China’s government announced that it will continue to provide support measures to help boost economic activity. While China’s economy has expanded in 2024, the rate of growth is on pace to fall short of the government’s 5% target. Relatively soft domestic demand and a troubled property market have weighed on China’s economic growth. Now, the threat of tariffs from the US is weighing on the outlook.

• The government said it would continue to loosen monetary policy and take a proactive approach to fiscal policy. This will continue the work already done by the government and the People’s Bank of China (PBOC), which sought to increase consumer and business spending.
• China’s government also discussed the risk of increased tariffs from the US. This could significantly impact China’s economy, and careful government action might be needed to absorb the potential downturn in shipments. Officials also commented that increased tariffs on China’s economy could weigh on global economic growth.
• China’s exports have accelerated over the past couple of months ahead of potential tariffs. Exports rose by 6.7% year-over-year in November following a 12.7% increase in October. US importers might be frontloading orders to avoid expected tariffs.
• Inflationary pressures have been soft in China. As a result, the PBOC has some runway to lower interest rates to help boost demand and real estate market activity. This announcement likely points to more rate cuts from the PBOC in the coming months.

The PBOC has already lowered several of its key interest rates on multiple occasions in 2024 to boost liquidity, reignite domestic demand and improve real estate market activity. Now, the government and central bank must prepare for potential tariffs. Canada is also facing the threat of increased tariffs from the US. Canada’s Prime Minister Justin Trudeau noted that Canada will respond if tariffs are placed on Canada’s exports to the US.

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