China: CEWC to elaborate on ‘extraordinary’ stimulus – Standard Chartered

Upcoming CEWC likely to set a pro-growth tone and lay out stimulus plan, echoing the Politburo. Shift to an ‘appropriately loose’ monetary policy stance increases the chance of positive surprises. That said, diminishing policy room and financial stability concerns may constrain size of stimulus. We expect fiscal policy to do the heavy lifting, with increasing emphasis on boosting consumption, Standard Chartered’s economists Carol Liao and Shuang Ding note.

Stronger easing signals

“The Politburo meeting on 9 December sent strong policy easing signals, raising market hopes of a ‘big-bang’ stimulus package. The shift in the monetary policy stance from ‘prudent’ to ‘appropriately loose’ and the introduction of ‘extraordinary counter-cyclical adjustment’ beat expectations, suggesting that the government may set an ambitious 2025 growth target (likely around 5%). In addition, the meeting pledged to implement more proactive fiscal policy, stabilise the housing and stock markets, and boost domestic demand 'from every aspect.' Markets have reacted positively.”

“We think the strong tone of the Politburo is part of the authorities’ efforts to use forward guidance to revive market sentiment. While upside surprises are possible from monetary easing and broader-based stimulus, we keep our 2025 growth forecast at 4.5% given diminishing macro policy room, the ongoing property-market correction and rising external headwinds.”

“We expect the Central Economic Work Conference (CEWC), likely to be held later this week, to provide more details on what the Politburo called ‘extraordinary counter-cyclical adjustment’. We think this may include a large increase in government bond issuance, supported by regular PBoC purchases of central government bonds from the market. The new stimulus package is likely to be more focused on boosting consumption, a departure from the old stimulus model that relied heavily on investment. Monetary easing could provide positive surprises, but we do not think it will be comparable to the 2009 stimulus given diminishing policy room and concerns about financial stability.”