Source: The general trend looks at finance and economics
Text: "Caijing" reporter Zou Biying, Sun Yingni, researcher, Zhang Ge
From December 11 to 12, the Central Economic Work Conference was held in Beijing. The meeting is often seen as a bellwether for China's economic work in the second year, and a key basis for looking ahead to the 2024 National People's Congress and the National People's Congress.
According to the National Bureau of Statistics, China's GDP grew by 5.2% year-on-year in the first three quarters of 2023, and quarterly, it was 4.5%, 6.3%, and 4.9% respectively. The meeting pointed out that to further promote the economic rebound, we need to overcome some difficulties and challenges, mainly due to insufficient effective demand, overcapacity in some industries, weak social expectations, and still many hidden risks.
Figure 1: Changes in China's GDP growth rate since 1979. Source: National Bureau of Statistics
For the economic work in 2024, the meeting made arrangements from nine aspects, including scientific and technological innovation, expansion of domestic demand, private economy, opening up, risk prevention, agriculture, rural areas, urban and rural areas, green and low-carbon, and people's livelihood. "Next year, we must persist in seeking progress while maintaining stability, promote stability with progress, establish first and then break down, and produce more policies that are conducive to stabilizing expectations, growth, and employment, and actively and enterprisingly in changing the mode, adjusting the structure, improving quality, and increasing efficiency......" The meeting drew the key points for next year's economic policy
"The current structural recovery of the economy is mainly driven by the service industry and high-end manufacturing, but the real estate, financial industry, and Internet platform economy are still affected by some impacts. Therefore, employment is also structural, and the employment situation of migrant workers has improved due to investment in the service industry and infrastructure, but the pressure on youth employment is greater. Luo Zhiheng, chief economist of Guangdong Kai Securities, told the "Caijing" reporter. At the end of the year, many international institutions predict that China's economic growth will eventually be around 5.2% in 2023.
The International Monetary Fund (IMF) has its latest adjusted forecast for China's economy to grow by 5.4% in 2023 and 4.6% in 2024. The World Bank predicted in October that China's economy would grow by 5.1% in 2023. At the same time, Teng Tai, president of the Wanbo New Economic Research Institute, and other experts told Caijing that considering the disruption of the epidemic in 2022 and the low base, even if the economic growth rate of slightly more than 5% in 2023 is slightly lower than market expectations.
At present, economists mostly recommend setting China's economic growth target at around 5% in 2024. "The confidence and vitality of micro subjects are insufficient, and from the perspective of expanding domestic demand and boosting market confidence, it is very likely that the growth target for next year will still be set at about 5%. Bian Quanshui, chief analyst of Western Securities, told Caijing.
Figure 2: Comparison of the main contents of the Central Economic Work Conference from 2021 to 2023. Source: Caijing Regional Economic and Industrial Research Institute based on public information
1. Expand domestic demand, stimulate potential consumption, and expand productive investment
Looking back at 2023, the global political and economic situation is still volatile, the Ukraine crisis has become prolonged, and the Palestinian-Israeli conflict has further exacerbated geopolitical tensions. The growth of the global economy has slowed down, major economies have continued to raise interest rates, global liquidity has tightened, interest rates have remained high, and turmoil in international financial markets has intensified.
In this context, the Central Economic Work Conference focused on expanding domestic demand in 2024.
The meeting proposed to promote consumption from post-epidemic recovery to continuous expansion, cultivate and expand new consumption, vigorously develop digital consumption, green consumption, and healthy consumption, and actively cultivate new consumption growth points such as smart homes, cultural and entertainment tourism, sports events, and domestic "trendy products". Stabilize and expand traditional consumption, and boost bulk consumption such as new energy vehicles and electronic products. Increase the income of urban and rural residents, expand the size of middle-income groups, and so on.
Teng Tai analyzed that 2023 is the first year of the liberalization of new crown epidemic prevention measures, although the recovery process of consumption is lower than expected at the beginning of the year, but the contribution rate of consumption to economic growth in the first three quarters has reached more than 80%, which is not due to high consumption growth, but because of the decline in export and investment growth. At present, residents' disposable income is still too low in the proportion of GDP, and in the long run, to boost consumption, we must start by increasing residents' labor income and property income.
