China Ready to Go Deeper into Debt to Counter Trump's Tariffs

• In one of their most dovish statements in more than a decade, Chinese leaders signalled on Monday they are ready to deploy whatever stimulus is needed to counter the impact of expected U.S. trade tariffs on next year's economic growth. After a meeting of top Communist Party officials, the Politburo, officials said they would switch to an "appropriately loose" monetary policy stance, and "more proactive" fiscal levers.
• The previous "prudent" stance that the central bank had held for the past 14 years coincided with overall debt - including that of governments, households and companies - jumping more than 5 times. Gross domestic product (GDP) expanded roughly three times over the same period.
• The Politburo rarely details policy plans, but the shift in its message shows China is willing to go even deeper into debt, prioritising, at least in the near term, growth over financial risks. It's unclear how much monetary easing the central bank could deploy and how much more debt the finance ministry could issue next year. But analysts say that works in Beijing's favour.
• Next year's 2025 growth, budget deficit, and other targets will be discussed - but not announced - in the coming days at an annual meeting of Communist Party leaders known as the Central Economic Work Conference (CEWC). Reuters reported last month that most government advisers recommend that Beijing should maintain a growth target of around 5.0%, although that pace seemed difficult to reach throughout this year.
• The tone of the Politburo statement suggests that China won't lower its growth ambitions for 2025, says Zong Liang, chief researcher at state-owned Bank of China. However it also suggests that China is likely to set an initial budget deficit target of around 4%, its highest ever.
• What else Beijing is prepared to do to boost consumption is another unknown, but demand-focused measures are key to improving the effectiveness of monetary policy easing in an economy that for decades has put production at its core.

(Sources: Reuters)