Source: New Economist Think Tank is synthesized from CICC, CITIC Securities, China Securities Securities, Huatai Securities, Guotai Junan Securities, China Merchants Securities, Shenwan Hongyuan Securities, Galaxy Securities, Haitong Securities, etc.
17 Institutions Jointly Interpret the Central Economic Work Conference (80,000 Words Long Article) (I)
1. CICC
Macro: cross-cyclical quality improvement, counter-cyclical increment
The Central Economic Work Conference first mentioned that "high-quality development is the last word", to adjust the structure to add impetus to stable growth, and to coordinate the relationship between demand and supply, speed and quality, development and security. While stabilizing growth, we should also continue to attach importance to improving the economic structure. In fact, the demand gap in the second half of the financial cycle has cross-cyclical characteristics, which requires counter-cyclical policies to expand domestic demand, and also needs cross-cyclical policies to help improve the economic structure.
Promote the three "stability" with the "progress" of quality improvement, coordinate the relationship between quality and quantity, and establish first and then break. In terms of guiding principles and guidelines, the meeting put forward for the first time "high-quality development as the last word in the new era", and put it in the first place of the five "musts", compared with the previous "development is the last word", adding a supplement to the emphasis on "quality". At the same time, in the methodology of economic work, consistent with the Politburo meeting, on the basis of the previous "seeking progress while maintaining stability", "promoting stability with progress, establishing first and then breaking" was added, on the one hand, there are demands for stable growth, and stable expectations are put at the top of the three stability (stable expectations, stable growth, and stable employment), emphasizing "enhancing the consistency of macro policy orientation", "incorporating non-economic policies into the consistency evaluation of macro policy orientation", "strengthening policy coordination and linkage, amplifying the combination effect", and "policy reserves to lay a good amount of advance and set aside redundancy". On the other hand, it emphasizes the "progress" of changing the mode, adjusting the structure, improving the quality, and increasing the efficiency to add impetus to the realization of the "three stability" (stable expectations, stable growth, and stable employment). While adjusting the structure and increasing the quality, it is necessary to "establish first and then break down", pay attention to grasping and handling the relationship between "speed and quality, macro data and micro feelings, economic development and improvement of people's livelihood, development and security", make overall plans to expand domestic demand and deepen supply-side structural reforms, and make overall plans for "local debt risk resolution and stable development".
Pay equal attention to efficiency and safety, and develop new quality productivity. In the international context of anti-globalization, the importance of industrial chain security has become more prominent. In order to maintain the security of the industrial chain, some countries have promoted the "return to the shore" and "friendly shore" of the industrial chain. However, this approach is done at the expense of efficiency to maintain security, leading to supply shortages and ultimately raising the inflation hub. The use of scientific and technological innovation to improve the safety of the industrial chain can achieve the unity of efficiency and safety. We believe that highlighting the role of scientific and technological innovation is to promote the safety of the industrial chain by improving efficiency, rather than sacrificing efficiency for safety, which will enhance the long-term growth potential of the mainland economy. In terms of improving efficiency, in September 2023, General Secretary Xi Jinping proposed the concept of "new quality productivity" [2] during his investigation in Heilongjiang, which is the main development direction of future scientific and technological innovation.
Reform and opening up have been further deepened. The meeting emphasized that "it is necessary to plan major measures to further deepen reform in an all-round way, and continue to inject strong impetus into promoting high-quality development and accelerating Chinese-style modernization", and further deepen reform in key areas such as state-owned enterprises, private enterprises, the national unified market, and finance, taxation and finance. As for "expanding high-level opening-up", in terms of foreign trade, "accelerate the cultivation of new momentum for foreign trade", and "expand intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports". In terms of attracting foreign investment, on the one hand, in the medium term, we will carry out institutional reforms, "relax market access for telecommunications, medical services, and other service industries, and benchmark international high-standard economic and trade rules", and on the other hand, in the short term, "effectively break through the blockages for foreign personnel to do business, study, Xi, and tourism in China" and facilitate personnel exchanges. In terms of outbound investment, the meeting focused on "supporting the implementation of the eight actions of high-quality Belt and Road cooperation".
Next year, the fiscal policy is expected to be strengthened, the expenditure structure will be further optimized, and the tax and fee reduction policy will be higher than this year. First, in terms of the total amount of fiscal policy, the meeting mentioned that it is necessary to "make good use of the fiscal policy space, improve the efficiency of funds and policy effects", "coordinate the resolution of local debt risks and stable development", combined with the expression of "moderate afterburner" of fiscal policy, we believe that the intensity of fiscal expenditure next year is expected to be higher than this year. In addition, the meeting also mentioned that "the scope of local government special bonds used as capital should be reasonably expanded", and the transformation of urban villages may be included in the scope of special bond support. Second, the structure of fiscal expenditure is expected to continue to be optimized, this year's general public budget expenditure is "under pressure", general expenditure can be controlled, but in the fields of social security and employment, national defense, science and technology, education and other areas of expenditure growth is relatively high, we expect that next year's expenditure structure optimization or continue. Third, we expect that the intensity of fiscal tax cuts and fee reductions is expected to be higher than this year. 2022 is a big year for tax and fee reduction, and the refund policy of up to 2.4 trillion yuan of stock value-added tax credits has effectively improved the cash flow pressure of enterprises, and the profits of industrial enterprises in the first 10 months of this year are still slightly negative, and it is necessary to increase the intensity of tax and fee reduction policies. The meeting proposed to "implement the structural tax and fee reduction policy, focusing on supporting scientific and technological innovation and manufacturing development", and last year's Central Economic Work Conference did not mention tax and fee reduction, we expect that next year or incremental policies will be introduced, the intensity will be higher than this year.
Monetary policy requirements have shifted from "precise and powerful" to "precise and effective", and more attention has been paid to the structural problems of financing. The 2022 Economic Work Conference proposed that "a prudent monetary policy should be precise and powerful", and the 2023 Economic Work Conference emphasized the continued implementation of a "prudent monetary policy" while putting forward the policy requirements of "flexible, moderate, precise and effective". We believe that such a monetary policy tone is consistent with the positioning of monetary policy since the Central Financial Work Conference, that is, more emphasis is placed on improving the efficiency of funds and more attention is paid to financing support for key areas. In our view, China's monetary supply may have entered a new stage, with the relative decline in the importance of credit and the gradual increase in the importance of fiscal currency. The change in the mode of money delivery is not a short-term phenomenon, because behind it is the structural adjustment of the economic growth momentum, which is more consistent with the logic of the change in the economic structure in the downward stage of the financial cycle. The change in the way money is delivered means that more attention should be paid to social finance, M1, lending rates and private financing rates in the existing indicators, and the indicative significance of credit growth may be relatively weakened.
Expand domestic demand with potential and benefits. The meeting called for "focusing on expanding domestic demand", including "stimulating potential consumption" and "expanding productive investment", and called for "forming a virtuous circle in which consumption and investment reinforce each other". We believe that "potential consumption" refers to those consumption areas that still have room for growth and potential to be released, such as new consumption such as digital, green, and health, as well as new growth points such as smart home, cultural tourism, and domestic products, while traditional consumption is represented by new energy vehicles and electronics. In July 2023, the National Development and Reform Commission (NDRC) and other departments jointly issued a number of measures to promote the consumption of automobiles and electronic products, and may continue to support and encourage policy directions in the future. In addition, the meeting also made arrangements and arrangements in the work of "three rural", promoting urban-rural integration, regional coordinated development, promoting the construction of ecological civilization and green and low-carbon development, and ensuring and improving people's livelihood.
Strategy: Emphasize implementation, improve confidence, and welcome development
This meeting continued the policy tone of the previous meeting of the Political Bureau of the Central Committee in early December, affirmed this year's economic work, analyzed the current situation, and deployed and implemented the economic work tasks in 2024.
