Introduction: A New Dawn for China’s Economic Policies

The recent meeting of China’s Politburo has set a dynamic course for the nation’s economic policies in 2025. With President Xi Jinping at the helm, the government has committed to adopting a “moderately loose” monetary policy and a “more proactive” fiscal policy. This positive shift in policy tones is expected to invigorate market sentiment and bolster domestic demand.

Key Policy Shifts and Economic Strategies

The Politburo meeting outlined several critical shifts in China’s economic strategies:

• Monetary Policy: China plans to implement a “moderately loose” monetary policy, a stance last seen during the 2009-2010 Global Financial Crisis. This marks a departure from the “prudent” policy maintained from 2011 to 2024.
• Fiscal Policy: The fiscal policy will take on a “more proactive” approach, advancing from previous “proactive” stances.
• Counter-Cyclical Policies: Policymakers are committed to extraordinary counter-cyclical policy adjustments, signaling potential unconventional tools to stimulate growth.
• Domestic Demand: A comprehensive expansion of domestic demand is prioritized, focusing on boosting consumption and enhancing investment returns.
• Asset Prices: Efforts will be made to stabilize property and stock markets, reflecting a focus on the wealth effect on household consumption.
• Policy Coordination: The importance of improving policy coordination and coherence across various government departments is reiterated.

Economic Forecast and Market Predictions

The readout suggests a continuation of the current GDP growth target of “around 5%.” For monetary policy, a significant reduction in the reserve requirement ratio is anticipated, along with cuts in the policy rate and the five-year loan prime rate. Fiscal policy is expected to see an increase in the headline fiscal deficit ratio and the augmented fiscal deficit ratio.

To stimulate domestic demand, new consumer goods trade-in programs are forecasted, alongside targeted household subsidies. In the property sector, measures to stabilize the market are anticipated, including the purchase of unsold housing units and idle land parcels.

Market Sentiment and Potential Challenges

The positive tone of the Politburo meeting is expected to enhance market sentiment in the near term. However, the incoming US administration may introduce uncertainties. For a sustained rally in the Hong Kong stock market, forceful measures, effective execution, and signs of China breaking through the deflation-debt spiral are essential.

Analyst Insights

Edith Qian, CFA, an analyst at CGS International, expressed optimism about the positive policy shifts. Her contact details are provided for further inquiries: Email: edith.qian@cgsi.com, Phone: (852) 2532 1190.

Disclaimer

This report, prepared by CGS International, is not intended for distribution to individuals or entities in jurisdictions where such distribution is contrary to law or regulation. The information is based on data believed to be reliable at the time of issue, but no representation is made as to its accuracy or completeness. Recipients are advised to conduct their own evaluations and consult professional advisers before making investment decisions.

Global Distribution and Jurisdictional Restrictions

The report is distributed in various jurisdictions, including Hong Kong, Indonesia, Malaysia, Singapore, South Korea, Thailand, and others, with specific restrictions and regulatory disclosures relevant to each region. The report is intended for professional and institutional investors and is not an offer to sell securities.

Conclusion: A Forward-Looking Perspective

China’s strategic economic shift signals a proactive approach to overcoming current challenges and fostering growth. The outlined policies aim to stabilize markets, boost domestic demand, and enhance policy coordination. As the nation navigates the complex global economic landscape, these measures are expected to play a pivotal role in shaping China’s economic future.