BEIJING: China’s leaders are expected to meet this week to flesh out economic targets for next year, after Beijing announced a major policy shift in a bid to stimulate growth. Here’s what you need to know about the government’s changing approach and the problems facing the world’s second-largest economy:

How has China’s policy changed?

The leadership said Monday that Beijing would implement a “moderately loose” monetary policy and a “more proactive” fiscal policy next year. The terminology represented a shift away from the government’s previous commitment to a more cautious approach. And analysts said the announcement marked the boldest such pivot since Beijing adopted fiscal prudence in 2011 to address the fallout from the global financial crisis. The disclosure showed the government recognized the urgency of its economic woes and was willing to tackle them directly, analysts said. “The strong tone on policy stance suggests that Beijing is very determined to stabilize growth and will step up fiscal spending next year,” said Ting Lu, chief China economist at Nomura.

Stimulus measures expected

Monday’s statement gave few details of what the policy would look like, but experts said it should create room for more forceful stimulus measures. Teeuwe Mevissen, senior China economist at Rabobank said a looser monetary strategy would allow Beijing to make further cuts to interest rates and the amount of cash banks must hold in reserve. Policymakers could also back asset purchase programs and a weakening of the yuan, while on the fiscal side they could raise the budget deficit to slash taxes or beef up social security, Mevissen added.

Beijing has already announced a raft of stimulus measures in recent months, scything some rates to record lows, easing curbs on homebuying and offering trade-ins and other programs to boost consumption. But the moves have been criticized for a perceived lack of ambition, scarce detail and questionable impact. Shehzad Qazi, managing director of consultancy firm China Beige Book, said looser monetary policy alone “will not cut it”. “Monetary stimulus will only work if Beijing lifts broader business and household confidence,” he told AFP.

Challenges economy faces

A debt crisis in the crucial housing sector, chronically low consumption and high youth unemployment are some of the key issues that have dragged on Chinese growth since the end of the pandemic. Beijing faces an uphill struggle to expand gross domestic product by its target of around five percent this year—itself a far more modest figure than its double-digit growth around a decade ago. The picture is expected to darken further after US President-elect Donald Trump takes office next month and renews a trade war that would see imports from China subjected to high additional tariffs.

China’s GDP could fall by 1.5 percent in the “next few years” if Trump imposes his threatened tariffs of 60 percent, according to analysts at ANZ. Qazi, of China Beige Book, said growing geopolitical tensions would leave markets “salivating for more and more stimulus”. But if Beijing excessively supports the supply side, “it’ll only worsen the overcapacity problem, lead to more cheap Chinese goods being dumped abroad, and only raise trade tensions” even further, he added. President Xi Jinping said Tuesday that the government had “full confidence” in meeting the annual target—and warned that any trade war with Washington would have “no winners”.

What is expected?

The Central Economic Work Conference will sketch out economic targets for 2025. It is not open to the public, and its exact timing and agenda have not been announced. But state news agency Xinhua published a series of economic reports in recent days that have hinted at the topics under discussion. It said future monetary policy would likely “continue to strengthen counter-cyclical adjustments (and)... improve the precision and effectiveness of support for the real economy”.

The strategy would also “create a favorable monetary and financial environment for stable economic growth”, Xinhua said. Nomura’s Lu said the meeting may again signal “a sizeable borrowing program for 2025, though it is unlikely to announce details”. It “may also mention some policies to support consumption by spending on social security for lower-income households and encouraging childbirth”, he added. Looking further ahead, he said, Beijing may set a growth target of around 4.5-5.0 percent for 2025. - AFP