Michelle ThompsonChina plans to adopt an “appropriately loose” monetary policy in 2025, along with a more proactive fiscal policy to stimulate economic growth, according to the Politburo. The focus will be on expanding domestic demand and boosting consumption, as reported by state media Xinhua. These statements precede the annual Central Economic Work Conference, which will establish key goals and policy directions for the coming year. Following the Politburo meeting, stocks surged, and China’s government bonds saw a rally, with Hong Kong’s Hang Seng index rising 2.8%, reaching its highest point in a month.
In 2025, authorities aim to balance progress with stability. The readout emphasized the need for a more proactive fiscal policy and an appropriately loose monetary policy, refining policy tools and strengthening counter-cyclical measures. The Politburo also stressed the importance of stabilizing the housing and stock markets, though specific details were not provided.
Looser monetary policy
The new language regarding China’s monetary policy marks the first easing of its stance since late 2010, as stated in official Politburo meeting announcements. According to Xing Zhaopeng, ANZ’s senior China strategist, this shift signals strong fiscal stimulus, a potential significant interest rate cut, and asset purchases in 2025. The policy tone reflects confidence in the face of potential challenges, including the threats of tariffs from former U.S. President Donald Trump.
China’s economy has faced challenges this year, leading policymakers to take action in September by implementing aggressive monetary easing measures. These included cutting interest rates and injecting 1 trillion yuan ($140 billion) into the financial system. While China may meet its growth target of around 5% for this year, sustaining this pace in 2025, especially with Trump’s potential return to the White House and tariff threats, will be difficult.
The central bank has outlined five policy stances: “loose,” “appropriately loose,” “prudent,” “appropriately tight,” and “tight,” offering flexibility on either side of each. Following the 2008 global financial crisis, China adopted an “appropriately loose” policy, shifting to “prudent” in late 2010.
In November, China introduced a 10 trillion yuan ($1.4 trillion) debt package to alleviate local government financing challenges and stabilize economic growth. However, these debt measures aim more at repairing municipal balance sheets in the long term rather than directly injecting money into the economy.
Trump tariffs loom
China’s economy has become increasingly reliant on manufacturing and exports this year, with weak household demand and a severe property market crisis eroding consumer wealth. Most government stimulus has been directed at producers and infrastructure. Advisers to the government suggest keeping the growth target unchanged for next year but recommend stronger fiscal stimulus to counter the impact of expected U.S. tariffs and deflationary pressures.
Trump’s tariff threats have unsettled China’s industrial sector, which exports goods worth over $400 billion annually to the U.S. Finance Minister Lan Foan has indicated that additional stimulus measures are planned, though details have not been provided.
Economists are urging the Chinese government to focus more on consumer-driven policies, offering stronger financial support to low-income households, and advancing promised tax, welfare, and structural reforms. However, Chinese authorities have primarily concentrated on upgrading the export-driven manufacturing sector, achieving notable success in electric vehicles, solar energy, and batteries, areas that have faced increasing resistance from major trade partners.
