The Chinese Communist Party changed its monetary policy from “moderately loose” to “prudent” for the first time since 2009. The announcement, made Monday by the Politburo, is part of a broader effort to support the slowdown of the Chinese economy and to cope with the rise of the Chinese economy. deflationary pressures.
The shift was revealed ahead of the upcoming Central Economic Work Conference, where officials are expected to present China’s economic agenda for 2025. The Politburo, chaired by President Xi Jinping, called for ” more proactive fiscal policies” and “extraordinary countercyclical adjustments” to stimulate demand, stimulate investment and support consumption.
China has already implemented several stimulus measures in recent months, including a 10 trillion RMB ($1.4 trillion) debt swap plan in early November aimed at helping local governments clear their arrears.
Market Reaction and Investor Sentiment
The announcement sent bond yields and stock prices soaring, with the yield on China’s 10-year government bonds falling to an all-time low of 1.92%, while Hong’s Hang Seng China Enterprises Index Kong rose 3.14%.
Australian miners received a slight boost from an expected increase in demand for construction, infrastructure and manufacturing products. BHP Group (ASX:BHP) closed up 3.05% at $41.83 on Tuesday, Fortescue (ASX:FMG) closed up 6.23% at $20.45, Pilbara Minerals (ASX:PLS) closed up 6.51% at $2.29, Rio Tinto (ASX:RIO) closed up 4.85% at $125.28, South32 (ASX:S32) closed up 2.22% at $3.68 and Whitehaven Coal (ASX:WHC) closed up 3.48% at $6.55. The sector as a whole closed up 3.04%.
Treasury Wine Estates closed up 4% at $11.95.
Analysts at Brown Brothers Harriman called the announcement encouraging, saying that “to escape the debt-deflation loop, Chinese policymakers must step up fiscal measures to boost consumption.”
Morgan Stanley economists noted that this was the first time the term “extraordinary” had been applied to countercyclical adjustments, and also pointed out that adding “plus” to the description of proactive fiscal policy,
Current economic pressures
This policy change comes amid growing signs of deflation. Consumer prices rose just 0.2% year-on-year in November, well below market expectations of a 0.5% rise, while producer prices fell by 2. 5% over one year, continuing a two-year streak of falling ex-factory prices.
China’s real estate market, once a key driver of growth, continues to weigh on household wealth, eroding consumer confidence.
Job insecurity also remains a major obstacle. Youth unemployment rates remained in double digits, while broader unemployment rose to 5.1% in September, up from 4.7% in 2023.
Economic recovery measures
Some economists believe China could introduce rate cuts, reserve ratio reductions and other measures to encourage spending and investment.
Past monetary easing measures included cuts to the prime lending rate (LPR) in October, with the one-year LPR falling from 3.35% to 3.10%, while the five-year LPR fell from 3. .85% to 3.60%.
Economists, however, are divided on whether this latest policy change will result in significantly stronger action. Many expect this to symbolically boost market confidence, but questions remain over whether concrete steps will follow.