While affirming this year's economic work, we should objectively expound the favorable conditions and unfavorable factors existing in the current development and pay attention to coping with them. The meeting affirmed that this year's "mainland economy is rebounding and high-quality development is solidly promoted", while also objectively expounding that "some difficulties and challenges need to be overcome to further promote the economic rebound", mainly because "insufficient effective demand, overcapacity in some industries, weak social expectations, and still many risks and hidden dangers, there are blockages in the domestic cycle, and the complexity, severity and uncertainty of the external environment are rising". The meeting held that "the favorable conditions facing the development of the mainland are stronger than the unfavorable factors", and continued the previous meeting of the Political Bureau of the Central Committee on "next year to adhere to the work of seeking progress while maintaining stability, promoting stability through progress, and establishing first and then breaking down", and paid attention to implementation, saying that "more policies conducive to stabilizing expectations, stabilizing growth, and stabilizing employment" and "seizing all favorable opportunities, taking advantage of all favorable conditions, and doing as soon as we see it, and doing more if we can, and striving to cope with the uncertainty of changes in the situation with the certainty of our own work."
It is clear that economic construction is the central task and high-quality development is the primary task. The meeting put forward that "the promotion of Chinese-style modernization must be regarded as the biggest politics" and "focus on the central task of economic construction and the primary task of high-quality development". In addition to attaching importance to growth efficiency, high-quality development also attaches importance to innovation, coordination, green, openness and sharing, pointing out that "strengthen the coordination and cooperation of fiscal, monetary, employment, industrial, regional, science and technology, environmental protection and other policies, include non-economic policies in the assessment of macro policy orientation consistency, strengthen policy coordination, and ensure that efforts are made in the same direction and form synergies". In terms of monetary and fiscal policies, which the market is more concerned about, the meeting stated that "it is necessary to strengthen the counter-cyclical and cross-cyclical adjustment of macro policies, continue to implement active fiscal policies and prudent monetary policies, and strengthen the innovation and coordination of policy tools". Compared with last year's "afterburner to improve efficiency", the monetary policy has been adjusted from last year's "precise and powerful" to "flexible, moderate, precise and effective", and in terms of expression, it emphasizes that "the scale of social financing and money supply match the expected targets of economic growth and price level" and "promote the steady and moderate decline of comprehensive social financing costs". Monetary and fiscal policy rhetoric is positive for the market.
In terms of specific task deployment, this meeting clarified nine key tasks for next year. Including: 1) Leading the construction of a modern industrial system with scientific and technological innovation. The conference proposed to "give birth to new industries with disruptive technologies and cutting-edge technologies", "improve the resilience and security of industrial and supply chains", "build a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, open up new tracks for future industries such as quantum and life sciences, widely apply digital intelligence technology and green technology, and accelerate the transformation and upgrading of traditional industries". In order to support the construction of a modern industrial system, the meeting specifically proposed to "encourage the development of venture capital and equity investment". 2) Focus on expanding domestic demand. Form a virtuous circle in which consumption and investment promote each other, 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". 3) Deepen reforms in key areas. On the basis of continuing to emphasize the "two unswerving", it is proposed to speed up the construction of a unified national market, effectively reduce the logistics cost of the whole society, plan a new round of fiscal and taxation system reform, and implement the reform of the financial system. 4) Expand high-level opening-up. Expand intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports. Build the brand of "Invest in China". We should do a good job in supporting the implementation of the eight actions of high-quality Belt and Road cooperation. 5) In the real estate sector, which investors are more concerned about, the meeting proposed to coordinate and resolve the risks of real estate, local debt, small and medium-sized financial institutions, crack down on illegal financial activities, and resolutely adhere to the bottom line of no systemic risks. "Meet the reasonable financing needs of real estate enterprises with different ownership systems without discrimination". Accelerate the "three major projects". 6) Make unremitting efforts to do a good job in the "three rural" work, anchor the goal of building an agricultural power, and effectively promote the comprehensive revitalization of rural areas. 7) Promote urban-rural integration and coordinated regional development. Implement the "Urban Renewal Action". Strengthen the construction of the national strategic hinterland. 8) Further promote the construction of ecological civilization and green and low-carbon development. 9) Effectively protect and improve people's livelihood. This includes speeding up the improvement of the birth support policy system.
The Central Economic Work Conference has re-implemented clear development, which is conducive to boosting investor confidence. Judging from the recent market performance, since November, the A-share market has shown a shock adjustment, and the broad-based index such as CSI 300 once hit a new low for adjustment, and in early December, with the meeting of the Political Bureau of the Central Committee, investors' expectations for policy have risen, and the index has stabilized and rebounded this week, and the Shanghai Composite Index has returned to above the integer mark. The Central Economic Work Conference held this time emphasized the promotion of Chinese-style modernization, clearly focused on economic construction and focused on the implementation of responses, which is of positive significance for improving market risk appetite and boosting confidence. In our 2024 A-share outlook, we believe that the improvement of the mainland's endogenous growth momentum in 2024 requires attention to the impact of long-term structural trends, there is still room for further increase in countercyclical adjustment policies, and the external environmental factors restricting the market are also expected to improve. We reiterate that there is no need to be pessimistic in the current position, the opportunities of the A-share market in 2024 outweigh the risks, and the pace is expected to stabilize and rise.
Chart: Comparison of key contents of the Central Economic Work Conference
2. CITIC Securities
Seven highlights of the Central Economic Work Conference
(Ming Ming, Peng Yang, Li Han, Zhou Chenghua, Qin Chuyuan, Zhou Yunfeng)
The Central Economic Work Conference reflects an objective and positive macroeconomic policy tone, and releases a positive signal of "promoting stability with progress, establishing first and then breaking". Historically, the expression "flexible and moderate" has often been accompanied by more active monetary policy operations, and the first proposal of "matching the expected target of the price level" may mean that the weight of the price level in the monetary policy target will increase. Combined with the historical law of economic fundamentals, price level, financial data and macro policy force, it is expected that monetary policy will take the lead, and there is a possibility of interest rate cuts and RRR cuts from the end of the year to the beginning of next year, and long-term bond interest rates may be strong.
First, the objective and positive macroeconomic policy tone is reflected in the following aspects:
First, "to promote stability, first establish and then break" to replace the previous "stability first", release a more positive signal. Second, "more policies conducive to stabilizing expectations, stabilizing growth, and stabilizing employment" are similar to the "all parties should actively introduce policies conducive to economic stability" at the end of 2021, and 2022 is a typical year for policy front-loading, with the central bank cutting interest rates and fiscal front-loading. Third, "strengthening the innovation of policy tools" has appeared in macro policy statements for the first time in recent years, which may mean that some innovative tools will be launched in the field of fiscal and monetary policies next year. Fourth, "overcapacity in some industries" and "there are blockages in the domestic circulation" are new terms, and the above two problems are the core factors of weak inflation.
Second, monetary policy focuses on "flexibility and moderation" and "matching the expected target of the price level".
Historically, the expression of "flexible and moderate" has a certain inflection point attribute, and after the Central Economic Work Conference and the Monetary Policy Report mentioned "flexible and moderate", the monetary policy operation is relatively active, mostly accompanied by MLF interest rate cuts and market interest rate declines. For the first time, it was proposed that "the scale of social financing and the money supply should match the expected target of the price level". This statement may imply that the government hopes to increase the broad money supply flowing into the real economy through monetary and financial policies, thereby boosting the price level, which may have more weight in the monetary policy target. Based on the above signals, we believe that the central bank is expected to take more monetary easing actions by the end of this year and early next year.
Third, the fiscal policy should be strengthened to improve efficiency and the structure should be strengthened.
The expression of "moderate afterburner, quality and efficiency" has not changed substantially compared with the previous formulation of "afterburner and efficiency", and the focus is still on "afterburner" and "efficiency", and next year's fiscal policy may be further strengthened, and the overall strength is expected to be no weaker than the level after the issuance of 1 trillion additional treasury bonds in 2023. In addition, the direction of fiscal efforts is more focused. The meeting mentioned "optimizing the structure of fiscal expenditure, strengthening the financial guarantee of major national strategic tasks" and "implementing the structural tax and fee reduction policies, focusing on supporting scientific and technological innovation and manufacturing development", which means that major strategic tasks, scientific and technological innovation and manufacturing will receive more fiscal and tax support.
