China may bank on balance-sheet expansion, not interest rate cuts, for growth: economist

While Beijing is unlikely to implement universal consumption subsidies, officials may try to boost spending by raising incomes, according to Nomura’s Lu Ting

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China’s Politburo has underscored the “all-round” expansion of domestic demand as a priority for next year, calling to vigorously boost consumption. Photo: Getty Images

Published: 8:30pm, 11 Dec 2024

China’s central bank may have to greatly expand its balance sheet next year to empower the country’s desired economic growth, according to a prominent economist, as Beijing embraces a “moderately loose” monetary policy for the first time in 14 years.

This means that purchases of government bonds may be poised to jump, in terms of issuance, to fund construction projects in 2025, Lu Ting, chief China economist at Japanese investment bank Nomura, said at a media briefing on Wednesday.

The comments came as market analysts are trying to piece together a picture of Beijing’s policy moves after Monday’s strongly worded statement from the Politburo, the centre of power within the ruling Communist Party, and with the annual central economic work conference reportedly kicking off in Beijing.

The People’s Bank of China may adopt a different approach from what it took in 2009 – when its relaxed credit line and monetary stance led to a frenzy of local government financing vehicles and a mountain of interest-bearing debt.

The central bank has already bought more than 500 billion yuan (US$68.8 billion) worth of government bonds in the secondary market since the tool was redeployed in August, and a coordination mechanism with the Ministry of Finance has been established.

Lu expected that Beijing would try to empower central government financing, as it is in a position to defuse the local debt crisis.