China promises loans and interest rate cuts against Trump's tariffs

China promises loans and interest rate cuts against Trump's tariffs

On Thursday, China announced that it increases the budget deficit, taking more loans and loosening monetary policy in order to maintain stable economic growth. This is done with regard to the increasing trade conflicts with the United States, where Donald Trump returns as President

economic challenges of China

These statements come from a press release from the state media after an annual, trend -setting meeting of the highest leadership of China, known as the Central Economic Conference (CEWC), which took place on December 11th and 12th. According to the national broadcaster CCTV, "the negative influence of changes in the external environment has increased". The meeting took place in a context in which the second largest economy in the world has stalled due to a severe crisis in the real estate market, high debts of the municipalities and a lack of domestic demand. Exports that are among the few positive aspects are exposed to the risk of higher US tariffs.

currency stability and monetary policy measures

A separate communication by the State news agency Xinhua, which is carefully pursued by financial markets in order to maintain indications of the currency of the country, the Yuan, the promise "maintained the basic stability of the exchange rate at an appropriate and balanced level". The commitments of the CEWC reflect the tone of one of the least strict explanations of the Communist Party for over a decade that was published on Monday after a session of the political office, a top-decisive committee.

fiscal policy and incentives

The Politburo said that China will pass to an "reasonable" monetary policy and use "proactive" fiscal levers, as well as "unconventional economic adjustments". Similarly, the summary of the CEWC emphasized a higher budget deficit and an increased debt admission on a central and local level. The reduction in the minimum reserve requirements of the banks and timely reduction in interest rates were also promised.

"The direction is clear, but the size of the incentives is crucial, which we will probably only find out after the United States announced the tariffs," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. This monetary political change shows that China prioritizes economic growth on financial risks, according to the analysts.

destinations of the Central Economic Work Conference

At the CEWC, Beijing sets goals for economic growth, the budget deficit, debt admission and other variables for the coming year. These goals are agreed at the meeting, but are only officially published at an annual meeting of the parliament in March. The CEWC report emphasized that it was "necessary to maintain stable economic growth", but mentioned no specific growth rate.

"It will be quite challenging to keep 5 % in 2025, since the additional 'Trump shock' will heavily burden exports and investments," explained Xu Tianchen, senior economist at The Economist Intelligence Unit. "However, a good degree of incentives will prevent a dramatic decline, and I do not think that growth will drop below 4.5 %."

tariff threats and their effects

Trump's tariff threats have unsettled China's industrial sector, which sold goods worth over $ 400 billion to the USA every year. Many Chinese manufacturers shift their production abroad to escape the tariffs. According to exports, the tariffs will further reduce profits, job, investments, investments and economic growth. In addition, they would increase the industrial overcapacity and deflationary pressure in China, according to the analysts.

When exports go back, China has to search for a new growth drive internally. However, consumers feel less wealthy due to falling real estate prices and minimal social security. The low demand for consumption is a significant risk of growth.

state initiatives for consumption funding

Beijing has increasingly submitted emphasis on the promotion of consumption over the course of the year, but offered little in the form of guidelines, apart from a subsidy program for the purchase of cars, household appliances and some other goods. The summary of the CEWC announced that the program should be expanded and the pensions should be increased. In addition, the efforts to increase household income are to be reinforced and consumption is "vigorously stimulated".

"The markets could be encouraged," said Lynn Song, chief economist from InG for Großchina. "The call to energetic support for consumption is a positive sign."