Fourth, scientific and technological innovation is in the forefront, and the importance of "new quality productivity" is highlighted.
This time, the relevant expressions of scientific and technological innovation will be put in front, especially the subversive, cutting-edge new track and "new quality productivity", and the overall expression will be more positive and systematic. Compared with the "core technology" and "key components" of the industrial chain in the past, this conference has a more macro system grasp of disruptive technology, cutting-edge technology and new quality productivity, and the direction judgment is more positive and novel. Some of the sub-sectors included are listed in the paragraphs: artificial intelligence, low-altitude economy, and life sciences. Among them, artificial intelligence is the first time to form a separate sentence, we believe that as a representative of subversive and cutting-edge new productivity, this means that the overall policy attitude of artificial intelligence has changed from the observation and evaluation in the early stage to the key support, and the relevant favorable policies may reach a new level in the future.
Fifth, a virtuous circle in which consumption and investment promote each other.
The meeting proposed to "stimulate potential consumption, expand effective investment, and form a virtuous circle in which consumption and investment promote each other", in which the virtuous circle relationship between investment and demand is mentioned for the first time. At this stage, insufficient demand is still a key factor restricting economic recovery. In response to this phenomenon, this meeting will combine investment and consumption for overall deployment, focusing on the synergy between the two. From a structural point of view, new consumption growth points such as smart homes and domestic "trendy products" will become the focus of development in the next stage, and more attention will be paid to the multiplier effect of government investment, and investment will be tilted towards key areas such as key core technology research, energy conservation, emission reduction and carbon reduction.
Sixth, prevent and resolve risks, focus on real estate and local debt.
In terms of real estate, since November 2023, the policies of financing support for real estate enterprises have been intensively implemented, and this economic work conference emphasized that "the reasonable financing needs of real estate enterprises with different ownership systems should be met without discrimination", and it is expected that incremental financing support policies will promote the resolution of real estate credit risks. In the medium and long term, the policy support of the three major projects can play a role in promoting repair, boosting confidence and strengthening expectations, and promoting the repair of industry fundamentals and risk clearance.
In terms of local debt, the meeting proposed to "coordinate the resolution of local debt risks and stable development, and the major economic provinces should really take the lead and make greater contributions to the stabilization of the national economy", which not only reaffirmed the importance of resolving local debt risks, but also emphasized that different regions should "perform their own duties": for large economic provinces, the focus should be more on stabilizing the national economy; for regions with relatively heavy debt burdens, the prevention and resolution of local debt risks is the top priority. Looking forward to 2024, the package of bonds will also continue to be promoted, and the follow-up participation of financial institutions is more worth looking forward to.
▍Seventh, we should take into account trade in goods and services, and comprehensively expand opening up to the outside world.
Since the beginning of this year, the mainland's exports of goods have shown both pressure and resilience, while the performance of trade in services has been outstanding, especially the steady growth of knowledge-intensive service exports and imports, showing the steady increase in the competitiveness of the mainland in related industries. Looking ahead, in the context of domestic industrial optimization and upgrading, uncertainty in the growth of external demand, and frequent geopolitical disturbances, the necessity of cultivating new momentum for foreign trade is increasing. Specifically, expanding trade in intermediate goods, strengthening the opening up of trade in services, and giving full play to the competitiveness of trade in services represented by digital trade have become the key to cultivating new momentum for foreign trade and consolidating the fundamentals of foreign trade.
▍Bond Market Strategy:
The Central Economic Work Conference pointed out that next year, it is necessary to adhere to the principle of seeking progress while maintaining stability, promoting stability through progress, establishing first and then breaking down, and introducing more policies that are conducive to stabilizing expectations, growth, and employment. The expression of fiscal policy is basically in line with expectations, and the monetary policy is "flexible and moderate", and for the first time, it is proposed that "the scale of social financing and money supply should match the expected target of the price level". Combined with the historical law of economic fundamentals, price level, financial data and macro policy force, it is expected that monetary policy will take the lead, and there is a possibility of interest rate cuts and RRR cuts from the end of the year to the beginning of next year, and long-term bond interest rates may be strong.
▍Risk factors:
Domestic policies have changed more than expected, domestic economic recovery has been weaker than expected, major overseas economies have declined, and geopolitical conflicts have intensified.
Establish first and then break, and do it well
(Yang Fan, Cheng Qiang, Yu Xiang, Yuanyuan, Liu Chuntong, Marsi Gaowa, Wang Ximing, Zheng Chen, Dou Zihao, Contact: Ren Liurong)
The Central Economic Work Conference will be held on December 11-12, 2023, and on the whole, the meeting will judge the current economic situation more severely, and the promotion of macro policies will be more coordinated and well advanced, so as to continue to promote the economy to achieve effective qualitative improvement and reasonable quantitative growth.
In terms of monetary policy, the meeting proposed that "a prudent monetary policy should be flexible, moderate, precise and effective", and it is expected that the overall monetary policy will be stable next year, and the RRR may be cut in a timely manner to supplement liquidity, and at the same time, innovative tools may be structurally designed to better support key areas and weak links.
In terms of fiscal policy, the central financial and economic provinces will become the main levers for next year's fiscal force, and it is expected that next year's fiscal policy will not be less intense than this year.
In terms of consumption, it is expected that consumption will shift from post-pandemic recovery to continuous expansion, which must rely on new consumption and stabilize traditional consumption.
In terms of investment, fixed asset investment, especially infrastructure and manufacturing investment, is expected to benefit, and the growth rate of fixed asset investment is expected to rise to about 5.6% next year, becoming an important support for growth. Macro policies emphasize "first establish and then break", and follow-up policies in multiple fields are expected to be further deepened.
In terms of risk prevention, the policy base adjustment body continues the spirit of the Central Financial Work Conference, which is the bottom line of financial work.
In terms of industrial policy, the meeting pointed out the key directions and methods of scientific and technological innovation, focusing on the new national system and venture capital.
In terms of reform, we should make good use of the key measures for deepening reform and opening up, and pay special attention to the progress of fiscal and taxation reform and financial reform.
In terms of opening up, efforts will be made to stabilize the fundamentals of foreign trade and clearly respond to the core concerns of foreign investment.
In terms of green development, we will further promote the construction of ecological civilization and create a new green and low-carbon highland.
▍Economy: The meeting judged that the current economic situation was more severe, and the promotion of macroeconomic policies will be more coordinated and well advanced, and continue to promote the economy to achieve effective qualitative improvement and reasonable quantitative growth.
Last year's meeting summarized the macro situation as the triple pressure of "demand contraction, supply shocks and weakening expectations", and this year's judgment and assessment of the economic situation is more complex, and the severity of the macro environment has further escalated. Last year's supply shock has been downplayed in favor of overcapacity in some industries, while also emphasizing that there are blockages in the domestic cycle and more risks and hidden dangers, and the assessment of domestic growth is also more cautious. From the perspective of macro policies, next year, we must adhere to the principle of seeking progress while maintaining stability, promoting stability through progress, establishing first and then breaking down, strengthening counter-cyclical and cross-cyclical adjustment of macro policies, and strengthening innovation and coordination of policy tools. We believe that in both fiscal and monetary policy areas, new tools may be created, actively play the role of countercyclical adjustment, and strengthen the coordination between fiscal and monetary policies. In terms of key tasks, we will continue to actively promote scientific and technological innovation, expand domestic demand, deepen reform, expand opening-up and resolve risks. It is worth noting that the last part of the meeting emphasized the "four major relationships" that need to be grasped and handled well in economic work next year - speed and quality, macro data and micro feelings, economic development and improvement of people's livelihood, development and security, and further clarified the policy's concerns and concerns in four aspects. At the same time, it is also necessary to accurately grasp the "three orientations" of the policy - amplifying the combination effect, laying a good advance amount, and paying attention to effectiveness. Overall, it is expected that in 2024, macroeconomic policies will steadily promote the effective improvement of economic quality and reasonable quantitative growth.
