China signalled further stimulus measures including raising its budget deficit ratio in 2025 at a key economic meeting that sets policy priorities for the coming year.
Top officials led by President Xi Jinping also vowed to deliver rate cuts and lower the reserve requirement for banks during a two-day huddle of the Central Economic Work Conference in Beijing, according to China Central Television.
China “will need to maintain economic growth and ensure overall stability of employment and prices” next year, the state broadcaster reported after the meeting. China will also increase the issuance of ultra-long special treasury bonds and local government special notes next year, which are important sources for infrastructure investment and other public spending.
The meeting did not provide details on when the monetary easing steps will come. Economists have been expecting a cut to the RRR, which will free up money for banks to lend and invest, by the end of this year, as the central banks signalled before. Forecasts for the next interest rate cuts are generally for early next year.
Chinese equity futures dropped as much as 1% following the announcement.
“All the policy measures are in line with our prior expectations,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “Now the question is how much.”
The latest pledges follow a commitment made at the December huddle of the decision-making Politburo earlier this week to pump more stimulus into the economy. It included the first shift in China’s monetary policy stance in 14 years to a “moderately loose” strategy, and signalled determination to support demand.
Risks Ahead
While a slowdown is a risk for 2025, China is back on course to hit its official target for economic growth of around 5% this year, after consumer spending and factory activity notched a mild rebound in recent weeks. The improvements were largely a result of a flurry of stimulus measures rolled out since late September, steps that ranged from forceful interest-rate cuts to expanded government subsidies for purchases of cars and home appliances.
But the outlook for next year and beyond is increasingly uncertain. The threat of a new trade war with the US after the re-election of Donald Trump means exports will probably stop being a major growth driver.
“The policies are going to the right direction” even though details on the magnitude of stimulus are still missing, said Michelle Lam, Greater China economist at Societe Generale SA. “It does show that policymakers are aware of the challenging economic situation.”
Domestic challenges are also piling up. Consumer and business confidence remains sluggish, contributing to persistent deflation. A prolonged housing downturn shows no sign of bottoming out.
Investors are parsing the language used by top leaders to decipher concrete policy plans for next year, as optimism faded after initially surging on the heels of bold policy signals. Economists have called for an increase in central government borrowing and spending, greater aid to consumers as well as reforms to improve the social safety net.
Details such as the growth target or the government’s budget will only be unveiled in March during the annual legislative sessions.
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