Bangkok. Chinese leaders met this week to chart the country's economic strategy for the coming year, announcing plans to boost government spending and ease monetary policy to stimulate investment and consumer spending.

The two-day Central Economic Work Conference, which concluded Thursday, ended with praise for President Xi Jinping's leadership and a pledge to "enrich and refine the policy toolbox" in order to mitigate risks facing the world's second-largest economy. One of the primary concerns is the potential impact of tariffs proposed by President-elect Donald Trump on Chinese imports once he takes office.

Focus on Economic Fundamentals

Analysts say the outcome of the Central Economic Work Conference, along with an earlier meeting of the Politburo, largely reiterated existing policy rather than unveiling new initiatives. China's economy has been growing more slowly than the "about 5 percent" target set for this year, with a prolonged real estate crisis weighing heavily on business activity. Weakened housing prices and job losses during the COVID-19 pandemic have resulted in lower consumer spending, leading to a situation where supply exceeds demand, driving prices down or keeping them flat.

The government began rolling out a range of initiatives earlier this year that included paying subsidies when people turn in old appliances and vehicles to buy new ones, expanding access to affordable housing and cutting interest rates to make mortgages more affordable.

A readout from the official Xinhua News Agency revealed that leaders committed to focusing more on improving the people's well-being, strengthening the healthcare system, and expanding elderly care. The government may also introduce family subsidies to encourage higher birth rates as the population declines.

Funding the Strategy

The Chinese leadership has pledged to raise the country's deficit, which has been capped at 3 percent of GDP, to support economic initiatives and stimulate consumer spending. The government intends to issue more special ultra-long-term bonds, though specific figures have not been disclosed.

At the national level, China's finances are relatively stable, with a debt-to-GDP ratio of about 68 percent. In comparison, Japan's debt stands at 250 percent, and the US at 120 percent. However, local governments are deeply in debt due to plummeting tax revenues resulting from the property crisis and the pandemic, while spending continues to rise.

Analysts suggest that details of the proposed spending plan could emerge during the national legislative session in March.

Easier Credit to Stimulate Investment

This week, the Politburo approved plans for a "moderately loose" monetary policy, a shift from the "prudent" stance of the last decade. This marks a return to the approach adopted between 2008 and 2010 when the central bank loosened credit aggressively to combat the global financial crisis, according to Tao Wang of UBS.

Earlier this year, the People's Bank of China began cutting interest rates and reducing the reserve requirements for banks. Further rate cuts are expected in the coming months. Lower interest rates would make it easier to finance housing purchases and other investments, with the central bank playing a larger role in stabilizing markets and boosting the economy.

Although bond prices surged in response to expectations of lower interest rates, investors were disappointed by the lack of specific policy details following the meetings. The Shanghai Composite index fell 2% on Friday, while Hong Kong's Hang Seng dropped 2.1%.

A Cautious Approach Amid Tariff Uncertainty

While President Xi's long-term vision for a high-quality, innovative economy remains China's guiding framework, policymakers are waiting for clearer direction from the incoming U.S. administration.

As the U.S. and other trading partners continue to tighten restrictions on China's access to advanced technologies, Beijing has retaliated with targeted measures. Economists believe that Chinese leaders are taking a cautious approach, reluctant to implement drastic economic changes until they assess the impact of Trump's tariffs.

"Chinese authorities have been stuck in a more reactionary policy mode, as the uncertainty of U.S. tariff plans makes it difficult for policymakers to commit to any new major initiatives," said Yeap Jun Rong of IG in a report. "There may still be room for positive surprises, but much will depend on upcoming policy specifics."

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