▍Monetary policy: The meeting proposed that "a prudent monetary policy should be flexible, moderate, precise and effective", and it is expected that the overall monetary policy will be stable next year, and the RRR may be cut in a timely manner to supplement liquidity, and at the same time, innovative tools may be used to support key areas and weak links.
At the end of 2022, the Central Economic Work Conference set the tone of monetary policy as "precise and powerful", and this year it will retain "precise" and replace "powerful" with "flexible", "moderate" and "effective". This year's tone is more similar to the expression of "flexible, precise, reasonable and moderate" at the Central Economic Work Conference at the end of 2020. We expect that the overall policy will be stable next year, and the PBOC may cut the RRR to replenish liquidity in due course during the period of concentrated issuance of government bonds. Previously, the mainland had always insisted that the growth rate of M2 and social finance basically match the nominal GDP, but this meeting changed it to "match the expected target of economic growth and price level". The sum of economic growth and price levels is nominal GDP, and we think the focus is on the word "target" at the end. From 2021 to 2023, the mainland government's GDP targets are 6.0%, 5.5%, and 5.0%, respectively, and the CPI target has always been 3%. The government's expected target is relatively stable, but the actual GDP and CPI fluctuate greatly. Anchoring M2 and social finance growth to the GDP and CPI "targets" is conducive to keeping the liquidity targets stable, and we don't think the pivot will change much from before. The meeting also proposed to "give full play to the dual functions of monetary policy tools", and we believe that the focus may be on the structure. While revitalizing the credit stock, the central bank will increase support for key areas and weak links such as science and technology, green, small and micro enterprises, and digital economy.
▍Fiscal policy: The central financial and economic provinces will become the main starting point of fiscal force next year, and it is expected that next year's fiscal policy will not be less than this year.
The general tone of fiscal policy is "moderate afterburner, quality and efficiency", which is close to the "afterburner and efficiency" in 2022. "Optimizing the structure of fiscal expenditure and strengthening the guarantee of major strategic financial resources" may point to the central finance and central projects will continue to be an important marginal increment of fiscal regulation and control next year, and at the same time, "coordinate the resolution of local debt risks and stable development, and the major economic provinces should really take the lead", reflecting that the major economic provinces will assume more functions of stabilizing growth, while the provinces with greater debt pressure will bear more responsibility for risk prevention and debt. In addition, high-tech industries and manufacturing industries are expected to usher in a new round of structural tax and fee reduction policies to help cultivate new development momentum.
▍Consumption: From post-epidemic recovery to continuous expansion, it is necessary to rely on new consumption and stabilize traditional consumption.
Consumption is still an important force for expanding domestic demand next year, and the draft of the Central Economic Work Conference for the first time proposed to "stimulate potential consumption", and continued the expression of "forming a virtuous circle of consumption and investment promoting each other" in the December Politburo meeting. The meeting stressed that in the process of promoting consumption from post-epidemic recovery to continuous expansion, it is necessary to rely on both "new consumption" and "traditional consumption". In terms of cultivating and expanding new consumption, it is necessary to 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". In terms of stabilizing and expanding traditional consumption, it is necessary to continue to boost bulk consumption such as new energy vehicles and electronic products. The meeting also pointed out that it is necessary to increase the income of urban and rural residents, expand the size of middle-income groups, and optimize the consumption environment. It is expected that with the strong support of the above-mentioned policies, consumption will continue to recover moderately next year, and a number of new growth points will emerge structurally.
▍Investment: fixed asset investment, especially infrastructure and manufacturing investment, is expected to benefit, the growth rate of fixed asset investment is expected to rise to about 5.6% next year, becoming an important support for growth, structurally showing the characteristics of strong infrastructure, manufacturing and real estate pressure.
The meeting stressed the need to expand productive investment and form a virtuous circle in which consumption and investment promote each other. It is necessary to give full play to the amplification effect of government investment, focus on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction, and cultivate new momentum for development. We expect that the construction of new infrastructure will further accelerate, leading to the formation of short-term and long-term economic growth points, and the center of future infrastructure investment growth is expected to be raised in stages to ensure the realization of the 2035 long-term goals. In the short term, we believe that the effect of policies such as the issuance of additional treasury bonds, the transformation of urban villages and the dual-use infrastructure will be more reflected next year, and the growth rate of infrastructure investment is expected to continue to rise to around 10.2% next year. The meeting emphasized that it is necessary to improve the new national system, implement high-quality development actions for key industrial chains in the manufacturing industry, strengthen quality support and standard guidance, and improve the resilience and safety of industrial and supply chains. It is necessary to vigorously promote new industrialization, develop the digital economy, and accelerate the development of artificial intelligence. We will build a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, open up new tracks for future industries such as quantum and life sciences, widely apply digital intelligence technology and green technology, and accelerate the transformation and upgrading of traditional industries. We expect the growth rate of manufacturing investment to rise to more than 7% next year, driven by profit recovery, policy support and financial support. The medium- and long-term goal of the policy may be to guide the growth rate of manufacturing investment to be slightly higher than the growth rate of nominal GDP, so as to promote the continuous improvement of industrial competitiveness. Judging from the report of the 20th National Congress of the Communist Party of China and other important theoretical documents, advanced manufacturing is the backbone of the modern industrial system, and the policy idea is to enhance the competitiveness of the manufacturing industry as the core, and guide the deep integration of the modern service industry and the digital economy with the manufacturing industry.
▍Risk prevention: The policy base adjustment body continues the spirit of the Central Financial Work Conference, which is the bottom line of financial work.
The relevant statements of this meeting on the prevention and resolution of risks in key areas are consistent with the tone set by the previous Central Financial Work Conference. We believe that the relevant departments will follow the spirit of the meeting to implement the detailed decisions and deployments. In terms of real estate, it is expected that the demand-side policies will still be "exhausted", and the financing environment for high-quality private real estate enterprises may improve. The "three major projects" may be the main way to hedge against the decline in real estate investment, and it is also an important measure for the transformation of the real estate market to a new development model. In terms of debt, the issuance of special refinancing bonds has been relatively fast recently, and the central bank has also made it clear that it will provide emergency liquidity support to regions with heavy debt burdens if necessary. However, the debt package may not stop there, and banks and other financial institutions may also participate in the debt. In terms of small and medium-sized financial institutions, it is expected that the policy should not only tighten access standards and regulatory requirements, but also broaden the channels for small and medium-sized banks to replenish capital and steadily promote mergers and acquisitions, so as to achieve "reducing quantity and improving quality".
▍Scientific and technological innovation: The conference pointed out the key directions and methods of scientific and technological innovation, focusing on the new national system and venture capital.
The Central Economic Work Conference put scientific and technological innovation in a higher position, pointing out that scientific and technological innovation is an important force leading the construction of a modern industrial system. From the perspective of building a modern industrial system, on the one hand, it is necessary to revitalize the old kinetic energy, promote new industrialization, develop the digital economy, and accelerate the development of artificial intelligence to empower the real economy; on the other hand, it is necessary to tap new kinetic energy, accelerate the creation of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, and open up a new track for the future industry of quantum and life sciences. From the perspective of encouraging and promoting scientific and technological innovation, it is expected that in the future, on the one hand, it is still necessary to carry out scientific research through a new national system for key "bottleneck" areas, focusing on four aspects: financial support, talent construction, project subject and R&D environment;
▍Deepening reform: Make good use of the key measures to deepen reform and opening up, especially pay attention to the progress of fiscal and taxation reform and financial reform.
The meeting stressed the need to plan major measures to further deepen reform in an all-round way.