"To expand consumption in 2024, whether it is to issue money or consumption vouchers, the budget should still make certain arrangements. In 2023, most of the steady growth of fiscal funds will be used to expand investment, and from a scholar's point of view, I still feel sorry. Teng Tai said that consumption is ultimately a function of income, and the issuance of consumption vouchers or money can produce a multiplier effect of more than three times, which will greatly expand domestic demand. Expansionary monetary policy will also drive the stock market higher, pushing up household revenues, which in turn will boost consumption. The increase in wages or labor income is related to employment and is a long-term measure.
According to the National Bureau of Statistics, from January to October this year, the total retail sales of consumer goods increased by 6.9 percent year-on-year, and from January to October, the national investment in fixed assets increased by 2.9 percent year-on-year, declining month by month. The meeting also proposed that it is necessary to stimulate potential consumption, expand profitable investment, and form a virtuous circle in which consumption and investment promote each other, implement a new mechanism for public-private partnership, and support social capital to participate in the construction of new infrastructure and other fields.
Liu Qiao, dean of Guanghua School of Management at Peking University, believes that based on the strong role of investment in promoting the growth of total factor productivity (TFP), unleashing the long-term growth potential of the economy requires a huge amount of investment in basic core industries and fields. These fields are often in the key position of the national economic production network, which affects the whole body and has extremely high social returns. For example, the market alone cannot solve problems such as green transformation and the establishment of digital transformation networks, unequal income and development opportunities, industrial upgrading and scientific and technological progress, and basic research.
Teng Tai said that "effective investment" means that it is necessary to strictly control the projects of ineffective and inefficient investment. Government investment should lead to social investment, so that a dollar can be invested to generate as many times as much GDP as possible. The Bank of China Research Institute predicts that China's investment growth rate will be about 4.5% in 2024, and the consumption growth rate will be about 6%.
2. Revitalize exports and open up the blockages for foreigners to do business, study, Xi and tourism in China
The global economy is oscillating in recession range, how to deal with the slowdown in external demand?
The meeting proposed to expand high-level opening up. It is necessary to accelerate the cultivation of new momentum for foreign trade, consolidate the basic market of foreign trade and foreign investment, and expand the export of intermediate goods, service trade, digital trade, and cross-border e-commerce. The measures include relaxing market access for service industries such as telecommunications and medical care, benchmarking against international high-standard economic and trade rules, earnestly addressing issues such as cross-border data flow and equal participation in government procurement, and continuing to build a market-oriented, law-based, and international first-class business environment, so as to build the "Invest in China" brand. Effectively break through the blockages for foreign personnel to come to China for business, study, Xi, and tourism.
In this regard, Bian Quanshui analyzed that the international situation is still complex and changeable this year, the downward pressure on external demand is greater, and there is a certain outflow pressure on FDI (foreign direct investment). Against the backdrop of weakening global demand, China's exports remain uncertain in 2024. The greater the uncertainty of the external environment, the stronger the necessity of opening wider and introducing foreign investment. According to data from the General Administration of Customs, in the first 11 months of this year, China's exports increased by 0.3% year-on-year.
Recently, the relevant departments have introduced measures to support the opening up of Beijing's service industry, unilateral visa exemption for the six countries, and so on. In the view of Zhong Zhengsheng, chief economist of Ping An Securities, this meeting will place more emphasis on the development of new foreign trade momentum than in 2022. For example, intermediate goods trade, service trade, digital trade and cross-border e-commerce exports.
China's exports fell 8.1 percent and 8.8 percent year-on-year in June and July, respectively, according to data from the General Administration of Customs. By November, China's exports finally increased by 1.7% year-on-year, turning from negative to positive for the first time in nearly seven months. The global economy is sluggish, and Nomura predicts that the year-on-year growth rate of China's exports may be negative in 2024, at -1.5%, and -0.3% in 2025. The Bank of China Research Institute predicts that China's exports will increase by about 2% year-on-year in 2024.
A sluggish export performance next year will also seriously affect employment.
According to the National Bureau of Statistics, in October, the national surveyed urban unemployment rate was 5.0%, Teng Tai pointed out that every percentage point of economic growth increases, which means millions of jobs, must maintain a certain GDP growth rate. Structurally speaking, it is necessary to focus on the development of services and service exports. At present, there are about 170 million people working in agriculture in China, and it will drop to less than 100 million in the future. China's industrial employment is 230 million and will fall below 200 million. Only by developing the service industry can more jobs be created.
3. Prevent risks and meet the reasonable financing needs of real estate enterprises with different ownerships
Preventing and mitigating risks has also become the focus of economic work in 2024. According to the National Bureau of Statistics, from January to October, real estate development investment fell by 9.3%, becoming an important factor dragging down economic growth.
