For the first time since 2009, the Chinese Communist Party changed its monetary policy from “moderately loose” to “prudent.” The announcement, made by the Politburo on Monday, is part of a broader effort to support China’s slowing economy and address growing deflationary pressures.
The change was revealed ahead of the upcoming Central Economic Work Conference, where officials are expected to outline 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 RMB 10 trillion ($1.4 trillion) debt swap plan in early November aimed at helping local governments pay off arrears .
Market reaction and investor sentiment
The announcement sent bond yields and stock prices soaring, with the yield on 10-year Chinese government bonds falling to a record low of 1.92%, while Hong Kong’s Hang Seng China Enterprises Index fell increased by 3.14%.
Australian miners have seen a modest boost from an expected increase in demand for construction, infrastructure and manufacturing products. BHP Group (ASX:CV) On Tuesday, Fortescue closed 3.05% higher at $41.83 (ASX:FMG) Pilbara Minerals closed 6.23% higher at $20.45 (ASX:PLS) Rio Tinto closed up 6.51% at $2.29 (ASX:RIO) closed 4.85% higher at $125.28, South32 (ASX:S32) closed 2.22% higher at $3.68 and Whitehaven Coal (ASX:WHC) it 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 described the announcement as encouraging, saying that “to escape the debt-deflation vicious cycle, Chinese policymakers must step up fiscal measures to boost consumption.”
Economists at Morgan Stanley noted that this was the first time the term “extraordinary” had been applied to countercyclical adjustments, and they also pointed out that adding “more” to the description of proactive fiscal policy,
Current economic pressures
The policy change comes against a backdrop of growing signs of deflation. Consumer prices rose just 0.2% year-on-year in November, well below market expectations of a 0.5% increase, while producer prices fell 2.5% year-on-year , continuing a two-year streak of declining producer 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 significant barrier. Youth unemployment rates remained in double digits, while broader unemployment rose to 5.1% in September, up from 4.7% in 2023.
Economic stimulus measures
Some economists believe China could introduce rate cuts, reserve ratio reductions and other measures to encourage spending and investment.
Previous monetary easing measures included October cuts to the prime lending rate (LPR), with the one-year LPR reduced 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 shift will result in significantly stronger action. Many expect this to provide a symbolic boost to market confidence, but questions remain over whether concrete measures will follow.