The Politburo, the top decision-making body of the Communist Party of China, at a meeting on Monday sent a clear signal for stabilizing economic growth and, for the first time, pledged “extraordinary counter-cyclical adjustments” for the 2025 economic agenda.
This marks a shift in the monetary policy stance from “prudent” to “moderately loose” for the first time in 14 years, while the fiscal policy evolves from the “proactive” stance of recent years to being “more proactive.”
When reviewing the economic work of 2024, the meeting noted that “the primary goals and tasks for economic and social development this year will be successfully accomplished,” implying that the around 5% growth target for 2024 is likely to be met. Earlier data from the National Bureau of Statistics indicated a GDP growth of 4.8% year-on-year for the first three quarters.
For the economic work in 2025, the meeting set a more proactive policy tone: China will adhere to a strategy of maintaining stability while pursuing progress, reinforcing innovation, prioritizing systemic integration and emphasizing coordination.
The authorities will implement a more proactive fiscal policy and a moderately loose monetary policy, enhance the policy toolbox, strengthen extraordinary counter-cyclical adjustments, execute a comprehensive set of policies, and make macroeconomic adjustments more forward-looking, targeted and effective, said the meeting.
Notably, the wording for both fiscal and monetary policies have seen changes, and compared with the usual “enhancing counter-cyclical adjustments,” the meeting added the term “extraordinary.”
Since the global financial crisis in 2008, China has maintained a proactive fiscal policy, occasionally emphasizing the need for a more active and effective approach, such as during the COVID-19 pandemic in 2020. The “even more proactive fiscal policy” planned for 2025 is seen as indicating an increase in the scale of fiscal efforts.
Furthermore, since 2011, China has maintained a prudent monetary policy stance for 14 consecutive years. The last shift to a moderately loose monetary policy occurred in 2009-2010, following the global financial crisis.
The meeting’s proposal to implement a “more proactive fiscal policy and a moderately loose monetary policy” and “strengthen extraordinary counter-cyclical adjustments” represents a brand-new combination, said Guo Lei, Chief Economist at GF Securities.
The terms “more proactive” and “moderately loose” indicate heightened intensity, while the mention of “extraordinary counter-cyclical adjustments” for the first time reflects the emphasis on current economic conditions and external uncertainties, Guo said.
To implement the more proactive fiscal policy, the deficit-to-GDP ratio in 2025 should be raised to above 3.5% or even 4%, said Luo Zhiheng, Chief Economist at Yuekai Securities.
According to his calculations, for an economy of China’s current size, each percentage point of deficit accounts for about 1.3 to 1.4 trillion yuan, and a deficit ratio of 3.5% or 4% would correspond to deficits of 4.8 trillion and 5.5 trillion yuan, respectively.
“While the absolute scale difference between deficit ratios of 3%, 3.5%, and 4% is moderate, their impact on stabilizing expectations is vastly different,” he noted.
As per tradition, the Central Economic Work Conference, traditionally scheduled in mid-December, will provide a more details of the policy stance and economic tasks for 2025. Based on the latest Politburo meeting’s tone, most market participants expect the growth target for 2025 to remain around 5%.
For next year’s economic agenda, the Politburo meeting reiterated the emphasis on boosting consumption and improving investment efficiency, placing these priorities at the forefront, and for the first time, it introduced the concept of “comprehensively” expanding domestic demand. Amidst increasing external uncertainties such as tariffs imposed by the Trump administration and pressures on Chinese exports, the importance of expanding domestic demand in 2025 becomes even more pronounced.
Xiong Yuan, Chief Economist at Guosheng Securities, predicts that 2025 will see a continuation of the “two renewals” policy—equipment renewal and consumer goods trade-in—with the scale likely to exceed the 300 billion yuan allocated in 2024, and the coverage could expand beyond automobiles and home appliances to include home furnishings, home decoration, home textiles, and consumer electronics.
On the investment front, he believes efforts will align with the meeting’s emphasis on “strengthening regional strategic implementation” and expanding investments, and in addition, attention will be paid to relaxing project approval for local government special bonds.
The meeting stressed that China should effectively prevent and defuse risks in key areas in 2025 and firmly maintain the bottom line of avoiding systemic risks, and it proposed “stabilizing the real estate and stock markets.”
Guo noted that following the Politburo’s September meeting which stressed promoting “the stabilization of real estate,” this meeting’s reiteration underscores the importance of the issue and adjustments to local real estate policies are expected to continue.
The inclusion of the stock market alongside the real estate market highlights the policy’s recognition of the capital market’s roles in financing, transmitting expectations, and supporting the real economy, he noted.
Stabilizing the real estate and stock markets would focus on revitalizing the capital markets first, gradually repairing the balance sheets of households and enterprises, and stimulating micro-level vitality, he added.
The meeting proposed leveraging economic reform as a driving force to promote the implementation and effectiveness of landmark reforms, and the reform agenda established at the 20th Central Committee’s Third Plenum in July 2024 is expected to accelerate.
Zhang Jun, Chief Economist at Galaxy Securities, suggested that landmark reforms could include fiscal and tax system reforms, promoting the merger and restructuring of central state-owned enterprises, accelerating the implementation of the Private Economy Promotion Law, enhancing support for social security, medical care, maternity, and pensions, refining the income distribution system, and supporting long-term capital inflows into the market.
The meeting also outlined key work priorities for 2025 across various areas, including industry, foreign trade and investment, poverty alleviation, regional development, and livelihoods.
These include leading the development of new productive forces through technological innovation, building a modern industrial system, leveraging economic reform as a guiding force, expanding high-level opening-up, stabilizing foreign trade and investment, consolidating and expanding poverty alleviation achievements, advancing new urbanization and comprehensive rural revitalization, promoting urban-rural integration, enhancing regional strategic implementation, fostering regional development vitality, coordinating carbon reduction, pollution control, green expansion, and growth, accelerating the comprehensive green transformation of economic and social development, and intensifying efforts to safeguard and improve people’s livelihoods, enhancing the public’s sense of gain, happiness, and security.