The meeting pointed out that it is necessary to coordinate and resolve the risks of real estate, local debt, and small and medium-sized financial institutions, severely crack down on illegal financial activities, and resolutely adhere to the bottom line of no systemic risks. Actively and prudently resolve real estate risks, meet the reasonable financing needs of real estate enterprises with different ownership systems without discrimination, and promote the steady and healthy development of the real estate market. Accelerate the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes, and the transformation of urban villages. Improve relevant basic systems and accelerate the construction of a new model of real estate development.
"What will happen if there is no normal recovery in real estate? Local finances will face considerable problems. Lu Ting, chief economist of Nomura China, stressed that the key to real estate rescue is to ensure the delivery of buildings. At present, the proportion of deliveries in the proportion of off-plan properties sold is just over 50%. China's cement consumption, according to the official data, fell by about 7%, but according to the data of private cement plants, the decline of about 25%, further indicating that problems such as difficulty in handing over housing may be further expanded through a negative cycle, and affect the purchase of land by developers, cement consumption and housing decoration consumption.
According to Lu Ting's analysis, there are indeed signs of stabilization in real estate, but will it not go any further? Will many indicators rise year-on-year by next year? At present, we cannot be particularly optimistic and immediately make a 100 percent conclusion. In the fourth quarter of 2022, the People's Bank of China launched a 200 billion yuan refinancing to guarantee the delivery of housing, and now it may only use a fraction. And in 2024, there is hope that real estate will begin to clear out.
Lu Ting pointed out that if the off-plan housing system cannot be completely abolished, it is necessary to ensure the delivery and guarantee the delivery of the house. According to Nomura's estimates, the funds needed to "ensure the delivery of buildings" are conservatively estimated to be 3 trillion yuan.
Luo Zhiheng also stressed that first of all, we should do a good job in "ensuring the delivery of real estate", strengthen the supervision of pre-sale funds of real estate enterprises, and prevent unfinished off-plan housing; second, we should prevent the liquidity shortage of healthy real estate enterprises. At present, in order to ensure the safety of funds, financial institutions have been cautious in lending and reluctant to lend; third, they have adopted policies according to the city's policies to better support the demand for rigid and improved housing; and fourth, they have accelerated the construction of the "three major projects" of affordable housing, the transformation of urban villages, and the "dual-use" public infrastructure.
Lu Ting pointed out that in the past, at the high point, the income from land sales of local governments in China could reach 8.7 trillion yuan. Now the numbers are discounted. In the future, the government's revenue from land sales will no longer be as evenly distributed as it has been in the past seven or eight years. In the process of real estate recovery, land, financial and credit resources will also be concentrated in some places along with population and industry. First-tier cities and some strong second-tier cities may gain the lion's share in the middle.
Regarding the risk of local government debt, Luo Zhiheng also said that this year's special refinancing bonds were issued more than expected (note: borrowing new to repay the old). However, from a longer-term perspective, it is still necessary to curb the soil for the generation of hidden debts through the linkage reform of institutional mechanisms. While stabilizing the macro tax burden, it is fundamental to clarify the relationship between the government and the market, define the responsibilities and scale of the government, and solve the problems of excessive government functions and excessive expenditure responsibilities with unlimited responsibility.
Fourth, prescribe medicine, strengthen the active fiscal policy, and make the prudent monetary policy flexible and moderate
How will macro policies be implemented in 2024?
The meeting demanded that we should strengthen the counter-cyclical and cross-cyclical adjustment of macroeconomic policies, continue to implement a proactive fiscal policy and a prudent monetary policy, and strengthen the innovation and coordination of policy tools. The meeting also pointed out that liquidity should be kept reasonable and abundant, and the scale of social financing and money supply should be commensurate with the expected targets of economic growth and price levels.
According to the National Bureau of Statistics, in November, the national consumer price (CPI) fell by 0.5% year-on-year, the third negative monthly growth in 2023. Teng Tai pointed out that for a long time, we have taken the CPI inflation level of about 2% as the target, and appropriately tolerating a higher inflation rate or raising the level of economic growth requires further expansionary monetary policy. In the past few years, we have also placed more emphasis on structural monetary policy, and in the future we will put more emphasis on aggregate monetary policy – as in the developed market economies of the West, either with interest rate cuts or quantitative easing.
