China’s top leadership has adjusted its monetary policy stance for the first time since 2011, signaling a significant shift in response to mounting economic pressures and potential geopolitical tensions, per Bloomberg, as quoted on NDTV Profit.
The Politburo, the Communist Party’s 24-member governing body led by President Xi Jinping, announced it will now adopt a “moderately loose” monetary policy — a term China last used in 2010 when it looked to support a recovery from the global financial crisis.
Notably, China's growth has stalled as a collapse in the property market has weighed on consumer confidence and consumption. Despite repeated measures by the People’s Bank of China, such as cutting interest rates and reducing bank reserve requirements, authorities have struggled to spur substantial borrowing or economic momentum.
This policy shift reflects urgency to bolster growth after the anticipated post-pandemic recovery fell short of expectations. The decisions made during this December meeting will guide discussions at the upcoming Central Economic Work Conference, where the country’s 2025 growth targets will be set.
Inside China’s GDP Growth
The Chinese economy expanded 4.6% year over year in Q3 of 2024, compared with market forecasts of 4.5% and a 4.7% rise in Q2. It marked the slowest annual growth rate since Q1 of 2023, due to insistent property weakness, wobbly domestic demand, deflation risks, and trade war with the West.
Trade concerns remained a wall of worry. Exports rose the least in five months while imports were sluggish. In the first three quarters of 2024, the economy grew 4.8%, falling short of China’s full-year target of around 5%.
Proactive Fiscal Policy and Stimulus Measures
In addition to the monetary policy shift, the Politburo pledged a “more proactive” fiscal strategy, an evolution from its previous commitment to a merely “proactive” fiscal policy. The decision comes as China signals efforts to increase borrowing and fiscal deficits in 2025, as noted by an official Xinhua News Agency commentary.
Should You Buy the China ETFs?
In September, we noticed some improving signs: industrial output and retail sales both saw their largest increases in four months, and the urban jobless rate dropped to a three-month low of 5.1%. Now, these cues of more monetary easing should pave the way for China exchange-traded fund (ETF) investing.
Below, we highlight a few China ETFs that could gain on compelling valuation, recent winning momentum and news of monetary policy easing. These ETFs have considerable price-to-earnings (P/E) ratios, indicating cheaper valuation.
First Trust China AlphaDEX Fund FCA – Up 2.7% Past Week; P/E: 4.75X
iShares China Large-Cap ETF FXI – Up 1.5%; P/E: 10.62X
Franklin FTSE China ETF FLCH – Up 1.2%; P/E: 10.87X
iShares MSCI China ETF MCHI – Up 1.0%; P/E: 10.89X
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First Trust China AlphaDEX ETF (FCA): ETF Research Reports
Franklin FTSE China ETF (FLCH): ETF Research Reports
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