Chinese leaders reaffirmed their commitment to boosting the nation's economy by unveiling plans for more aggressive fiscal policy and moderate monetary easing at a high-level economic planning meeting that concluded Thursday. The meeting, led by President Xi Jinping, highlighted the government's determination to stabilize growth despite growing external pressures and domestic challenges.
State-run CCTV reported the meeting after the mainland stock market closed. The iShares China Large Cap ETF (FXI) briefly rose 0.8% in premarket trading before paring gains. The annual economic conference highlighted the need for increased government spending, a higher fiscal deficit and the issuance of very long-term bonds in 2025. Furthermore, the conference confirmed plans to ease monetary policy, including potential cuts of interest rates, no small move. seen since the 2008 global financial crisis.
This change in approach has been echoed by the Politburo, China's second most powerful government body, which recently indicated a heightened sense of urgency in tackling economic stagnation. The Politburo's focus on “moderately loose” monetary policy marks a notable shift, signaling Beijing's willingness to address domestic economic weaknesses while preparing for potential external shocks, such as the prospect of renewed trade tensions with the United States ahead of a possible second term for Donald Trump.
China typically unveils its annual growth target and fiscal deficit during the session of the National People's Congress in March. However, Thursday's meeting provided a first glimpse of Beijing's intentions, with analysts predicting a GDP growth target of around 5% for next year.
Changing economic priorities in a context of growing challenges
Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, noted that the meeting's emphasis on a growing fiscal deficit and lower interest rates is in line with market expectations. He noted: “The direction of policy is clear, but the scale of the stimulus will be critical. We will likely get more clarity after the US announces potential tariffs on Chinese exports.”
Former US President Donald Trump, who will take office in January if the election results are confirmed, has pledged to impose a 10% tariff on all Chinese goods imported into the US, further complicating China's economic path .
As part of its strategy, Beijing has highlighted the need to increase domestic consumption, incentivize effective investments and promote technological innovation. Chinese leaders have also acknowledged the growing “external challenges” facing the nation. Chief Greater China Economist at JLL, Bruce Pang, noted that the meeting marked a shift in China's focus away from the industrial sector and towards strengthening consumption and investment. “This change highlights the urgency of strengthening domestic demand to better address external uncertainties,” Pang explained.
The meeting also reiterated China's intention to remain open to foreign engagement, despite limited reciprocity. For example, China recently allowed residents of some countries, including Japan, to visit the country without a visa for up to two weeks. However, Japan has maintained stricter entry requirements for Chinese citizens.
Strengthen economic policy measures
The Politburo strengthened the government's commitment to revitalizing the economy by announcing plans to implement “more proactive” fiscal tools and “moderately loose” monetary policies in 2025. It also pledged to step up “unconventional countercyclical adjustments” to stimulate consumption internally in a global way.
Zhang described the policy announcements at the economic conference and Politburo meeting as “significant” compared to previous measures introduced in late September. Since then, Chinese authorities have launched a series of stimulus initiatives, including multiple interest rate cuts, looser restrictions on real estate purchases, liquidity support for stock markets and a groundbreaking 10 trillion yuan stimulus package ( 1.4 trillion dollars) over five years to address local issues. public debt burdens.
While these measures initially supported Chinese stocks, market performance has since stabilized within narrow trading ranges. Persistent deflationary pressures, however, have limited the effectiveness of previous policies, prompting speculation that Beijing may need to introduce further stimulus to achieve its growth ambitions.
Economic data highlights persistent challenges
Recent indicators highlight ongoing economic difficulties. In November, consumer price inflation fell to a five-month low, while wholesale prices continued to fall, with the producer price index recording its 26th consecutive month of deflation. These trends underline the difficulties facing policymakers as they try to revive growth in the world's second-largest economy.
Although Chinese authorities have repeatedly highlighted the importance of boosting consumption, concrete policy actions remain limited. A subsidy program that encourages the trade-in of used electronics and appliances was one of the few noteworthy initiatives to spur spending.
Looking ahead, economists widely expect Beijing to keep its 2025 GDP growth target around 5%. To support this goal, some predict that policymakers may set a higher-than-usual budget deficit target, as high as 4% of gross domestic product. Such a move would provide room for increased central government borrowing to inject more funds into the struggling economy.
Balance stimulus with structural reforms
Despite the urgency of addressing short-term economic pressures, Beijing appears cautious about the scope and sustainability of its stimulus efforts. While interest rate cuts and fiscal spending are key tools, they must be balanced against the risks of excessive debt and long-term financial vulnerabilities.
China's recent shift toward promoting domestic consumption and investment reflects a broader effort to reduce dependence on exports and industrial production, particularly as external headwinds, such as geopolitical tensions and slowing global demand, persist. By promoting stronger domestic demand, Chinese leaders hope to create a more resilient economic base that can withstand future challenges.
Outlook for 2025 and beyond
Although details of China's economic policies for 2025 will not be fully revealed until the National People's Congress in March, signs emerging from Thursday's meeting suggest a continued emphasis on stability and gradual reforms. Policymakers face the dual challenge of addressing immediate growth concerns while laying the foundations for long-term economic transformation.
The path forward remains uncertain, particularly with the possibility of renewed trade tensions between the United States and China following Trump's proposed tariff policies. However, Beijing's recent announcements indicate a willingness to adapt and respond to evolving challenges, leveraging both fiscal and monetary tools to steer the economy towards recovery.
As China navigates this complex economic landscape, the effectiveness of its policy measures will be closely monitored by global markets and investors, with implications that extend far beyond its borders. For now, the focus remains on achieving steady growth, promoting domestic demand and maintaining resilience in the face of external pressures.