Teng Tai suggested that in the future, further sharp interest rate cuts and increased monetary supply will be increased, and perhaps it will not be effective until the growth rate of M1 (narrow money) rises from the current 2% below 2% to more than 10% as soon as possible. In addition, against the backdrop of deflation and a decline in economic growth, in the face of insufficient domestic demand and a continuous decline in asset prices, in addition to an expansionary monetary policy, it is also necessary to implement an expansionary fiscal policy such as issuing money or consumption vouchers.
The meeting also demanded that the active fiscal policy should be moderately strengthened to improve quality and efficiency. Specific requirements include making good use of the fiscal policy space and improving the efficiency of funds and the effectiveness of policies. Reasonably expand the scope of local government special bonds to be used as capital. Enhance fiscal sustainability and strengthen the bottom line of the "three guarantees" at the grassroots level. Strict control of general expenditures.
Luo Zhiheng believes that the deficit rate may need to exceed 3% in 2024, and the scale of the deficit will be dominated by the central government. The issuance of an additional 1 trillion yuan of treasury bonds in the fourth quarter of 2023 and the issuance of part of the new local bond quota in 2024 in advance will help form a physical workload as soon as possible and form a good start in 2024. It is necessary to seek truth from facts and face the real deficit rate, and avoid the situation that the long-term use of "deficit control + expansion of special bonds" leads to a situation in which the deficit scale is too small and the efficiency of special bonds is low.
Luo Zhiheng pointed out that it is necessary to focus on the fiscal policy of expenditure, supplemented by revenue policies such as tax cuts and fee reductions, and gradually shift to paying equal attention to investment and consumption. Planning, however, for a new round of reform of the fiscal and taxation system will be an important task in the next stage. At present, there are still problems such as the unclear relationship and boundary between the government and the market, the unclear division of powers and expenditure responsibilities between the central and local governments, the excessive powers and expenditure responsibilities of local governments, the lack of coordination of financial resources, the irregularity of transfer payments, and the need to further deepen the financial system below the provincial level, which need to be further resolved in future reforms.
Fifth, strengthen confidence and enhance the consistency of macroeconomic policy orientation
The meeting also pointed out that it is necessary to enhance the consistency of macroeconomic policy orientation. Strengthen the coordination and cooperation of fiscal, monetary, employment, industrial, regional, science and technology, environmental protection and other policies, incorporate non-economic policies into the assessment of the consistency of macro policy orientation, strengthen policy coordination, and ensure that the same direction is exerted and a joint force is formed. Strengthen economic propaganda and public opinion guidance, and sing the bright theory of China's economy. The outside world believes that this is similar to the "avoiding the fallacy of synthesis" proposed by the central government a few years ago.
Luo Zhiheng suggested that to improve social expectations, it is necessary to further strengthen the stability and continuity of policies, fully listen to the opinions and suggestions of entrepreneurs in policies involving major directional adjustments, set up route tables and time charts, so that entrepreneurs have sufficient time to adjust assets and liabilities; in addition, further sort out and improve the "Anti-Monopoly Law" and the "Anti-Unfair Competition Law", so that enterprises have clearer expectations and standardize corporate behavior.
Luo Zhiheng stressed that the rule of law is the best way to stabilize expectations. In addition, we can consider achieving new breakthroughs at the major theoretical level, making it clear that the private economy and the state-owned economy are not mutually reinforcing rather than eliminating each other's strengths; and that entrepreneurship is not exploitation, but also creates value, so as to reassure entrepreneurs at the theoretical and ideological levels.
For the private economy, the Central Economic Work Conference also has deployments. The meeting proposed to promote the development and growth of private enterprises, and implement a number of measures in market access, factor acquisition, fair law enforcement, and protection of rights and interests. "In 2024, the economic work is bound to pay more attention to the guidance of expectations. Bian Quanshui believes that good expectation management can cut off the self-feedback and cycle of negative expectations, and can also reduce the hedging of macroeconomic policy effects.
To enhance the consistency of macro policy orientation, Luo Zhiheng suggested that before the introduction of a single policy, all policies must consider and evaluate whether they will impact the confidence of micro subjects and whether it is conducive to improving the expectations of residents and enterprises; in the process, establish a joint mechanism before the introduction of major policies between departments to avoid mutual exclusion between policies; and after the fact, take accountability and restraint measures for behaviors that weaken the effect of policy implementation from the departmental standard rather than the overall situation.
(Special correspondent Sun Dongzhen also contributed to this article)