China has confirmed the recent shift in its policy and stressed plans to accelerate economic growth, which is currently facing a clear lack of upward momentum in this Asian country.
On Thursday, December 12, a high-level meeting on economic planning issues ended in the mentioned Asian country. As a result of this meeting, plans were confirmed to accelerate the growth of the Chinese economy, which is currently the second largest in the world. The relevant news was published by the state media of the Asian country.
The report on the results of the economic planning meeting came after the closure of the mainland Chinese market. The iShares China Large-Cap ETF (FXI) showed growth of 0.8% in premarket trading. Then the increase in the indicator slackened.
According to the state media of the Asian country, during the annual economic planning conference, led by President of the People’s Republic of China Xi Jinping, there were calls for proactive fiscal policy. Also, within the framework of this conference, the need to increase the budget deficit and issue more ultra-long bonds was underlined. It is worth noting that all mentioned statements are the intentions of the Chinese authorities, the implementation of which is expected next year.
Chinese state media also reported that the conference confirmed the Asian country’s plans to moderate monetary policy easing in 2025. In the context of relevant intentions, the most likely instrument of action is interest rate cutting.
It is worth noting that currently there is a kind of consensus in the Chinese political environment that the country’s economic system needs support measures. This vision corresponds to the circumstances shaping the current configuration of economic reality in an Asian country. China’s gross domestic product (GDP) demonstrates what can be described as a gradual weakening of the growth momentum. In the first quarter of 2024, this indicator increased by 5.3% year-on-year. In the second quarter, the Asian country’s GDP rose by 4.7%. In the third quarter, the growth rate was recorded at 4.6%. In this case, there is a clear weakening of the upward dynamic.
Beijing, as a political center, with its statements that do not provide for direct formulations, unequivocally signals that China’s economic system needs support. Moreover, the Asian country is currently preparing for a possible trade war with the United States. The corresponding prospect became realistic after Donald Trump won the US presidential election last month, having repeatedly announced his intentions to raise tariffs on goods imported from other countries, including China. For Beijing, the implementation of relevant intentions will become a sensitive factor of economic impact. Currently, the economic system of the Asian country is going through a difficult period. The mentioned negative state of affairs is a reality formed by circumstances such as a prolonged downturn in the real estate market, weak domestic demand, and a drop in consumer confidence. In the context of the relevant situation, export activity is actually the main driving force of the dynamic of the growth of the economy of an Asian country. The tightening of Washington’s tariff policy will cause significant damage to the financial performance of Beijing’s foreign trade operations. In October, Chinese exports grew by 12.7% year-on-year. In monetary terms, the corresponding figure amounted to $309 billion. Some experts suggest that a significant increase in exports, in this case, is due to the fact that Chinese factories rushed inventory to the major markets amid expectations of the growth in tariffs in the trade sector.
Traditionally, China announces annual economic growth targets and budget deficits at a parliamentary meeting in March.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said the report released on Thursday signals that Beijing will set a GDP growth target of about 5% for 2025. The corresponding assumption is based on the statement of the Chinese authorities that the economy’s upward dynamic should remain stable. China’s GDP growth target for the current year is also about 5%.
Besides, Zhiwei Zhang said that the messages of an increase in fiscal deficits and cutting interest rates were expected. According to the expert, the direction of the policies is clear, but the size of the incentive measures is important, which is likely to become known only after the United States imposes increased tariffs on goods shipped from China.
Donald Trump has already vowed 10% tariffs on Chinese products after he takes office in January.
According to information released by the Asian country’s state media, on Thursday, China’s leaders noted an increase in external challenges. This formulation is not detailed, but with maximum probability in this case it implies a consistent deterioration in relations between Beijing and Washington and general geopolitical tensions that are not limited to the space of interaction between the two mentioned capitals. Also on Thursday, China’s leaders called for increased consumption, boosting efficient investments and supporting technological innovation.
Bruce Pang, chief economist of Greater China at JLL, said Thursday’s meeting testified that the Asian country’s top leaders are shifting away from focusing on the industrial sector toward investment and consumption. According to the expert, this pivot underscores the pressing need to increase domestic demand to better navigate external uncertainty.
The meeting report also noted plans to open up China’s economy. In this case, it was underlined that such an intention should be implemented, even if Beijing receives nothing in return. In the relevant context, it is worth mentioning that in the current year, China offered residents of Japan and several other states the opportunity to visit for at least two weeks without visas. At the same time, Tokyo maintains stricter requirements for Beijing in the tourist sector.
Earlier this week, China’s Politburo vowed to implement more proactive fiscal tools and moderately loose monetary policy next year. Plans related to ramping up unconventional countercyclical measures to boost domestic consumption on all fronts were also stated.
Zhiwei Zhang positively assessed the results of the conference and the meeting of the Politburo. According to the expert, this week’s policy shift is more significant than what happened in the last week of September.
Chinese officials have ramped up economic stimulus measures since the end of September, including several interest rate cuts, easing property purchase requirements, liquidity support for stock markets, and a 10-trillion-yuan ($1.4 trillion) stimulus package over five years to alleviate local government debt problems.
After the initial statements about the stimulus, Chinese stock indexes showed growth before ending up in the territory of range-bound trading.
At the same time, recent economic data suggest that the measures implemented by Beijing are insufficient to offset the ongoing deflationary pressures. Against this background, investors’ hopes have strengthened that the Chinese authorities will decide on more ambitious stimulus measures to restore economic growth.
In November, consumer price inflation in the Asian country fell to a five-month low. At the same time, wholesale price deflation lingers. The producer price index has been falling for the 26th month in a row.
Chinese authorities have reiterated Beijing’s intention to boost consumption throughout the year. In this case, a subsidy program is provided to stimulate trading in used household appliances and electronic goods. It is highly likely that China will also impose some other measures.
Moreover, the media, citing experts, note the likelihood that Beijing may set a budget deficit target of up to 4% of GDP for next year. The corresponding decision will allow the central government of China to borrow more to support the economic system, which is on a trajectory of gradual weakening.
