I. Overview
In 2024, China faced a complex internal and external economic environment: the global economic recovery was weak, geopolitical risks rose and the domestic demand was challenging. To deal with these challenges, the government of China has adopted a series of active economic policies to steadily promote economic growth and strive to achieve high-quality development goals through monetary policy, fiscal stimulus, industrial support and consumption promotion measures. However, the effects of these policies vary widely in different areas. Some of these policies have been quite successful.
The central economic work conference was held in December 2024. It's proposed at the conference that the "proactive fiscal policy" and "moderately loose monetary policy" will be implemented in 2025 and such policy tools as "ultra-long special treasury bonds" were brought up again. In addition, the conference emphasized the need to expand domestic demand, stabilize the real estate market, promote scientific and technological innovation and increase support for the private economy and small and medium-sized enterprises. The key direction of economic work next year was clarified at the conference.
II. Key points of central economic work conference
The central economic work conference in December 2024 marked a significant shift in policy keynote. The combination of fiscal expansion and monetary easing was used to promote the domestic demand, accelerate scientific and technological innovation and industrial upgrading, as well as confirming the focus and direction of economic work in 2025. Its key points are as follows:
Adopt a pro-active fiscal policy and strengthen efforts to maintain steady growth
• It's stressed at the conference that the fiscal policy will be more active and effective, and the budget deficit ratio may be further raised to about 4% of GDP in 2025 (a new high).
• Bring up the issuance of ultra-long special treasury bonds again, provide long-term stable funds for major infrastructure projects and development in key areas, and enhance the role of government funds in driving the economy.
Moderately loose monetary policy to ensure adequate liquidity
• The conference clarified that the "moderately loose" monetary policy will be adopted, which is the first time the statement has been used since 2011, and it marks a shift in policy keynote from being "prudent" to being more loose.
• It is expected to increase market liquidity and support corporate financing demand and economic recovery by certain tools, such as reduction in interest rates and deposit-reserve ratio (RRR).
Expand domestic demand and boost consumption and investment
• Ther conference proposed to boost consumer confidence and unleash consumption potential by raising residents' income and improving the social security system.
• Promote a new round of trade-in policies for consumer goods (especially in the field of automotive and home appliances) as well as encourage enterprises to increase investment and focus on supporting the high-tech industries and the recovery of private investment at the same time.
Optimize real estate market policy to promote the "stabilization of the market and expectations"
• Emphasize adhering to the policies according to the specific situations of cities, strengthen support for local governments in the real estate sector, study the moderate purchase of housing stock to solve the issue of high inventory as well as stabilize the healthy development of the real estate sector.
• Maintain the financial stability of real estate, ensure the reasonable financing needs of real estate enterprises, support the delivery of projects by real estate enterprises and boost the confidence of home buyers.
Promote the scientific and technological innovation and industrial upgrading and support the development in key fields
• It's proposed at the conference to intensify the efforts to tackle key issues on scientific and technological innovation and core technologies in key sectors, promote industrial upgrading and technological independence and control as well as enhance the resilience and competitiveness of the country’s economy.
• Focus on investing strategic emerging sectors (such as new energy, semiconductors and artificial intelligence) to help economy move toward high-quality development through the issuance of ultra-long special treasury bonds and other supportive policies.
III. Analysis of the direction of economic policy in 2025
The policy direction proposed at the central economic work conference in 2024 are consistent with market expectations and are generally welcomed. Specifically such policies include:
Fiscal expansion and raising the budget deficit ratio
• Raise the budget deficit to 4% of GDP and the possible issuance of ultra-long special treasury bonds is regard as important measures to support the economic recovery. These policies are aimed at injecting plenty of capital into infrastructure projects and strategic sectors to create employment and stabilize growth.
"Moderately loose" monetary policy
• The shift from the traditionally "prudent" to "moderate easing" on monetary policies marks stronger credit expansion and liquidity support signals.
• Financial markets react positively, and it's anticipated that the lower borrowing costs will improve conditions in sectors with high debt levels and boost consumer and business confidence.
Stimulating consumption and domestic demand
• Policies focus on raising resident incomes, expanding the social security system and introducing a new trade-in plan for consumer goods. Such measures are very likelyto expand domestic demand on consumer goods
• The performance of consumer goods and retail-related fields is optimistic, and these policies are directly targeted at the weak links in consumer demand.
Measures to stabilize the real estate market
• Pay close attention to the stability of the real estate market anew (including local government support and possible housing stock acquisition) and alleviate the problem of high inventory to balance the market.
• The cautious optimism is reflected through lower volatility in real estate-related stocks and bonds.
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