Morning from Copenhagen. 

We spent yesterday dissecting the messages from the Politburo that China would be changing their stance on monetary policy for the first time in a decade, and they used the famous words “moderately loose” to describe the future Chinese monetary policy – which was last used after the outbreak of the financial crisis. Are China moving the needle this time after several unsuccessful attempts in October, or are we in for another round of headline hockey from Chinese authorities? 

There are a lot of good arguments as to why this time might be more serious than the efforts we saw in October. Firstly, this announcement comes after the election of Trump as the US president – and therefore the possible tariffs – meaning that China has very good reasons to start thinking of a way to either 1) counter the “tariff attacks” from the US or 2) limit the damages that such tariffs would have on the Chinese economy, given that they are still very trade-oriented. 

We have looked a bit at the statement from 2008 to understand exactly what we can expect from Chinese authorities if they go all-in (you can read it yourself here). The issue with using the 2008 stimulus package as a guideline is that the Politburo will potentially look for other ways to stimulate the economy than it has previously done, as it has not really been working to just inject money into the economy via bridges, buildings and the likes – or at least it only works as a temporary solution (which might be fine given where the economy is currently heading).  

Chart 1: Chinese GDP will shrink – fast!