The statements in late 2024 from China’s central bank and the country’s Politburo sparked hopes of a ‘whatever it takes’ moment, only to see these dashed, as policy actions have fallen short of expectations.
Despite the disappointment, this round of stimulus measures differs from the previous ones in that they signal an intent to avert the risk of Japan-style ‘lost decades’ in the years ahead.
The People's Bank of China (PBC) has rolled out notable policy measures, including a 50-basis-point reduction in reserve requirements for banks, with further cuts pledged. Complementing this is another policy rate cut aiming to stabilise asset prices and boost demand, particularly in the beleaguered real estate sector, which remains weighed down by rising bad debts. Simultaneously, the Politburo has committed to targeted fiscal spending, underscoring the urgency of tackling China’s evolving economic challenges.
While these moves signal progress, they may lack the boldness required to fully embody a ‘whatever it takes’ strategy. Historical experiences from Japan, Europe, and the US suggest that a more expansive and coordinated response is essential to unlocking China’s full economic potential. Further complicating the outlook is the re-election of Donald Trump in the US, which could alter China's policy course, particularly in terms of trade agreements that influence foreign investments. A comprehensive fiscal and monetary overhaul, inspired by successful precedents in other major economies, is vital for China to regain momentum. However, the scale and decisiveness of its actions will be critical in shaping the country’s economic trajectory in the coming years.
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