China Signals Aggressive Stimulus in 2025, Boosting Commodity

Despite not disclosing a concrete target yet, China has given “qualitative” signals indicating that they will be more aggressive next year to achieve higher economic growth.

Context: During the Chinese government’s Politburo meeting this week, it was revealed that the country will reinforce more assertive monetary and fiscal policies in 2025.

• A summary from the meeting states that China will implement an “appropriately loose” monetary policy, a departure from its former “prudent” stance.

• The revised wording is the first easing posture since 2010. The last time China adopted the phrase “appropriately loose” was in the aftermath of the 2008 financial crisis.

• Additionally, there will be a more “proactive” fiscal stimulus and “unconventional” counter-cyclical measures to foster economic expansion.

• Markets have inferred that this language could imply stronger growth, substantial rate cuts, and potential asset purchases in 2025.

• In the coming days, China will hold its annual Central Economic Work Conference to set key targets and policy intentions for 2025, which will be more closely monitored by investors.

Zoom out: Previously, China unveiled a CNY 10 trillion (USD 1.4 trillion) stimulus in November, but this initiative was primarily a debt package aimed at easing financial leverage at the local government level.

• Investors were slightly disappointed with this stimulus as it lacks the consumption policy needed to boost spending in the economy.

• However, with the updated language adopted this week, markets are more convinced that new expansionary stimuluses targeting household spending are coming.

• President Xi Jinping has also urged maintaining strategic focus and build favorable external environment for full preparation to achieve 2025 economic targets.

• According to Reuters, government advisors are advocating more vigorous support to counter potential U.S. tariffs and avert deflationary pressures.

• Translation from the summary states, “We must vigorously boost consumption, improve efficiency, and expand domestic demand in all directions,” conveying a positive tone.

Market reactions: Commodity prices surged overnight, although more sustainable gains are expected following disclosures from the National Economic Conference this week.

• Following the news, gold, silver and copper futures gained +1.5%/+3%/+1.2%, respectively.

• Brent, coal, nickel and tin price are also up +1.1%/+0.4%/+0.5%/+2.5%, respectively.

• Markets are also waiting for U.S. inflation data this week to further strengthen momentum, should the data comes supporting dovish or rate cut in the near term.