China shifts monetary policy stance for first time since 2011 to spur growth

BEIJING - China’s top leaders plan to loosen monetary policy and expand fiscal spending in 2025, as Beijing braces itself for a second trade war when Donald Trump takes office in January.

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 will be “more proactive” – a step up from “proactive”. 

Signalling greater resolve to shore up confidence, officials at the December meeting also pledged to “stabilise property and stock markets”, and ramp up “extraordinary counter-cyclical policy adjustment” – Communist Party of China speak for using more uncommon tools to boost the economy.

“The wording in this Politburo meeting statement is unprecedented,” said senior strategist Xing Zhaopeng at ANZ Banking Group, saying it 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 per cent tariff on Chinese exports. 

The offshore renminbi erased losses to trade 0.1 per cent stronger on bets that China’s economy will recover due to monetary and fiscal stimulus. Regional currencies also got a boost from the Politburo readout, with the Australian dollar rising 0.3 per cent and New Zealand’s currency trimming losses.

China’s economy has shown signs of stabilising in recent months after the authorities rolled out a broad stimulus package in 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.

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 Dec 11, Bloomberg News reported last week.

While China has gone through several tightening and loosening cycles in monetary policy in recent years, it has stuck with the overarching characterisation of “prudent” policy since 2011. At that time, the 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 materialise. 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 the authorities have found it hard to spur greater borrowing.

“Additional policy tools are expected to have significant improvement in volume, quality and effect,” said Mr 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.” BLOOMBERG