China plans measures to boost economic growth in 2025

China plans measures to boost economic growth in 2025

China is planning a "reasonably loose" monetary policy next year, complemented by proactive fiscal policy, to boost economic growth. State media reported this on Monday, citing the Politburo of the Communist Party.

Focus on internal demand and consumption

China aims to expand domestic demand and increase consumption, Xinhua reported. These statements were made in advance of the upcoming Central Economic Conference, which is expected to set fundamental goals and policy intentions for next year.

Market reactions in the wake of the announcements

The stock markets reacted positively to the Politburo's announcement and China's government bonds experienced an upswing. Hong Kong's Hang Seng Index rose 2.8%, reaching its highest level in a month.

Political framework for 2025

According to Xinhua, in 2025 the government must adhere to the principle of "advancement while maintaining stability." The report emphasizes that proactive fiscal policy and appropriately accommodative monetary policy should be implemented to improve the policy toolkit and strengthen exceptional countercyclical adjustments. In addition, the housing market and the stock market are to be stabilized, although no detailed information was provided.

Important adjustments in monetary policy

The current reassessment of monetary policy represents the first easing since late 2010. "We interpret this as strong fiscal stimulus, large interest rate cuts and asset purchases in 2025," said Xing Zhaopeng, senior China analyst at ANZ. “The political trajectory shows a strong confidence in Trump’s threats” that could involve tariffs.

Challenges in China's economy

This year, the Chinese economy has struggled due to significant political pressure and more aggressive monetary policy from the central bank. In September, the largest monetary easing since the pandemic was announced to stimulate the economy by cutting interest rates and injecting 1 trillion yuan (about $140 billion) into the financial system.

Growth targets and geopolitical risks

It is believed that China may be able to meet the growth target of around 5% this year. However, maintaining this growth rate in 2025 could be difficult, especially with the return to the White House of US President-elect Donald Trump, who has threatened tariffs of 60% or more on Chinese imports.

Structural challenges and recommendations

China's economy has relied heavily on manufacturing and exports this year, while demand-side performance has disappointed. Household demand is suffering greatly due to a severe housing crisis that is draining consumers' wealth. Economists recommend the government leave growth unchanged next time while providing more forceful fiscal stimulus to counter the impact of expected U.S. tariffs and ease deflationary pressures.

The threats from Trump's tariffs have rattled China's industrial complex, which sells more than $400 billion worth of goods to the United States annually. China's Finance Minister Lan Foan said further stimulus measures were being planned, but did not give details. It also suggested Beijing should adopt more consumer-focused policies and offer greater financial support to low-income households, while pushing ahead with previously announced tax, social and other policy changes to address structural problems.

So far, however, the Chinese government has focused primarily on modernizing its export-dependent manufacturing sector, which has brought notable successes in electric vehicles, solar energy and batteries but drawn opposition from key trading partners.