Markets grade the CCP’s economic work

Plus, the Phillips curve cannot fail

China’s two-day Central Economic Work Conference concluded this week calling for ‘more proactive fiscal policy,’ funded in part by additional ultra-long-term bond issuance. The section on monetary policy called for ‘a moderately loose monetary policy,’ reflecting Politburo language already adopted earlier in the week, although that only serves to underscore the PBoC’s lack of independence. As Bill Bishop notes, the exchange rate section was much the same language contained in the 2023 CEW readout, saying ‘the RMB exchange rate should be maintained at a reasonable and balanced level of basic stability.’ The managed exchange rate remains the elephant in the room of Chinese economic policy.

Market reaction to the CEW readout was pretty poor. China’s 10-year bond yield has made new record lows at 1.78%, with the China-US 10-year bond spread also close to record lows.