China Monetary Easing 2024: Major Policy Changes Aim to Boost Economy

China’s first major coordinated monetary easing in 2024 brings significant changes to economic policies, including cuts to the reserve requirement ratio (RRR), lowered interest rates, and adjustments to property policies like reduced mortgage rates and down payment ratios. This China monetary easing in 2024 is part of a broader effort to strengthen the economy and support growth.

In addition to these measures, the Chinese government has introduced strategies to improve stock market liquidity through swap and lending facilities and to strengthen bank capitalization. Experts anticipate that fiscal stimulus will play a larger role in the upcoming months, alongside monetary policies, to drive demand through increased consumption and investment, stabilize the property sector, and address balance sheet challenges, according to Bank of America (BofA) analysts.

China Monetary Easing 2024: A Focus on Consumer Support

Key areas targeted by China's monetary easing in 2024 include consumer support, particularly in social security, healthcare, and pro-birth policies. These policies involve financial allowances for families with multiple children and low-income households. While there has been discussion about consumption coupons, a large-scale nationwide rollout is not expected in the short term.

BofA notes this is the most severe consumer down-cycle since China’s entry into the World Trade Organization. The downturn is attributed to a significant wealth loss of around RMB60 trillion (approximately US$8.6 trillion) in the property sector since 2021. Other factors include record-low consumer confidence, weak business sentiment, a sluggish job market, wage stagnation, deleveraging, and an aging population.

Impact of China's Monetary Easing in 2024 on Consumption and Markets

The immediate effect of China’s monetary easing is anticipated to be a near-term wealth boost, with a rally in the A-share market increasing market capitalization by RMB17.3 trillion as of September 23. However, BofA analysts caution that this will not immediately translate into a significant rise in overall consumption, except for trade-in subsidies in select sectors.

The timeline for fully reviving consumption may take years, as each major consumer downcycle historically lasts 3.5-4 years, and the current cycle is just 2.5 years in. Analysts emphasize the need for "decisive policies" to counteract the extensive wealth destruction and property turmoil, adding that restoring consumer confidence is crucial to avoid the perception of these policies as a “false dawn.”

Global and Domestic Brand Implications Amid China Monetary Easing

Global brands may initially benefit from the China monetary easing in 2024, particularly in luxury and beauty sectors, with share price gains and a potential wealth effect enhancing consumer confidence. However, policies are likely to favor domestic brands more aligned with lower-end consumers. For global brands, competing effectively in this environment will require the right products, pricing, and agility to navigate changing channels and rising local competition.