It may not seem much to non-China watchers, but the Communist party’s politburo has changed the wording of its stance on monetary policy for the first time since the 2007/8 financial crisis from ‘prudent’ to ‘moderately loose’.

Chinese and Hong Kong listed shares jumped, as did those of UK and European stocks which have large exposure to the region including miners Antofagasta (ANTO) and Rio Tinto (RIO), insurer Prudential (PRU) and luxury firms Burberry (BRBY) and LVMH (MC:EPA).

The top leadership of the party is set to meet to lay out the economic agenda for 2025, and in a statement the government said it would implement more proactive fiscal policies and looser monetary policy to ‘vigorously boost consumption, improve investment efficiency and expand domestic demand in all directions’.

There was also a pledge to ‘stabilise’ property and stock markets and a reference to the use of ‘extraordinary’ policy adjustments if necessary to boost the economy, all of which suggests the Chinese leadership is taking the threat of a trade war seriously.

In an interview with Bloomberg, ANZ Banking Group’s senior strategist Zhaopeng Xing described the wording in the government’s statement as ‘unprecedented’, while Exante Data senior strategist Martin Rasmussen said it showed the party leaders’ view on economic conditions ‘has shifted substantially’ in the last couple of months.

On top of the threat of a trade war, China’s economy has been struggling with falling prices, as shown by November’s PPI (producer price index), which measures the price of goods sold by manufacturers and which fell for the 26th month in a row, eating into corporate profits and undermining the government’s efforts to grow the economy at a 5% rate.

At the same time, consumer prices hit a five-month low in November with inflation rising just 0.2% year-on-year compared with economists’ forecasts of a 0.5% increase according to a Reuters poll.

‘The Chinese economy continues to flirt with deflation, highlighting the inadequacy of the stimulus measures thus far in restoring private sector confidence, reviving domestic demand and putting growth back on track,’ commented Eswar Prasad, professor at Cornell University, in an interview with the Financial Times.

The last time China adopted a ‘moderately loose’ monetary stance was between 2008 and 2010 when it tried to prop up the economy with massive amounts of government spending, a move it had vowed it wouldn’t repeat. 

‹ Previous2024-12-12Next ›