by YANG Zhijin
China's top annual economic meeting signaled a restrained approach to monetary easing next year, with policymakers leaning further toward price‑based tools as they confront persistent disinflation.
The Central Economic Work Conference, held in Beijing on December 10–11, called for keeping liquidity ample and using reserve‑ratio and interest‑rate tools "flexibly and efficiently," according to a readout by state news agency Xinhua.
Shift away from quantity targets
For the first time in years, the conference statement omitted reference to growth targets for M2 or total social financing, long used as intermediate gauges of policy stance. The move marks a broader shift by the central bank toward relying more on interest‑rate signals than on administrative credit targets.
People's Bank of China Governor PAN Gongsheng said earlier this year that quantity indicators had become less informative as credit demand, rather than directives, increasingly shapes lending. He said rate mechanisms "will play a more central role" going forward.
The adjustment comes as China faces prolonged disinflation. Producer prices have been negative for nearly three years, and the GDP deflator has also declined for an extended period. ZHANG Xiaojing, director at the National Institution for Finance and Development, said elevated real borrowing costs continue to weigh on firms.
"When prices fall and financing costs stay high, companies find it hard to expand investment," he told Jiemian News, adding that modest rate cuts "would offer meaningful relief." The U.S. Federal Reserve's shift toward rate cuts has also created more room for Beijing to ease.
Policymakers nonetheless signaled that any adjustments will be limited. This year's language was more muted than last year's guidance to adjust rates and the reserve ratio "at an appropriate time," stressing instead the need to balance short‑term stabilization with preserving longer‑term policy space. Economists expect any moves to be incremental—around 10 basis points for policy rates and roughly 25 basis points for the reserve ratio—consistent with China's cross‑cycle policy approach.
Targeted tools are likely to feature more prominently. The central bank's re‑lending rate, used to support small firms and tech‑related investment, currently sits above commercial banks' deposit rates, reducing its effectiveness. A cut would lower funding costs for smaller borrowers and strengthen banks' incentives to lend to priority sectors.
Managing property and local‑debt risks
The meeting also addressed long‑running risks in the property sector, local‑government finances and small financial institutions. Officials urged cities to refine housing support measures and expand affordable housing, underscoring the sector's central role in household wealth and local revenue.
Local‑government debt efforts will increasingly focus on the operating liabilities of local government financing vehicles (LGFVs), which were not included in earlier restructuring programs. Analysts expect future workouts to involve maturity extensions, rate reductions and selective principal adjustments, with large state‑owned and policy banks likely to lead. Smaller lenders may participate only selectively due to balance‑sheet constraints.
Beyond monetary policy, the meeting outlined broader economic priorities for 2025. Officials highlighted plans to revive household demand, upgrade manufacturing, accelerate green development, and advance reforms to improve market access and the private‑sector business environment.
They also reaffirmed commitments to stabilizing the property market and expanding high‑standard opening‑up—steps aimed at supporting growth while addressing structural challenges.
