Yesterday (December 13), Xinhua News Agency reported that the annual Central Economic Work Conference had just ended in Beijing. Through the conference, Mr. Xi Jinping, President of China, emphasized the priorities for the country’s economic development in 2025.
Stimulate demand in the domestic market
Accordingly, China will adopt a more proactive fiscal policy and introduce a higher budget deficit as a percentage of GDP, while ensuring continued strong fiscal policy to create a greater impact. Mainland policymakers are committed to increasing the issuance of ultra-long special treasury bonds and special purpose bonds by local governments, while optimizing the fiscal spending structure.
China’s economy is facing many difficulties
Before the above conference took place, China’s highest-ranking officials revealed that they would loosen monetary policy by 2025 by adopting a “moderately loose monetary policy”. The last time China used the above phrase was in July 2010 when the country had to respond to the consequences of the global financial crisis.
The goal of the Beijing government is to stimulate the domestic consumer market. This is emphasized as China gets closer and closer to the challenges because the trade war with the US is expected to escalate after Donald Trump officially takes office as US president on January 20, 2025.
If the trade war escalates as predicted, China may face even greater difficulties. That’s because the country’s economy has not yet effectively resolved problems such as a stagnant real estate market and declining confidence and income, causing consumption to continue to be low. Therefore, loose monetary policy and flexible fiscal policy are considered strategies to strengthen the domestic market.
Bold but effective measures?
In fact, over the past few months, China has begun offering “huge” stimulus packages. At the end of September, the country cut 0.5 percentage points of mortgage interest rates for existing homes and the required reserve ratio. This plan is expected to benefit 50 million households – equivalent to 150 million people, reducing household interest costs by an average of about 150 billion yuan per year, aiming to boost consumption and investment. invest effectively.
Not only that, the People’s Bank of China (PBOC – acting as the central bank) is also considering measures to allow policy and commercial banks to grant loans to qualified companies to buy land. This solution aims to revive land resources and reduce financial pressure on real estate businesses. Previously, PBOC reduced the 14-day repurchase contract (repo) interest rate by 10 basis points, from 1.95% to 1.85%. Along with that, PBOC also adopted this tool to inject 74.5 billion yuan (about 10.6 billion USD) into the economy.
Not only that, Beijing also began using measures to stimulate investment amid worries that Washington’s sanctions are causing capital to flow out of China. A typical example is the “bold capital” initiative to direct investment to early-stage projects that focus on technology and accept higher risks.
The initiative started in Shenzhen in October as part of a plan to promote high-quality development in venture capital. To implement this plan, Shenzhen committed to a series of government investment funds worth trillions of yuan (nearly 140 billion USD), developing an industrial fund cluster worth hundreds of billions of yuan and a cluster of industrial funds worth hundreds of billions of yuan. seed and angel stage investments worth 10 billion yuan (nearly 1.4 billion USD) by 2026. Shenzhen aims to “fully exploit the potential of private capital and strive to register Sign more 10,000 private equity and venture capital funds”.
However, China’s ambitious action plans are said to still be inconsistent with the actual situation. Many observers believe that the Chinese economy actually faces more difficult problems than simply falling consumption or stagnant real estate. The reason is also that long-standing development models are no longer suitable.
Reacting after the new plans were announced, the country’s stock market yesterday (December 13) continued to decline. Meanwhile, according to an assessment sent by credit rating agency S&P Ratings AdolescentChina’s economy this year is unlikely to reach the set growth target of 5%, forecasting growth rates in 2025 and 2026 to be 4.1% and 3.8%, respectively.
