for next year as Trump returns
CHINA’S top leaders plan to loosen monetary policy and expand fiscal spending in 2025, as Beijing braces for a trade war when Donald Trump takes office.
The 24-man Politburo led by President Xi Jinping announced it will embrace a “moderately loose” strategy for monetary policy next year, marking its first major shift in stance since 2011. The body also ramped up language on fiscal policy at their December huddle, vowing to be “more proactive”, according to the official Xinhua News Agency.
Top officials on Monday (Dec 9) also made direct pledges to “stabilise property and stock markets” and for the first time promised “extraordinary” counter-cyclical policy adjustment – Communist Party speak for more uncommon tools to boost the economy. Boosting consumption was given greater emphasis, something foreign officials including US Treasury Secretary Janet Yellen have stressed is crucial.
“The wording in this Politburo meeting statement is unprecedented,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group, adding that points to strong fiscal expansion and big rate cuts. “The policy tone shows strong confidence against Trump’s threats,” he noted, referencing the US president-elect’s vow to impose a 60 per cent tariff on Chinese exports.
The offshore yuan erased losses to trade 0.1 per cent 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 per cent. Regional currencies also got a boost from the Politburo readout, with Australian dollar rising 0.3 per cent and New Zealand’s currency trimming losses.
The readout is the clearest sign yet policymakers intend to intensify a stimulus push launched in September that’s already shown some signs of stabilising growth. Investors have been clamouring for more fiscal support, and the statement will likely stoke expectations for the budget deficit to be raised next year with a bullish growth goal.
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The decision-making body’s December conclave 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, and its readout could give further clues of China’s policy plans.
Policy shift
The last time China adopted a “moderately loose” monetary policy was in the Global Financial Crisis as part of a bazooka stimulus package to prop up the economy. That’s something Beijing has vowed to avoid repeating, with officials trying to hit this year’s growth goal of around 5 per cent without loading up debt.
The Politburo readout, however, sent a message that Xi’s government is feeling a new urgency to support the economy. It’s a reminder “top leaders’ view on economic conditions has shifted substantially compared to last quarter”, said Martin Rasmussen, senior strategist at macro research firm Exante Data.
As well as rising trade tensions, China is battling its longest streak of deflation this century. That problem was on display earlier Monday in data showing producer prices falling in November for a 26th straight month. Consumer prices also rose at their slowest pace in five months, hovering around zero.
Falling prices have undercut the economy’s 4.8 per cent growth so far this year, eating into corporate profits and pushing companies to cut investment as well as wages. While the People’s Bank of China has slashed interest rates and offered more cash for banks several times, authorities have found it hard to spur greater borrowing.
The Politburo promised to “forcefully lift consumption” and drive domestic demand “in all aspects” without directly mentioning the problem of deflation.
That could indicate more rounds of the cash-for-clunkers programme that’s operated as a type of consumption voucher, encouraging people to buy new electronics at a discount in exchange for their old products.
While the latest language on fiscal policy does not mark a fundamental shift from the “pro-active” adopted in 2008, the addition of the word “more” signals government spending will be dialled up. A state media commentary on Friday said Beijing had ample room to raise its budget deficit next year.
Fiscal spending is widely regarded as the most important element in any stimulus package, since private demand from households and companies has dwindled. While government spending has been weak this year, in November the Finance Ministry launched a US$1.4 trillion rescue programme for indebted local governments to free up regional officials to boost growth.
“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 per cent have increased significantly.”
The specifics of the government’s budget, including the fiscal deficit and the amount of bonds it plans to issue, will likely only be revealed in March during the annual legislative session. The Politburo readout will likely raise expectations for those targets.
“The Politburo statement is very positive,” He Wei, China economist at Gavekal Dragonomics. “It has everything that people wanted.” BLOOMBERG
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