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Aerial view of Shanghai Port in Baoshan district, Shanghai Photo: VCG

The Political Bureau of the Communist Party of China (CPC) Central Committee on Monday held a meeting to analyze and study the economic work of 2025. 

Among a series of positive signals regarding China's economy conveyed at the meeting, the most notable is that the meeting urged the implementation of a more proactive fiscal policy and a moderately loose monetary policy.

The announcement of a moderately loose monetary policy in particular has drawn widespread attention, marking the first "prudent" to "moderately loose" transition in China's monetary stance since 2011.

This is actually a calibrated response based on a comprehensive understanding of both the domestic and international economic landscape. 

A moderately loose monetary policy can increase liquidity, enabling companies to reduce their borrowing and financing costs, thereby stimulating markets and enhancing consumer and investment confidence. In the current complex and volatile domestic and international economic landscape, this shift in monetary policy undoubtedly provides a boost to the market.

As domestic and international economic environments continue to evolve, the transition to a moderately loose policy is a timely and responsive measure to current economic challenges, and also a strategic approach to ensure stable growth and long-term development.

In this context, a moderately loose monetary policy can effectively increase the money supply and promote stable economic growth, particularly during crucial periods of economic transformation. Moreover, moderate monetary easing can stimulate market vitality and drive industrial upgrading and innovative development. In addition, a moderate approach to monetary easing can provide clearer and more explicit signals to the market, bolstering confidence in China's economic recovery.

In fact, since the beginning of this year, China's monetary policy has exhibited a trend of moderate loosening while maintaining a prudent approach. Over the past year, the central bank has made several precise and considerable adjustments, including cuts to the reserve requirement ratio (RRR) and interest rates. The one-year loan prime rate (LPR) has decreased from 3.45 percent to 3.10 percent, while the LPR for loans with a term of five years or more has fallen from 4.20 percent to 3.60 percent, marking the largest reductions within a year in history. These measures have effectively lowered the financing costs for companies and residents, providing strong support for the stable operation of the economy.

It is important to note that while China's monetary policy has demonstrated a degree of easing in its practical operations, an official adjustment of the policy tone remains of great significance. Shifting the policy tone from "prudent" to "moderately loose" not only responds positively to the current economic situation but also serves as a crucial measure for strengthening expectation management. By making the policy tone clear, relevant authorities can provide clearer and more explicit signals to the market, allowing all parties to better understand the intentions behind the policy easing. This clarity fosters a consistent positive expectation regarding future policies, ultimately enhancing confidence in the economic recovery.

In addition, changes in the external environment have created a unique opportunity for China to adjust its monetary policy stance. In September, the US Federal Reserve announced a 50-basis point cut to its benchmark interest rate, the first reduction in borrowing costs since March 2020. Wall Street investors now expect the Fed to implement another rate cut this month. 

Meanwhile, other central banks around the world are also entering a rate-cutting phase. This context provides sufficient room for China to recalibrate its monetary policy.

In summary, the moderate easing of monetary policy is expected to inject new vitality into the current complex and evolving economic landscape, bolstering expectations for growth and offering robust support for various industries. More significantly, this policy sends a clear and positive signal to both domestic and international markets, showcasing the flexibility and foresight of China's macroeconomic regulation, thereby enhancing the confidence of investors in the Chinese economy.