On the one hand, fiscal and tax reform needs to be accelerated against the backdrop of declining land finance and challenges to fiscal sustainability. Judging from the statement of the Ministry of Finance during the "14th Five-Year Plan" period, it will mainly start from three aspects: improving the allocation of central and local taxes, increasing the proportion of direct taxes, and refining the level of budget management. First, improve the local tax system and cultivate local tax sources. The collection of consumption tax has been moved back to the local level, and the consumption tax has been legislated. Through legislative authorization, the authority of provincial tax administration will be appropriately expanded. Second, we need to steadily increase the proportion of direct taxes and reduce the pro-cyclical nature of tax revenues. Improve the direct tax system with income tax and property tax as the main body, especially further improve the individual income tax, and steadily promote the legislation and reform of real estate tax. Third, standardize the management of budget expenditures. Improve the mechanism of direct financial access, implement the whole life cycle management of projects, and improve the mechanism for local governments to appropriately borrow in accordance with the law.
On the other hand, it is necessary to implement the spirit of the Central Financial Work Conference, strengthen financial supervision, and reduce entity costs. First, under the overall coordination of the Financial Services Commission, risk prevention and disposal measures for real estate, local debt, and small and medium-sized financial institutions will be actively implemented. Second, adhere to the centralized and unified leadership of the CPC Central Committee over financial work, and bring all financial activities under supervision and control in accordance with the law. Third, from a financial power to a strong country, finance should provide high-quality services for the real economy, reduce financing costs, and dredge funding channels. Fourth, deepen the supply-side structural reform of the financial sector, improve the positioning of institutions, support large state-owned financial institutions to become better and stronger, and cultivate first-class investment banks and investment institutions. Fifth, the focus of capital market reform will gradually shift to the investment side. We look forward to the successful convening of the Third Plenary Session of the 20th CPC Central Committee and provide a clear blueprint and guidance.
▍Opening up: focus on stabilizing the fundamentals of foreign trade and clearly respond to the core concerns of foreign investment.
In order to further stabilize the environment for foreign trade and foreign investment, the meeting put forward the following three measures.
First, it is necessary to accelerate the cultivation of new momentum for foreign trade. In recent years, the mainland's export structure has been continuously optimized, the proportion of high-tech products in exports has continued to increase, and the proportion of primary products and labor-intensive products has generally declined. In the future, the bright spots in the fields of intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports are worth paying attention to, and more Chinese enterprises are also expected to form a virtuous circle of production and consumption markets overseas.
Second, it is necessary to improve the level of institutional opening-up. It is expected that the market access of the service industry will continue to be relaxed, in line with international high-standard economic and trade rules, and the key concerns of foreign investment, such as cross-border data flow, equal participation in government procurement, and foreign personnel coming to China, are expected to be optimized.
Third, we must promote the construction of the "Belt and Road". The idea of the construction of the "Belt and Road" has transitioned from the "freehand" of the overall layout to the "fine brushwork" of meticulous and delicate. The follow-up cooperation in the six major fields of overseas engineering, new energy and power equipment, agriculture, energy and chemical industry, communications, and automobiles in the "Belt and Road" is worth paying attention to.
▍Green and low-carbon: We will further promote the construction of ecological civilization and create a new green and low-carbon highland.
On the one hand, the meeting proposed to actively and steadily promote carbon peak and carbon neutrality, and accelerate the construction of a green and low-carbon supply chain, which is more positive and enterprising than the 2022 Central Economic Work Conference. At the same time, it is required to speed up the construction of a new energy system and improve the ability to guarantee the security of energy resources. It is expected that the carbon neutrality policy will be based on ensuring energy security, first establish and then break, transform the extensive use of coal, accelerate the energy conservation and intensive transformation of oil and gas, and promote the peak regulation of new energy, and at the same time promote the construction of new power systems and improve the dispatching capacity of the power system.
On the other hand, the meeting proposed to improve the value realization mechanism of ecological products. Ecological products mainly include natural resources such as clean air, clean water, and safe soil, as well as ecosystem regulation services such as carbon dioxide absorption, water conservation, and wind prevention and sand fixation. The mainland will realize the value realization mechanism of ecological products through natural resource ownership confirmation and registration, value accounting, and rights and interests trading. It is expected that the industries covered by the carbon market will usher in expansion, and the steel, electrolytic aluminum and cement industries are expected to be included in the national carbon trading in 2024, while the first batch of new CCER projects are expected to be declared in the near future, and the methodology may be updated batch by batch.
3. China Securities Securities
Macroeconomics: Focus on economic construction, stabilize quantity and improve quality at the same time - the Central Economic Work Conference Xi the body
(Huang Wentao, Wang Zexuan)
Core viewpoint: The Central Economic Work Conference not only affirmed the overall economic recovery this year, but also clearly pointed out the difficulties and challenges such as insufficient demand, overcapacity in some industries, and weak social expectations, and required to enhance the sense of worry, effectively respond to and solve these problems, pay attention to grasp and handle the relationship between speed and quality, and focus on the central work of economic construction. It is necessary to come up with more policies that are conducive to stabilizing expectations, growth, and employment, and enhance the consistency of policy orientation, ensure that efforts are made in the same direction, and generally look at the increase in the weight of stable growth, and counter-cyclical regulation is expected to increase moderately. At the same time, next year, we will continue to coordinate the expansion of domestic demand and deepen the supply-side structural reform, and jointly promote high-quality development at both the supply and demand ends. A number of major reform measures will also be implemented, and private enterprises are expected to usher in a new round of reform dividends. The expression of actively and prudently mitigating real estate risks is also more positive than in the past, and the promotion of risk mitigation work at the industry level is expected to increase. On the whole, we believe that the economy will stabilize and improve quality next year, and the situation is expected to be better than this year.
affair
The Central Economic Work Conference was held in Beijing from December 11 to 12. In his important speech, Xi Jinping comprehensively summarized the economic work in 2023, deeply analyzed the current economic situation, and systematically deployed the economic work in 2024.
Brief comment on
1. Situation judgment: insufficient demand and weak expectations require effective response and resolution
Judging from the content of the communique, the central authorities' analysis and judgment of the economic situation are very accurate.
First, it is proposed that "this year is a year of economic recovery and development after the three-year new crown epidemic prevention and control transition" and "the mainland's economy is picking up", judging from the data, it is expected that the annual GDP will increase by more than 5% year-on-year, and the average growth rate in two years will be more than 4%, compared with last year's growth rate of 3% is undoubtedly a recovery, rebound, and improvement. Of course, the recovery is not enough, and there is still a gap compared to the potential level. Second, in view of the insufficient recovery, it is pointed out that "to further promote the economic recovery for the better, we need to overcome some difficulties and challenges, mainly due to insufficient effective demand, overcapacity in some industries, weak social expectations, and many hidden risks, and there are blockages in the domestic cycle, and the complexity, severity and uncertainty of the external environment are rising", and have a clear understanding of the difference between "macro data and micro feelings", and require "to enhance the sense of worry, effectively respond to and solve these problems" and "effectively enhance economic vitality" Focusing on the central task of economic construction," "making use of all favorable conditions, getting a good grasp of doing what is right, and doing more if possible," and "paying attention to grasping and handling the relationship between speed and quality." Therefore, next year's work on stimulating demand and boosting expectations will be intensified to ensure the realization of the central government's requirements of "consolidating and enhancing the economic recovery momentum", and the economic situation next year will be better than this year, and the total economic output will further move closer to the potential level, and the economic growth target of about 5% can be completed throughout the year.
2. Macro policies: Countercyclical policies are expected to be moderately strengthened, with more coordination and cooperation in the same direction
The first of the meeting proposed that next year it is necessary to "produce more policies that are conducive to stabilizing expectations, stabilizing growth, and stabilizing employment"; second, it is proposed to "strengthen the counter-cyclical and cross-cyclical adjustment of macroeconomic policies", which puts the counter-cyclical before the cross-cyclical compared with the proposals on other occasions, so the weight of policy considerations may be appropriately tilted towards the counter-cyclical; the third is to "enhance the consistency of macroeconomic policy orientation" and "strengthen the innovation and coordination of policy tools". The fundamentals of weak expectations undoubtedly refer to the fact that all kinds of policies should move closer to the direction of economic recovery, and policies that are not conducive to stabilizing expectations and growth should be consciously corrected, and it is also pointed out that it is also necessary to "include non-economic policies in the consistency assessment of macro policy orientation, strengthen policy coordination, ensure that the same direction is forced, form a joint force, strengthen economic propaganda and public opinion guidance, and sing the bright theory of China's economy." On the whole, from the perspective of the general direction, the intensity of macroeconomic policy support for the economy next year is expected to be moderately greater than that of this year.
