Experts see expansionary moves ahead

China may roll out unprecedented expansionary moves in macroeconomic adjustments next year after a top-level meeting signaled a significant shift of mindset in prioritizing the expansion of domestic demand amid external uncertainties, policy researchers and economists said.

Measures in the pipeline may include the highest official projected deficit ratio on record, a sharp rise in special treasury bonds to subsidize consumer spending and direct policy support for people's incomes, they said, making the stimulus package focus on vitalizing household consumption, in contrast with the investment-heavy approach in 2008.

This would mark a milestone in the country's directional shift of shaping a consumption-driven economy to address domestic structural imbalances, navigate a harsher external environment and ensure a steady long-term growth trajectory, they added.

Their remarks came after the Central Economic Work Conference, at which Xi Jinping, general secretary of the Communist Party of China Central Committee, delivered an important speech, highlighting that the country must balance the relationship between aggregate supply and demand.

Boosting demand is seen as a focus of the upcoming economic work, which also aligns with Xi's idea of promoting smooth circulation of the domestic economy to pursue the new development paradigm — an essential part of Xi Jinping's economic thought.

"The meeting indicated that China will expand domestic demand, especially consumption, more vigorously in 2025, with relevant policy tools enriched and improved," said Wu Sa, a senior researcher at the Chinese Academy of Macroeconomic Research.

The conference, which concluded on Thursday, underscored expanding domestic demand on all fronts as a top priority for 2025. It called for a more proactive fiscal policy with a higher deficit-to-GDP ratio and moderately loose monetary policy.

"The deficit ratio for 2025 is likely to be the highest on record," said Xiong Yuan, chief economist at Guosheng Securities, anticipating that the government would set the projected deficit-to-GDP ratio for 2025 at 3.5-4 percent or higher in March, up from 3 percent for this year.

The Chinese government started to release the annual projected deficit ratio in 2010, with the highest reading in 2020 at 3.6 percent as COVID-19 hit, according to market tracker Wind Info.

According to Xiong, next year's quota of special local government bonds is expected to increase to more than 4.5 trillion yuan ($618.6 billion) from a record high of 3.9 trillion yuan this year, in addition to special treasury bonds of over 2 to 3 trillion yuan in 2025, up from 1 trillion yuan for 2024.

He added that the conference has, in a rare move, explicitly decided to reduce the reserve requirement ratio — the proportion of deposits banks must keep in reserves — and interest rates at an appropriate time, indicating that the moves may be taken "very soon".

The conference implied that much of the fiscal funding would be directed to boosting consumption, outlining measures to increase the incomes and alleviate the burdens of low — and middle-income groups, raise basic pension payout levels and promote consumer goods tradein programs with greater intensity and scope.

With boosting consumption emerging as the foremost priority, Wang Tao, head of Asia economics at UBS Investment Bank, said the size of the trade-in program may more than double to over 300 billion yuan in 2025, with expanded coverage for consumer electronics and some general consumption coupons, on top of autos and home appliances this year.

Jacqueline Rong, chief China economist at BNP Paribas, said the leadership's decision to increase pension payouts, albeit expected to be modest in 2025 given fiscal affordability, would be "a clear step in the right direction".

This will help ease people's high propensity for saving, Rong said, and is in line with the country's increasing commitment to rebalance the economy toward consumption.

On Friday, Zou Lan, head of the monetary policy department of the People's Bank of China, told China Central Television that the central bank will coordinate with the proactive fiscal measures, vowing to boost treasury bond transactions to accommodate government bond issuance.