China’s top leadership has placed economic growth at the heart of its agenda following the annual Central Economic Work Conference, a key policy-setting meeting held on Wednesday and Thursday, CNBC reports.
The conference, led by President Xi Jinping, outlined plans for proactive fiscal policy, moderately loose monetary policy, and increased government borrowing to support the country’s flagging economy. The decisions, revealed through state-run CCTV, signal China’s efforts to stabilize growth amid rising external challenges and potential trade tensions with the US.
The two-day conference affirmed several policy measures to stimulate China’s economy. These included:
- Increased fiscal deficit: China plans to raise its fiscal deficit in 2025 to enable higher government spending.
- Issuance of ultra-long bonds: To provide long-term financial support for key projects and infrastructure development.
- “Moderately loose” monetary policy: The meeting reiterated the commitment to easing monetary policy, a stance not seen since the 2008 global financial crisis. This could involve further interest rate cuts and liquidity support.
These measures align with the agenda set by the Politburo earlier in the week, where officials vowed to use “more proactive” fiscal tools and “unconventional counter-cyclical adjustments” to boost domestic consumption.
One of the key takeaways from the meeting was China’s shift in focus from the industrial sector to domestic consumption and investment. Leaders called for increased consumer spending, more effective investment, and greater support for technological innovation. Bruce Pang, chief economist for Greater China at JLL, noted that this pivot underscores the urgency to strengthen domestic demand to mitigate the impact of external uncertainties.
Despite government efforts throughout 2023, consumer confidence in China remains weak. Attempts to boost consumption, such as a subsidy program encouraging the exchange of used household appliances and electronics, have had limited success.
Chinese leaders acknowledged the growing “external challenges” facing the economy, particularly in light of the potential for a trade war with the United States. Former US President Donald Trump, set to return to the White House in January, has vowed to impose a 10% tariff on all imports from China.
With trade risks on the horizon, China’s policymakers aim to fortify the domestic economy by increasing internal consumption, reducing reliance on exports, and bolstering financial resilience. Part of this strategy involves opening China’s economy to more international exchanges. For example, Beijing recently allowed citizens of Japan and several other countries to enter without visas for at least two weeks, even as Japan maintained stricter entry requirements for Chinese travelers.
The announcements following the economic work conference had an immediate impact on financial markets. The iShares China Large-Cap ETF (FXI) rose 0.8% in premarket trading before paring its gains. Investors viewed the renewed commitment to growth as a positive signal that more stimulus measures may be on the way.
Chinese officials have already implemented several stimulus initiatives since late September, including:
- Interest rate cuts: Lowering the cost of borrowing to boost liquidity.
- Relaxed property purchase rules: Measures aimed at stabilizing the troubled real estate sector.
- Support for the stock market: Liquidity injections to ease market volatility.
- A 10-trillion-yuan ($1.4 trillion) five-year stimulus package: This plan is designed to address local government debt burdens and support long-term growth.
Despite these efforts, recent economic data suggest that current stimulus measures have not been sufficient to overcome deflationary pressures. Consumer price inflation fell to a five-month low in November, while wholesale prices continued a 26-month decline, adding urgency to Beijing’s push for stronger intervention.
While the exact details of China’s 2025 growth targets and fiscal deficit will be announced during the National People’s Congress in March, early indicators suggest that the government will set a GDP growth target of around 5%, similar to this year’s goal.
There is also growing speculation that China may set a higher-than-usual budget deficit target of up to 4% of GDP, enabling more government borrowing to fund its economic support measures. Economists believe this approach reflects a shift from caution to a more aggressive stance on growth and economic recovery.
