China still hopes to stabilize market, ideally before Trump inauguration

China’s leaders are reportedly still scrambling to stabilize their economy before Donald Trump takes office. The pressure is on, and Beijing knows it.

With a housing market crisis, a plummeting yuan, and shaky consumer confidence, the government is throwing out one promise after another to keep the country’s economic ship from sinking.

Regulators are rolling out plans to steady the property and equity markets, push fiscal policies into overdrive, and put out the fires in their financial system. The stakes are high. With Trump’s trade war threats looming, Beijing is working overtime to control the narrative—and the numbers.

Housing market chaos meets government’s bold promises

The housing sector is at the center of the storm. Property prices have nosedived, home sales are collapsing, and people’s savings are vanishing faster than you can say “real estate bubble.” Dong Jianguo, a vice minister at the housing ministry, announced plans to stimulate demand and rein in land supply. This move, he claimed at a weekend conference, could help the sector recover, but no one’s betting their house on it just yet.

Meanwhile, the Ministry of Finance is stepping up with promises of “sustained and effective” fiscal policies in the coming year. They’re gearing up to issue more local government bonds and expand the areas where those funds can be invested. Essentially, Beijing is pouring money into the economy and hoping it’ll stick.

But not everyone’s convinced this is enough. The Central Economic Work Conference—a gathering of top officials led by President Xi Jinping—vowed to raise the fiscal deficit target for 2025 and focus on boosting domestic demand. They’ve made consumption a top priority for the first time in a decade. Sounds ambitious, but the clock is ticking, and the results need to show up yesterday.

Credit slowdown and monetary policy roulette

If China’s housing mess wasn’t bad enough, credit expansion numbers just slapped policymakers in the face. November saw credit growth hit its lowest level for that month since 2009. Loans to the real economy, which excludes financial institutions, dried up despite an increase in government bond issuance. The result? A brutal combo of weak credit and frail economic confidence.

Wang Xin, a research bureau director at the People’s Bank of China (PBOC), says the central bank has plans to cut interest rates and the reserve requirement ratio next year. The idea is to flood the system with liquidity and make borrowing easier for businesses.

Wang also mentioned loosening financing conditions for the real economy, which could mean cheaper credit for manufacturers and entrepreneurs trying to keep their heads above water.

That’s not all. The Politburo recently committed to a “moderately loose” monetary policy for 2025, signaling more rate cuts and easier credit access. But whether these moves can shake off deflationary pressure remains to be seen.

Yuan struggles under trade war fears

The yuan is in freefall, and Beijing knows it’s a problem. The currency has been sliding since mid-October, and last week it took another hit after reports suggested authorities might let it depreciate further. The potential trade war with Washington isn’t helping, as fears of tariffs and sanctions weigh heavily on currency markets.

Zou Lan, head of the PBOC’s monetary policy department, says the central bank is doubling down on managing exchange rate expectations. “We’ll respond vigorously to external shocks,” he said in an interview, adding that the PBOC would prevent “overshooting risks” in the exchange rate. Sounds nice on paper, but markets aren’t exactly reassured.

To prop up the yuan, the PBOC and the State Administration of Foreign Exchange just increased the macroprudential adjustment parameter for cross-border financing. Translation: businesses and banks can now borrow more foreign debt, which could help stabilize the currency.

PBOC Governor Pan Gongsheng said, “We have the confidence, conditions, and ability to maintain a stable foreign exchange market.”

Exports boom while domestic economy sinks

Here’s the paradox: China’s domestic economy is in rough shape, but its exports are on fire. Last year, the country racked up a $1 trillion trade surplus. Exports totalled $3.58 trillion, while imports barely hit $2.59 trillion. Factories are cranking out goods like there’s no tomorrow, from solar panels to electric vehicles, keeping China’s global trade dominance intact.

But the domestic picture isn’t so rosy. The middle class is holding back on spending due to job losses, a housing market crash, and dwindling savings. Even with government support, consumption remains weak, and deflation is a lingering threat.

Despite these issues, the government isn’t giving up. Measures to revive factory output and boost consumer confidence are in motion, but they’re not delivering quick results.

While the bond market saw a record-breaking rally last week, the stock market didn’t get the memo. Yields on China’s 10-year government bonds dropped to an all-time low of 1.77%, attracting a flood of funds into bonds. Longer-term bond yields also fell sharply, reflecting investor caution.

On the flip side, the CSI 300 Index of Chinese stocks had its worst day in three weeks, tumbling 2.4%. The contrast between the bond and stock markets highlights just how divided investor sentiment is right now.

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