Fiscal policy requires "moderate strengthening" and "making good use of fiscal policy space", but also requires "enhancing fiscal sustainability", so in the context of this year's new trillion national bonds and the deficit rate increased to 3.8%, next year's measures to stabilize fiscal growth are still expected to increase moderately compared with normal years, and it is expected that the fiscal policy mix in 2024 may appear in the form of "about 3.5% deficit rate + more than 3.8 trillion new special bonds". In addition, under the requirement of "reasonably expanding the scope of local government special bonds used as capital", the scale of issuance of special bonds for urban village reconstruction can be focused on next year.
In addition to the requirements of "flexible and moderate, accurate and effective" and "revitalizing the stock and improving efficiency", the monetary policy needs to appropriately strengthen the scale of social financing and money supply to promote the recovery of demand and boost the price level in view of the current domestic price operation pressure, CPI and PPI both falling, and the price expectation target at the beginning of the year.
3. Focusing on high-quality development, we will coordinate the expansion of domestic demand and deepen supply-side structural reforms
High-quality development has been the theme of the mainland's economic and social development for a long time. The meeting emphasized that next year, we should "be proactive in changing the mode, adjusting the structure, improving the quality, and increasing the efficiency", "we must focus on promoting high-quality development, highlight the key points, grasp the key, and do a solid job in economic work", "we must adhere to deepening the supply-side structural reform and focusing on expanding effective demand".
On the supply side, it is required to "lead the construction of a modern industrial system with scientific and technological innovation", with special emphasis on "using disruptive technologies and cutting-edge technologies to give birth to new industries, new models, new kinetic energy, and develop new quality productivity", and clearly put forward "building a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, opening up new tracks for future industries such as quantum and life sciences, widely applying digital intelligence technology and green technology, and accelerating the transformation and upgrading of traditional industries" and "implementing high-quality development actions for key industrial chains in the manufacturing industry" Vigorously promote new industrialization, develop the digital economy, and accelerate the development of artificial intelligence" and "encourage the development of venture capital and equity investment", and the mainland's modern industrial construction and scientific and technological innovation are expected to achieve new progress and breakthroughs. In addition, the meeting also proposed to "optimize the layout of major productive forces and strengthen the construction of the national strategic hinterland", we believe that on the one hand, from the perspective of industrial security, on the other hand, to promote the coordinated development of the region with industry, of course, it is necessary to combine the factor endowment of the central and western regions, rather than a simple inefficient transfer of industries.
On the demand side, we should focus on "stimulating potential consumption, expanding profitable investment, and forming a virtuous circle in which consumption and investment promote each other". It focuses on cultivating and developing new types of consumption such as digital consumption, green consumption, healthy consumption, smart home, cultural and entertainment tourism, sports events, and domestic "trendy products". In traditional consumption, it is emphasized to boost bulk consumption such as new energy vehicles and electronic products. In addition, next year, it will also "promote large-scale equipment renewal and consumer goods trade-in" with the improvement of technology, energy consumption, emissions and other standards as the traction. On the investment side, the government will focus on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction, as well as supporting social capital to participate in new infrastructure by improving investment and financing mechanisms.
Fourth, the reform of key areas is expected to make progress, and private enterprises are expected to usher in a new round of reform dividends
In addition to the reform of state-owned enterprises, it was clearly proposed to "promote the development and growth of private enterprises, and implement a number of measures in terms of market access, factor acquisition, fair law enforcement, and protection of rights and interests." Promote the development of small and medium-sized enterprises. We should speed up the construction of a unified national market and strive to eliminate various forms of local protection and market segmentation. Effectively reduce the logistics cost of the whole society". At present, private enterprises are facing unfair competition in the field of market and factor acquisition, resulting in a loss of efficiency, and facing uncertainty in regulatory enforcement and protection of rights and interests, resulting in a weakening of confidence. If the new batch of measures are implemented, it will promote fair competition, establish a better business environment, and let private entrepreneurs eat long-term "reassurance", and the characteristics of private enterprises "56789" determine the vitality of private enterprises, if further released, it will bring a new round of reform-driven growth dividends.
In terms of high-level opening-up, "expanding intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports" and "supporting the implementation of the eight actions of high-quality Belt and Road cooperation" will enhance the resilience of mainland trade in the context of a slowdown in the world economy. Market access for service industries such as telecommunications and medical care is also required to be further relaxed, which is conducive to the cultivation of new economic growth points in the mainland, and at the same time promotes the improvement of the high-quality development level of its own service industry.
5. Continue to emphasize the prevention and resolution of risks in key areas, and the expression of real estate risk resolution is more positive
The meeting, as always, emphasized that "continuous and effective prevention and resolution of risks in key areas" and "overall resolution of risks in real estate, local debt, small and medium-sized financial institutions, etc." However, the "active and prudent resolution of real estate risks" adopted this time is more positive than last year's Central Economic Work Conference "effectively prevent and resolve the risks of high-quality head real estate enterprises", and the promotion of risk management at the entire industry level is expected to increase, first, for the financing of private real estate enterprises, we expect that relevant supporting policies and regulations are expected to be introduced in the future, clarify the responsibilities of commercial banks, and promote the effective increase in support for the reasonable financing of private real estate enterprises; the second is to accelerate the transformation of urban villages, affordable housing and other "three major projects" Construction, monetized resettlement in the transformation of urban villages, and the considerable proportion of existing commercial housing in affordable housing are all conducive to the resolution of risks in the real estate industry.
In terms of local debt risk resolution, it is proposed to "coordinate the resolution of local debt risks and stable development, and the major economic provinces should really take the lead and make greater contributions to the stabilization of the national economy", indicating that the central government is also concerned about the potential impact on the future growth capacity of regions with high debt and weak economy, so it is proposed to rely more on large economic provinces to play a role in stabilizing growth.
Risk Warning:
The sustainability of the consumption recovery remains uncertain. Since the beginning of this year, household consumption has begun to pick up, but it has not yet reached the normal growth rate before the epidemic. If consumption is sluggish again, the momentum of economic recovery will be significantly weakened.
There is still uncertainty about whether the property sector can continue to improve. This round of real estate downward cycle has lasted for a long time, and there is a short-term warming trend, but many indicators are still negative growth, and it remains to be seen whether the future can maintain a warming trend.
The impact of tighter monetary policy in Europe and the United States may be more than expected, dragging down global economic growth and asset price performance.
Uncertainty remains over geopolitical conflicts, disrupting global growth prospects and market risk appetite.
Stabilize expectations and re-implement - the Central Economic Work Conference Xi from a strategic perspective
(Chen Guo, Yao Haotian)
Core viewpoint: Continue the tone of the Politburo meeting of "seeking progress while maintaining stability, promoting stability with progress, and establishing first and then breaking". The meeting emphasized the need to enhance the consistency of macroeconomic policy orientation, emphasize the coordination of policies, and prevent the fallacy of synthesis. Next year, the policy will come up with more measures conducive to stabilizing expectations, growth, and employment, and we will continue to implement a proactive fiscal policy and a prudent monetary policy. The purpose of the "three stability" is to continuously consolidate the foundation of stability and improvement, of which stable expectations are in the first place. In terms of monetary policy, we will maintain a prudent monetary policy, which is flexible, moderate, precise and effective, and ensures that liquidity is reasonable and abundant. The meeting focused on three major risks: real estate, local debt, and small and medium-sized financial institutions, and the new debt measures are expected to provide support for mitigating risks. Real estate care policies are expected to continue to be introduced to stabilize the financing and economic momentum of real estate enterprises. In terms of allocation ideas, the pro-cyclical sector is expected to usher in a valuation repair market, and the real estate chain may have opportunities to exceed expectations.
