The Chinese Communist Party has changed its monetary policy stance from “prudent” to “moderately accommodative” for the first time since 2009. The announcement by the Politburo on Monday was part of a broader effort to shore up China’s slowing economy and address its worsening economic situation. deflationary pressure.

The changes were revealed ahead of the Central Economic Work Conference, where officials are expected to outline China’s economic policy for 2025. The Politburo, chaired by President Xi Jinping, called for “more aggressive fiscal policy” and “unprecedented countercyclical adjustments” to stimulate the economy. It increases demand, stimulates investment, and supports consumption.

China has already implemented several economic stimulus packages in recent months, including a 10 trillion yuan (US$1.4 trillion) package in early November aimed at helping local governments clear arrears. It also includes scale debt exchange plans.

Market reaction and investor sentiment

Bond yields and stock prices soared following the announcement, with China’s 10-year government bond yield falling to a record low of 1.92% and Hong Kong’s Hang Seng Chinese Enterprise Index rising 3.14%.

Australian miners saw a slight rise due to expected increases in demand for construction, infrastructure and manufactured goods. BHP Group (ASX:BHP) On Tuesday, Fortescue closed 3.05% higher at $41.83. (ASX:FMG) Pilbara Minerals rose 6.23% to close at $20.45. (ASX:PLS) Rio Tinto closed 6.51% higher at $2.29. (ASX:Rio) South32 closed 4.85% higher at $125.28. (ASX:S32) Whitehaven Coal rose 2.22% to close at $3.68. (ASX:WHC) It closed 3.48% higher at $6.55. The sector as a whole ended up 3.04%.

Treasury Wine Estates rose 4% to close at $11.95.

Analysts at Brown Brothers Harriman called the announcement encouraging, saying, “To break out of the debt-deflationary loop, Chinese policymakers will need to step up fiscal measures to stimulate consumption.” said.

Economists at Morgan Stanley note that this is the first time the term “unusual” has been applied to a countercyclical adjustment, adding the word “further” to the description of aggressive fiscal policy. He also pointed out that.

current economic pressures

This policy change comes amid growing signs of deflation. Consumer prices rose only 0.2% year-on-year in November, well below the market expectation of a 0.5% rise, while producer prices fell 2.5% year-on-year, marking the second consecutive year of decline in factory shipment prices. It continued continuously.

China’s real estate market, once a major driver of growth, continues to weigh on household wealth and undermine consumer confidence.

Employment insecurity also remains a major headwind. While youth unemployment remains in double digits, the broad-based unemployment rate rose to 5.1% in September from 4.7% in 2023.

economic stimulus package

Some economists believe China could cut interest rates, lower reserve requirements and introduce other measures aimed at boosting spending and investment.

Past monetary easing measures include lowering the Loan Prime Rate (LPR) in October, reducing the one-year LPR from 3.35% to 3.10% and the five-year LPR from 3.85% to 3.60%. It was lowered.

But economists are divided on whether this policy shift will result in significantly stronger measures. Many hope this will symbolically boost market confidence, but questions remain as to whether concrete measures will follow.