China's 2025 Economic Outlook Focuses on Consumption Growth and Monetary Expansion
On December 9, the Political Bureau of the Chinese Central Committee held a meeting regarding 2025's economic work. The meeting advocated a more positive economic attitude, signaling a more active macroeconomic stimulus.
The meeting shows several important plans. First, 2025's policy outlook is changed to high-quality development, implying the governmental plan to address the obstacles during the economic development. Secondly, 2025's economic goal is to improve people's living standards. Thus, the government will expand domestic demand by boosting consumption and improving investment efficiency. Instead of relying on large-scale investment, China's economy in 2025 may be driven by rising private consumption capacity. Finally, China wants to stabilize the real estate market in 2025, possibly denoting measures to boost market confidence in real estate investment.
Practically speaking, the meeting proposed a more active fiscal policy and a moderately easing monetary policy. The former addresses the possible elevation of the budgetary deficit rate and the scale of the ultra-long-term special treasury bond; the latter changes the steady tone of monetary policy.
The last moderately loose monetary policy in 2008 gave two reductions in quota and two reductions in the benchmark interest rate for deposits and loans. Afterward, China's credit environment saw a significant expansion, with the M2 growth rate of 30%. The loose tone gives space for more rate cuts. The central bank may give more than two cuts per year. Or, it may also hint at the rising target for social financing and M2.
After the meeting, yesterday's (December 9) Hong Kong and mainland stock markets went sharply higher after the close; bond interest rates continued declining. Considering that both the 10-year treasury bond and the price of funds are nearly inverted, whether the downside space for policy rates can shift into a pullback in the fund's rate may pivot in the market.