Standard Chartered economists Carol Liao and Shuang Ding have noted that the upcoming Central Economic Work Conference (CEWC) in China is likely to take a pro-growth stance and present a stimulus plan, aligning with the Politburo’s direction. The shift to an ‘appropriately loose’ monetary policy has raised the prospects of positive developments. However, limited policy space and concerns over financial stability may limit the scale of the stimulus. Fiscal policy is expected to play a major role, with a growing focus on enhancing consumption.
The Politburo meeting on 9 December issued strong signals of policy easing, fueling market expectations of a significant stimulus package. The change in the monetary policy from ‘prudent’ to ‘appropriately loose’ and the introduction of ‘extraordinary counter-cyclical adjustment’ exceeded anticipations, hinting at a potentially ambitious growth target of around 5% for 2025. The meeting also committed to implementing more proactive fiscal policy, stabilizing the housing and stock markets, and comprehensively boosting domestic demand, which has been met with a positive market response.
It is believed that the Politburo’s strong stance is part of the authorities’ attempt to use forward guidance to rejuvenate market sentiment. Despite the potential for upside surprises from monetary easing and broader stimulus measures, the 2025 growth forecast remains at 4.5% due to shrinking macro policy room, the ongoing property market correction, and mounting external challenges.
The CEWC, expected to be held this week, is anticipated to offer more specifics on the ‘extraordinary counter-cyclical adjustment’ mentioned by the Politburo. This could involve a substantial increase in government bond issuance, backed by regular purchases of central government bonds by the People’s Bank of China from the market. The new stimulus package is likely to center more on spurring consumption, differing from the previous model that heavily depended on investment. While monetary easing could bring pleasant surprises, it is not expected to match the scale of the 2009 stimulus due to policy constraints and financial stability considerations.
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