China’s top economic officials have pledged significant stimulus measures aimed at stabilizing the housing and stock markets and implementing more effective fiscal policies. This announcement follows a high-level meeting led by President Xi Jinping, signaling a renewed focus on bolstering domestic demand and economic growth.
The Chinese government will focus on revitalizing the property market by stimulating demand and managing land supply for new developments, according to Vice Minister of Housing Dong Jianguo. Simultaneously, the China Securities Regulatory Commission (CSRC) announced plans to enhance market oversight for futures and spot trading, along with strengthening supervision of margin trading, derivatives, and quantitative trading activities. These actions reflect a comprehensive approach to mitigating systemic risks and fostering stability in crucial financial sectors.
The Ministry of Finance has committed to implementing more robust and sustainable fiscal policies in the coming year, coupled with improvements in macroeconomic regulations. This includes increasing the issuance and utilization of local government special bonds and broadening their investment scope. These fiscal measures are designed to inject liquidity into the economy and support infrastructure development. This announcement marks a shift in priorities, with “lifting consumption vigorously” and stimulating overall domestic demand highlighted as top priorities for the second time in a decade.
These pronouncements come after the Central Economic Work Conference, where leaders emphasized the need to increase the fiscal deficit target for the next year. This proactive stance indicates a determination to counter economic headwinds and address concerns about deflationary pressures.
While recent weeks have seen a modest economic rebound fueled by government support, with improvements in consumption and factory activity, overall confidence remains fragile. The limited impact of previous policies in fully reversing deflationary trends underscores the need for bolder measures.
Recent data revealed an unexpected slowdown in China’s credit expansion in November. Loans directed to the real economy, excluding those issued to financial institutions, plummeted to their lowest November level since 2009. This decline, coupled with increased government bond issuance, significantly impacted overall credit growth.
Further easing measures are anticipated, including potential interest rate cuts and reductions in the reserve requirement ratio, according to Wang Xin, director of the research bureau at the People’s Bank of China (PBOC). These actions aim to inject more liquidity into the market and stimulate lending. The central bank intends to intensify monetary and credit supply while further relaxing financing conditions for the real economy. This aligns with the Politburo’s recent commitment to a “moderately loose” monetary policy for 2025.
Anticipation of greater easing has prompted a surge in investment in government bonds, pushing the yield on China’s 10-year bonds to a historic low of 1.77%. Conversely, the CSI 300 Index experienced a sharp decline, highlighting the complex interplay between monetary policy and market sentiment.
The PBOC also plans to enhance its management of exchange rate expectations and proactively address potential external shocks, according to a senior official. The central bank will focus on mitigating volatility and preventing excessive fluctuations in the yuan’s exchange rate, particularly in light of recent depreciation pressures and trade tensions. This commitment to exchange rate stability aims to minimize disruptions to international trade and investment flows.
In conclusion, China’s commitment to robust fiscal and monetary stimulus signals a decisive effort to address economic challenges and bolster market confidence. The focus on stabilizing the housing and stock markets, alongside efforts to stimulate domestic demand, suggests a comprehensive approach to achieving sustainable economic growth. While recent data points to the need for continued vigilance, these policy pronouncements offer a potential roadmap for navigating current economic headwinds and fostering a more resilient and vibrant economy.
