China has decided to implement a more proactive fiscal policy and said it will follow a 'moderately loose' monetary policy next year, in a shift in stance for the first time since 2011, the country's top decision-making body said on December 9.
The Politburo said its decision will stabilize real estate and equity markets, while strengthening 'unconventional counter-cyclical' adjustment. Previously, the Politburo had said that fiscal policy would be 'proactive'.
The Politburo, which has the most senior officials of the ruling Communist Party, led by President Xi Jinping, made the announcement. The Politburo's decision hints at a greater easing by China going forward, and a decision that will likely to be welcomed by global investors. This development is significant as China had so far maintained a 'prudent' stance since 2011 despite various cycles of tightening and loosening.
The Politburo said China must 'enrich and improve the policy toolbox' to strengthen counter-cyclical adjustments, as well as play a good policy 'combination punch' to improve macro-control. "We must expand high-level opening up to the outside world, stabilize foreign trade and foreign investment," the statement added.
The last time China followed a moderately loose monetary policy was after the global financial crisis of 2008.
China's economic growth for the third quarter was at 4.6%, slightly above analysts' expectations, keeping policymakers under pressure to consider more stimulus measures.
The move is seen as a step in preparation for Donald Trump's returns to the White House next month, in light of the recent threats of additional tariffs on Chinese exports to the US.
The Politburo stressed on the need to 'vigorously boost consumption, improve investment efficiency, and expand domestic demand.'
China's Xinhua News Agency had on Friday said that the country has room to raise its borrowing and fiscal deficit in 2025.
Shanghai's CSI 300 index ended the day with a modest loss of 0.17%. Investors will also watch out for possible reaction in the global commodity markets after the decision. The US index futures edged higher after the announcement, Hong Kong’s Hang Seng rose by 2.5% in late trading, while US treasury yields fell and the US dollar was steady.
The Politburo sought to 'strengthen Party's leadership' over economic matters, so as to ensure all decisions of the Central Committee are implemented. It is 'necessary to fully mobilize the enthusiasm of all parties', to work and start businesses, it added, in an effort to stress on the need to revive domestic consumption.
The Political Bureau of the CPC Central Committee also addressed the concerns around corruption, and the need to 'improve mechanism of investigating and treating unhealthy practices and corruption together'.
Investors will now be watching out for the outcome of the annual Central Economic Work Conference, likely this week.
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