What's happening in China, the country that has investors so worried?

China, the world's second-largest economy, is at a turning point as leaders announce monetary easing scheduled for 2025. The aim is to revive an economy that has been reeling from a prolonged crisis marked by weak consumption and growing concerns about deflation.

The decision is part of a series of measures aimed at boosting consumption, increasing investment efficiency and expanding domestic demand, as stated by the 24 members of the Communist Party's Political Bureau at a recent meeting, AFP news agency reports.

The move is particularly significant because it is the first time since 2011 that Chinese officials have explicitly talked about monetary “easing.” The announcement prompted a positive reaction in the markets, with Hong Kong’s Hang Seng index rising by almost 3 percent. However, investor enthusiasm is tempered by skepticism about the actual effectiveness and scope of the new measures.

China eases measures to boost economy

China has been trying for months to counter the effects of the property crisis and stimulate growth through various initiatives, such as lowering interest rates and raising local government debt ceilings. Despite these efforts, the results remain inadequate, as evidenced by the low consumer price index in November, which only showed a 0.2 percent increase, well below expectations.

These initiatives were indeed not enough to stimulate the economy. The Chinese government has therefore talked about a more proactive fiscal policy to stimulate private consumption. Premier Li Qiang also emphasized "deglobalization", pointing out the obstacles posed by trade barriers and customs tariffs, which affect not only China but also the global economy. While experts and markets remain cautious about the consequences of the upcoming decisions, reports TV5Monde, this caution is reinforced by the low growth prospects and expected government spending that is considered insufficient for an immediate recovery. Beijing is emphasizing the fight against corruption. This measure is intended to increase transparency and restore investor confidence in an increasingly complex and uncertain environment.

Implications for investors

China’s recent initiatives offer interesting prospects for investors. By focusing on domestic demand, stabilizing the property market and managing the risks associated with the hidden debts of local governments and developers, the government is trying to revive the world’s second-largest economy. Although the first monetary easing measures have already had a positive effect, the success of these policies will depend on the effective implementation and adoption of additional fiscal and structural measures, HSBC’s analysis emphasizes. For a solid and sustainable recovery, investors will have to closely monitor the reforms aimed at strengthening consumption and facilitating the transition to a more balanced and qualitatively better growth model.

Chinese stock markets are already showing signs of renewed optimism, supported by interest rate cuts and property sector measures that should improve demand in the near term.

The bond market has also been positively impacted, HSBC notes, with increased support for private property developers and the industrial sector.

However, overcoming the challenges of deflation and bolstering long-term confidence will require additional fiscal efforts. Investors should therefore adopt a vigilant approach and anticipate the possibility of more ambitious measures to ensure a stable recovery.

Upcoming conference

Analysts are cautious ahead of the Central Conference on Economic Affairs, scheduled for Wednesday. While further rate cuts are possible, the question remains whether these adjustments will be enough to stimulate consumption and revive the economy. Some experts believe that direct fiscal support for households could be indispensable. Chinese Premier Li Qiang also stressed the global challenges associated with deglobalization, a trend he said is exacerbating economic tensions.

Economists are thus divided: some believe that China could take additional measures, but others remain skeptical about their ability to cause a significant rebound. At the same time, the fight against corruption remains a priority for the government, which is strengthening mechanisms for investigating and dealing with deviant behavior.

This article originally appeared on FashionUnited.FR, translated and edited to English.

It was translated using an AI tool.

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