The “big bazooka” stimulus package hasn’t materialised. Xi apparently sees stimulating consumption as wasteful, but it may be on its way next year with officials looking at measures that would direct funds into households via an expansion of the coverage and the levels of reimbursement in health insurance schemes, more funding for education and increases in the basic pension.

The need to shift the balance within China’s economy will become even more pressing if Donald Trump, who has threatened to impose a new 10 per cent tariff on China if it doesn’t do more to stop the flow of fentanyl into the US, follows through on his bigger threat and slaps a 60 per cent tariff on all China’s exports to the US.

China has gone on a production and export binge in recent years, which is continuing. Industrial production was up 5.4 per cent in November, year-on-year, even though ex-factory prices have been falling for more than two years.

With domestic demand weak and the domestic economy unable to absorb the increased supply, factory output has been channelled into export markets, generating increasing tensions with China’s trade partners. It’s not just the US, with the European Union imposing substantial tariffs on Chinese electric vehicles and considering slapping duties on some of its other exports.

If China’s current export-driven model runs head-on into 60 per cent tariffs in the US, and Europe, fearful that even more Chinese goods will be headed its way, also moves to protect its domestic industries, the economic challenges for China would swell dramatically.

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Chinese officials have made the point that a trade war would produce a “lose-lose” outcome – Donald Trump’s tariffs would be very damaging for the US economy and even more so if China retaliates – but China would be the biggest loser because it has become so reliant on exports.

Since the September policy announcements, the yuan has depreciated sharply against the US dollar, from 7.01 to the dollar to 7.28. That might help its exporters in the near term but can only add to the trade tensions. Trump has labelled China a “currency manipulator” in the past.

From comments of senior officials after the Central Economic Work Conference and an earlier meeting of China’s Politburo, it would appear that, if not the big bazooka, a still-substantial shift in policy will be attempted next year.

There will be further measures to try to stabilise the property and sharemarkets and to boost consumption, which headed the list of economic priorities for 2025.

Beijing has already moved, in September, to put a floor under stocks and property, refinance debt-laden local governments via a 10 trillion yuan ($2.2 trillion) debt swap, and recapitalise major banks and provide them with cheap funding so that they can lend more.

That was, however, more of an attempt to lower financial risk in China’s financial system than to lift consumption or boost consumer confidence.

It did have some temporary effects. The sharemarket soared almost 33 per cent in the few weeks after the measures were announced, and housing markets in the major cities do seem to have bottomed out.

The sharemarket, however, has fallen back about 8 per cent since its recent peak in early October (it’s down 33 per cent from its all-time high in February 2021), and non-bank demand for credit was at its lowest level for 15 years last month.

Hence, the reason that Beijing is looking to be more proactive and turning to a more expansive fiscal policy.

Stabilising the housing market is a prerequisite for stabilising the economy and escaping a deflationary trap.

The Politburo said after its meeting that it would adopt a “moderately loose” monetary policy rather than using the “prudent” policy language it has used since the 2008-09 financial crisis, signalling the extent of the shift in stance and the strength of the commitment to trying to boost domestic demand.

This year, the economy is probably going to achieve Beijing’s target for GDP growth of “around five per cent,” although the final number may have a 4 in front of it.

Given that, even without Trump’s tariffs, the economy is faltering, and Xi’s economic model and the export binge it has produced is spluttering as a result of the weak domestic demand and increasing headwinds offshore, the challenges next year will be even more threatening to growth.

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If a new and more intense trade war does erupt, Xi and his party may have to consider a far more radical shift in economic strategies and policies to address the overcapacity and overproduction that already exists within their economy and which would be a far bigger threat to economic and social stability if China’s export markets shrink.

For Australia, of course, with Treasurer Jim Chalmers already warning of a $100 billion-plus hit to exports and an $8.5 billion impact on the budget’s bottom line over the next four years from the existing economic weakness in China, that kind of disruptive and painful restructuring of our biggest trading partner’s economy would be a particularly unpleasant outcome.

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