China to adopt looser monetary policy in 2025 as US tariffs loom

SINGAPORE (ICIS)–China is expected to implement a “more proactive fiscal policy” and a “moderately loose” monetary policy for next year, according to the country’s top officials, amid economic headwinds and looming heavy tariffs from the US.

• Central bank likely to cut key interest rates, banks’ reserve requirements
• China 2025 GDP growth forecast to slow to 4.3% in 2025 – UOB
• New US-China trade war in the offing

The policy shift was announced following a meeting by the Political Bureau of the Communist Party of China (Politburo) and was meant to boost overall consumption in the world’s second-biggest economy.

The change in monetary policy stance was the first since 2011 amid flagging economic growth and the prospect of high tariffs that will be imposed on Chinese goods by the US next year, with Donald Trump coming back to assume control of the White House for the next four years from 20 January 2025.

The policy shift was announced ahead of the annual Central Economic Work Conference (CEWC), which kicked off on Wednesday.

China’s growth targets and stimulus plans for 2025 will be hammered out at the meeting which will then be released at the National People’s Congress (NPC) in March 2025.

“The Politburo signalled that China’s growth target of ‘around 5%’ this year will be met and the ‘main objectives and tasks for the year’s economic and social development will be successfully accomplished’,” UOB Global Economics & Markets Research economists said in a note on 10 December.

“We think the focus will be on releasing long-term liquidity via reserve requirement ratio (RRR) reductions,” said the economists.

MORE STIMULUS REQUIRED
China had set a target of 5.0% GDP growth for 2024 but has struggled to hit that benchmark all year as high youth unemployment and weaker demand hit production levels.

Fiscal stimulus measures were introduced around end-September, but were deemed insufficient for China to achieve its GDP growth target of around 5% in 2024.

“Stimulus directed at promoting consumption would likely have a larger impact than investments or big infrastructure projects,” the UOB note added.

November economic data suggest a slow recovery in demand, but it appears unlikely that it will recover sufficiently to achieve the growth target next year if additional US tariffs were imposed in 2025.

Official data showed that China’s consumer price index (CPI) increased by 0.2% year on year, a five-month low.

Meanwhile, China’s exports in November grew at a slower year-on-year rate of 6.7% to $312.3 billion, while imports fell 3.9% year on year on weaker domestic demand.

Amid flagging Chinese demand, Saudi Arabia, the world’s largest crude exporter, cut its January Official Selling Price (OSP) for its benchmark Arab Light crude to the lowest level in four years.

The January OSP for Arab Light was cut by 80 cents/barrel to Oman/Dubai average plus 90 cents/barrel, the lowest level for buyers in Asia since January 2021.

US-CHINA TRADE WAR 2.0 LOOMS
As China struggles to turn its economic fortunes around, it faces a difficult 2025 and a hostile US administration under Trump.

Trump’s first term as US president in 2017-2021 was characterized by a trade war launched against China.

UOB Global Economics & Markets Research economists are projecting China’s GDP growth to slow to 4.3% in 2025 from 4.9% this year, “with potentially more punitive US tariffs posing downside risks next year”.

A consequential weakness of the Chinese yuan from a looser monetary policy, meanwhile, makes the country’s exports more competitive.

Like most Asian economies, China is export-oriented and counts the US as a major market.

For the first 11 months of 2024, China’s total exports increased by 5.4% year on year to $3.2 trillion amid a global economic slowdown, while imports rose at a slower pace of 1.2% over the same period to $2.4 trillion.

China remains a major importer of petrochemicals, but heavy capacity expansions accompanied with weak domestic demand in recent years has turned it into a net exporter of selected products, including purified terephthalic acid (PTA).

Focus article by Jonathan Yee