What happened in the December Work Conference?
Special points to highlight in this report:
- The December Central Economic Work Conference ended with a series of promises but was short on details. In itself that is not a surprise, as the conference rarely sets detailed policy, and mostly discusses growth targets and the direction of policy. What is interesting is that—like last year—it did not seem to decide on the 2025 GDP growth target. We will probably have to wait for the Two Sessions meeting in March before they are set.
- One of the most discussed recent announcements was that the PBoC is changing the direction of monetary policy from “prudent” to “moderately loose”. This will be the first time the PBoC has used this language since 2010. The problem with monetary policy in China, however, is not that it is too tight but rather that it is directed mainly to the supply side of the economy. Looser monetary policy, in other words, won’t help at all except to the extent that it is redirected through the financial system in very different ways.
- Meanwhile the most recent data releases continue to show that consumption is struggling. The 10-year government bond, which made big news exactly two weeks ago by breaking below 2 percent for the first time ever, closed the day at 1.72 percent. It's pretty clear that Chinese investors aren't betting on a pick-up soon in either inflation or GDP growth.
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