Continue the tone of the Politburo meeting, emphasizing consistency and expectations
The meeting said that "it is necessary to enhance the consistency of macroeconomic policy orientation" and emphasized the mutual coordination of policies. The Central Economic Work Conference was held in Beijing from December 11th to December 12th, compared with the previous meeting of the Political Bureau of the CPC Central Committee, the meeting continued the meeting to continue the tone of the Politburo meeting of "seeking progress in stability, promoting stability with progress, and establishing first and then breaking", "seeking progress in stability" emphasizes the consolidation of the economic repair trend in stability and improvement, "promoting stability with progress" emphasizes the enthusiasm of policy objectives, and "establishing first and then breaking" emphasizes the need to ensure the stability of policies. The meeting said that "it is necessary to enhance the consistency of macroeconomic policy orientation", emphasizing the mutual coordination of policies and preventing the fallacy of synthesis.
In terms of incremental information, it is pointed out that next year it is necessary to "have more policies that are conducive to stabilizing expectations, growth, and employment." "Actively forge ahead in changing the mode, adjusting the structure, improving quality, and increasing efficiency", it is clear that it is necessary to continue to implement a proactive fiscal policy and a prudent monetary policy, and strengthen the innovation and coordination of policy tools. In the past two years, economic growth has weakened, A-shares have been bearish, and the potential growth rate of the mainland has downside risks under the impact of domestic and foreign demand. Although the economic data has recovered somewhat, it is still affected by the scarring effect of the epidemic, and various economic sectors have maintained a balance sheet contraction trend, with a two-year average GDP growth rate of about 4.1%, and market confidence has not recovered enough. The meeting stressed that the purpose of the "three stability" is to "continuously consolidate the foundation for stability and improvement".
Stable expectations are ranked first, emphasizing the guidance of public opinion. Compared with previous policy statements, this meeting significantly increased the response to social concerns. At present, the weak social expectations are due to the difficulties and challenges facing the economy, and the lack of investment and consumer confidence has caused concerns about the "balance sheet recession" of the household sector. The meeting clearly pointed out that it is necessary to "strengthen economic propaganda and public opinion guidance, and sing the theory of China's economic brightness".
In terms of monetary policy, the Central Economic Work Conference set the tone for next year's monetary policy as "a prudent monetary policy should be flexible, moderate, precise and effective." Liquidity should be kept reasonably abundant, and the scale of social financing and money supply should be commensurate with the expected targets of economic growth and price levels. In order to make up for the gap in aggregate social demand and avoid a sustained economic downturn, the policy is moving towards fiscal easing, the core is: the central government leverage, local government debt resolution, urban village transformation, we expect that fiscal easing will cooperate with monetary easing, reversing the market's pessimistic expectations for the economy and the market.
Next year, real estate may be improved, and new bonds are expected to land
Real estate care policies are expected to continue to be introduced. Since the second half of 21, real estate has entered a downward cycle. The policy is expected to have new measures to stabilize the financing of real estate enterprises and stabilize the economy. We believe that the situation of real estate enterprises due to the implementation of the real estate policy of "breaking before it is established", financing restrictions and sales decline is expected to improve next year, so that the real estate industry can achieve a stable landing; Measures such as lowering mortgage interest rates and down payment ratios, and relaxing restrictions on home purchases may be gradually increased.
In order to achieve the purpose of mitigating risks, the new debt measures are expected to be implemented. "Preventing risks" and "breaking through blockages" may become the focus of next year's work, and the Central Economic Work Conference expressed concern for three major risks: real estate, local debt, and small and medium-sized financial institutions. Recently, the meeting has intensively expressed its support for financial institutions to help real estate enterprises with financing, and in the near future, major banks have taken the lead in docking the financing needs of real estate enterprises, and the follow-up observation of the implementation situation.
The industry cultivates new momentum and reiterates "green and low-carbon"
Modernizing the industrial system, expanding domestic demand, and deepening reform are the key points. The meeting pointed out the product renewal in the expansion of domestic demand, and proposed to "promote large-scale equipment renewal and consumer goods trade-in", which means that the scale of manufacturing investment will remain high next year. In addition, the meeting involved the aspect of modern industry, the incremental information is significant, the meeting pointed out that it is necessary to promote industrial innovation with scientific and technological innovation, especially to promote new industries, new models, new kinetic energy with disruptive technology and cutting-edge technology, and develop new quality productivity. We will build a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, open up new tracks for future industries such as quantum and life sciences, widely apply digital intelligence technology and green technology, and accelerate the transformation and upgrading of traditional industries. Strengthen applied basic research and cutting-edge research, and strengthen the main position of enterprises in scientific and technological innovation.
The breakthrough point for expanding domestic demand has become more prominent. The field of traditional consumer goods will also usher in a new generation. The meeting emphasized that it is necessary to stimulate potential consumption, expand effective investment, and form a virtuous circle in which consumption and investment promote each other. 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 optimize the consumption environment. It is necessary to improve technology, energy consumption, emissions and other standards as the traction, and promote large-scale equipment renewal and consumer goods trade-in. We will give full play to the driving amplification effect, focus on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction, and cultivate new momentum for development.
Promote opening up to the outside world, and go overseas + investment access is the general direction. The meeting stressed the need to accelerate the cultivation of new momentum for foreign trade and consolidate the basic market of foreign trade and foreign investment. In terms of incremental information, we will expand intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports. We will relax market access for service industries such as telecommunications and medical care, benchmark against international high-standard economic and trade rules, earnestly solve issues such as cross-border data flow and equal participation in government procurement, continue to build a market-oriented, law-based and international first-class business environment, and build the "Invest in China" brand. Effectively break through the blockages for foreign personnel to come to China for business, study, Xi, and tourism. We will do a good job in supporting the implementation of the eight high-quality Belt and Road Initiatives, and coordinate the promotion of major landmark projects and "small but beautiful" livelihood projects.
The modern industry part recalls "green and low-carbon", and the carbon trading and environmental protection industries may welcome opportunities. After many years of the meeting, the construction of the modern industrial system mentioned "green and low-carbon" again, and in the part of "in-depth promotion of ecological civilization construction and green and low-carbon development", there was also incremental information to further promote the construction of ecological civilization and green and low-carbon development. Build a Beautiful China Pilot Zone and create a highland for green and low-carbon development. Actively and prudently promote carbon peak and carbon neutrality, and accelerate the construction of a green and low-carbon supply chain. Continue to fight the battle of blue sky, clear water and pure land. Improve the value realization mechanism of ecological products. Implement the reform of the collective forest tenure system. Accelerate the construction of a new energy system, strengthen resource conservation, intensive recycling, and efficient utilization, and improve the ability to ensure the security of energy resources.
Risk Warning:
(1) Geopolitical risks. If the relationship between China and the United States is not properly managed, it may lead to the intensification of confrontation between China and the United States in the political, military, scientific and technological, and diplomatic fields. At the same time, geopolitical hotspots such as the Russia-Ukraine conflict and the Middle East issue may face the risk of deterioration, which could adversely affect the market if a crisis occurs.
(2) Overseas Fed tightening is more than expected. If the U.S. economy continues to remain resilient and economic data such as the labor market and retail sales perform well, then the risk of recession in the U.S. may face a revaluation, and at the same time, the risk of inflation will also face a rebound.
(3) The implementation of domestic economic recovery or stable growth policies is less effective than expected. If the follow-up domestic real estate sales, investment and other data are difficult to recover, the long-term accumulation of urban investment debt repayment risks will face fermentation, and the economic recovery will eventually be falsified, then the overall market trend will be under pressure, and overly optimistic pricing expectations will face revision.
4. Huatai Securities
high-quality development as the goal; Structural Policies as the Starting Point - Comments on the 2023 Central Economic Work Conference
(Yi Xiang)
Key takeaways
According to Xinhua News Agency, the Central Economic Work Conference was held in Beijing from December 11 to December 12. President Xi Jinping attended the meeting and delivered an important speech, comprehensively summarizing the economic work in 2023 and making arrangements for the economic work in 2024.
