China charts new economic course with bold policy shift

China's top policymakers have outlined a significant shift in economic policy, adopting a more proactive fiscal approach and moderately easing monetary measures. This was announced during the Political Bureau of CPC Central Committee meeting on Monday, setting the tone for the nation's economic priorities in 2025.

This adjustment in monetary policy, described as the first major shift since 2011, has drawn immediate international attention.

Dong Yu, executive deputy director at the China Institute for Development Planning at Tsinghua University, said that signs of monetary easing were already evident in recent incremental policies. The explicit signal of moderate monetary relaxation aligns with current economic needs and market expectations, he added.

Macro adjustment: unprecedented scale and depth

The meeting introduced the term "more proactive and effective macroeconomic policies," coupled with phrases like "moderately loose" and "extraordinary counter-cyclical adjustments." Dong interpreted these as signaling an extension of the current suite of incremental policies into 2025, marking unprecedented breadth, depth, and strength in macroeconomic measures.

Policymakers emphasized the need to maintain economic stability while promoting progress through innovation and balanced coordination. Compared to this year's focus on stability and incremental reforms, the 2025 agenda reflects a more nuanced approach. "This underscores a dual emphasis on innovation-driven progress and comprehensive balance," Dong observed.

Market reassurance and policy expectations

Policy prescriptions made at the meeting include bolstering consumption, enhancing investment efficiency, and broadly expanding domestic demand. These measures have buoyed market sentiment. Notably, the government pledged to "strengthen the policy toolbox," suggesting the potential introduction of new instruments based on evolving conditions.

Luo Zhiheng, chief economist at Yuekai Securities, noted that the stronger macroeconomic measures will likely be more targeted, forward-looking, and outcome-driven. "Given the challenges of weak domestic demand, global economic sluggishness, and U.S. tariffs, extraordinary measures are necessary to convert pressure into momentum," he said.

Proactive adjustments ahead of market expectations can stabilize demand and reinforce the foundation for economic recovery, he added.

The meeting underscored stability, referencing the term 13 times in the communique. Key areas include stabilizing housing and stock markets, boosting external trade, and mitigating risks in critical sectors. Dong highlighted the importance of preparing for intensified external shocks in the coming year, urging preemptive responses.

2024 growth goals within reach

China's economy grew by 4.8 percent in the first three quarters of 2024, according to the National Statistics Bureau, raising questions about the feasibility of this year's growth targets. The Politburo meeting expressed optimism, signaling confidence in achieving the year's major socio-economic objectives.

Dong said this confidence bodes well for meeting the 5 percent growth target in 2025, while Luo noted that incremental policies have revitalized market expectations, spurred consumption and investment, and stabilized the real estate sector.

"China’s economy is resilient, with a strong foundation and untapped potential. The conditions for long-term growth remain unchanged," Luo said.

The upcoming Central Economic Work Conference is expected to provide a detailed roadmap for 2025, offering further clarity on China’s evolving economic strategy.