Chinese authorities have announced a significant shift towards a “moderately loose” monetary policy, marking the first change in their economic stance in 14 years. The move comes as the world’s second-largest economy grapples with persistent deflationary pressures and slowing growth.
The Politburo, led by President Xi, declared its intention to “implement more proactive fiscal policies” to stimulate economic recovery. This strategic pivot from their long-held “prudent” approach represents the most substantial monetary policy adjustment since November 2008, during the global financial crisis.
UK markets responded positively to the announcement, with China-exposed stocks surging. Mining giants Rio Tinto, Antofagasta, and Glencore led the FTSE 100’s gains, each climbing more than 3.4 per cent. The Hang Seng index in Hong Kong rose by 2.76 per cent, whilst Brent Crude oil prices increased by 1.03 per cent to $71.85 per barrel.
The policy shift arrives amidst China’s struggle with a property sector crisis and inadequate domestic demand. Throughout the past year, policymakers have implemented various measures, including interest rate reductions and borrowing programmes, yet have remained cautious about launching large-scale stimulus packages reminiscent of their 2008 response.
Recent data from China’s National Bureau of Statistics revealed annual inflation dropped to 0.2 per cent in November, reaching a five-month low. Producer prices showed a decline of 2.5 per cent annually, an improvement from October’s 2.9 per cent decrease. Unusually warm weather conditions contributed to increased fresh food production, helping to maintain stable food prices.
The International Monetary Fund’s October forecast suggests China’s economy will grow by 4.8 per cent this year and 4.5 per cent in the following year, falling short of the country’s 5 per cent GDP growth target. The nation faces additional challenges, including potential US tariffs of up to 60 per cent on Chinese imports under a possible future Trump administration.
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