Overview: As we analyzed in "The Growth Target is Positive, Fiscal Policy Leaves Room" (2023/12/10), the 2023 Central Economic Work Conference basically continued the keynote of the Politburo meeting on December 8 to "adhere to the general tone of the work of seeking progress while maintaining stability, and consolidate and strengthen the positive momentum of economic recovery". At the same time, this meeting emphasized the goal of high-quality development, and more emphasis was placed on structural policies in counter-cyclical regulation and control policies, including structural monetary policy, optimization of fiscal expenditure structure, support for strategic emerging industries, etc., while risk prevention in the real estate and financial fields is still the primary task.
Specifically, compared with previous years, the following adjustments at this year's Central Economic Work Conference are noteworthy (Chart 1):
1. Emphasize high-quality development and seek progress while maintaining stability. The meeting made it clear that high-quality development is the focus of work, rather than simply maintaining growth in "quantity". For example, "we have deepened the understanding of the regularity of doing a good job in economic work in the new era, and we must take adhering to high-quality development as the last word in the new era", "coordinate high-quality development and high-level security", and further clarify that economic development should take high quality as the premise and goal. In addition, the general tone of economic work continued the expression of the December Politburo meeting of "seeking progress while maintaining stability, promoting stability through progress, and establishing first and then breaking", indicating that it is necessary to "consolidate and enhance the upward trend of the economy, and continue to promote the economy to achieve effective qualitative improvement and reasonable quantitative growth".
2. The main focus of macroeconomic regulation and control is structural policy, rather than large-scale expansionary aggregate policy: the meeting proposed to "intensify macroeconomic regulation and control", but at the same time proposed to strengthen the combination of counter-cyclical and cross-cyclical adjustment. That is, aggregate-level policies need to take into account current and long-term development, as well as debt, fiscal and environmental sustainability. The overall scale of stimulus policies is likely to be limited, and the "structural policy as the main focus" orientation runs through the following areas:
- Monetary policy: Remain steady. Emphasizing "flexibility, moderation, precision and effectiveness", structural monetary policy may play a greater role, and comprehensive financing costs will be stable and falling. On the one hand, compared with last year's "precise and powerful", the expression of this meeting may indicate that there are more requirements for the effectiveness of monetary policy, combined with the speech of Pan Gongsheng, governor of the central bank on December 2, mentioned that the monetary policy "manages the general monetary gate", indicating that the monetary policy may still maintain the general tone of not lifting. On the other hand, the meeting proposed to "promote the steady decline of social comprehensive financing costs", and it is expected that on the one hand, monetary policy will provide greater preferential interest rate support for key support areas, such as chemical bonds, real estate three major projects, high-tech fields, green finance, etc. The policy rate adjustment will take into account the reduction of financing costs and the maintenance of reasonable interest rate spreads of banks, and interest rate cuts are more cautious, but will continue to follow the trend, and at the same time, monetary policy may lead to further reduction in deposit rates. In addition, more structural adjustments may be adopted, such as further increasing support for scientific and technological innovation, green transformation, and inclusive small and micro digital economy, reflecting the dual functions of monetary policy tools in terms of total amount and structure, revitalizing stocks and improving efficiency.
- Fiscal policy: Emphasizing "moderate strengthening, improving quality and efficiency", reflecting that the fiscal should take into account fiscal sustainability while stabilizing growth, and focus on optimizing expenditures and other structural adjustments. In terms of the tone, it emphasizes that "it is necessary to make good use of the fiscal policy space and improve the financial efficiency and policy effect"; in terms of optimizing the expenditure structure, it is proposed to "strengthen the financial guarantee of major national strategic tasks, implement the structural tax and fee reduction policies, focus on supporting scientific and technological innovation and the development of manufacturing industry, and reasonably expand the scope of local government special bonds used as capital". Generally speaking, structural policy adjustments are still the mainstay. In terms of the total amount, judging from expressions such as "strict financial and economic discipline, enhancing fiscal sustainability, and party and government organs should Xi living a tight life", the scope and space for overall fiscal easing may still be relatively limited - the central budget deficit may not exceed this year's level.
- Policies to expand domestic demand: Emphasizing "stimulating potential consumption and expanding effective investment" is in line with the requirements of high-quality development. On the one hand, the "potential" of consumption shows that it does not advocate advanced consumption and excessive consumption, but stabilizes and expands traditional consumption, bulk consumption, and cultivates and expands new consumption; on the other hand, the "efficiency" of investment also indicates that while expanding investment, it is necessary to avoid the problem of overcapacity caused by large-scale investment stimulus, and put forward requirements for the rate of return on funds, and for the investment field, it is also proposed to "focus on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction", showing structural policy support.
- Industrial policy: Improve the new national system to support scientific and technological innovation and the construction of a modern industrial system. Among the nine key tasks next year, the first one mentioned is "scientific and technological innovation leads the construction of a modern industrial system", especially the use of disruptive technologies and cutting-edge technologies to give birth to new industries, new models, new kinetic energy, and the development of new quality productivity. Key supported industries include new industrialization, digital economy, artificial intelligence, biomanufacturing, commercial aerospace, low-altitude economy, quantum, life sciences, digital intelligence technology, green technology, etc.
3. Policies related to real estate and finance are the top priority to prevent risks. The work in the financial sector will implement the spirit of the Central Financial Work Conference, including cracking down on illegal financial activities. In the field of real estate, the meeting mentioned that the reasonable financing needs of real estate enterprises under different ownership systems should be met without discrimination, and it was clearly proposed to accelerate the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes, and the transformation of urban villages.
4. At the incremental policy level, the Economic Work Conference focused on the construction of key high-tech industries, the structural expansion of (potential) consumption and (returnable) investment demand, the structural improvement of the efficiency of fiscal expenditure (including measures such as the expansion of the scope of use of special bonds), and the structural promotion of the "three major project construction" of real estate, specifically:
a) The trade-in of consumption and the upgrading of equipment have brought about an increase in domestic demand. The meeting mentioned that "it is necessary to promote large-scale equipment renewal and consumer goods trade-in with the improvement of technology, energy consumption, emission and other standards." moderately expand the trade-in of consumption". In addition to traditional consumption and bulk consumption (such as home appliances and electric vehicles), new growth points emerging at the consumption level this year are also expected to bring incremental growth - such as digital consumption, green consumption, health consumption, smart home, entertainment and tourism, sports events, domestic "trendy products", etc.
b) Moderate expansion of fiscal policy, with a focus on supporting scientific and technological innovation and the development of the manufacturing industry. For example, expanding the scope of local government special bonds to be used as capital and strengthening the financial guarantee of major national strategic tasks are expected to moderately expand fiscal strength in key areas.
c) The acceleration of the "three major projects" may partially hedge the downward risk pressure of the real estate cycle, and monetary and fiscal policies may be supported accordingly, and the meeting also mentioned "improving the relevant basic systems and accelerating the construction of a new model of real estate development". Up to now, on November 22, Guangzhou for the first time for the transformation of urban villages to carry out legislative work, next year in various localities to formulate supporting policies, the preparation of transformation project plans and other work is expected to accelerate.
d) In the field of scientific and technological innovation and sustainable development, investment may be strengthened and vigorously promoted. The meeting mentioned that "the resilience and security of the supply chain should be improved for the key industrial chains of the manufacturing industry", and corresponding support may also be provided for a number of strategic emerging industries, new tracks of future industries, and the transformation and upgrading of traditional industries.
On the whole, the meeting's deployment of next year's economic work is mainly based on high-quality development as the primary goal, and structural policies as the starting point, and the degree of matching between growth targets and policy strength may still become the focus of the market's follow-up close attention. We will continue to track month-on-month changes in monetary, social and fiscal deficits to gauge the strength of policy implementation at the "aggregate" level. At the same time, in the current macro environment, high-frequency indicators related to property sales, developers' cash flows, net issuance of government bonds, and infrastructure investment and new construction are also important observation points.
Risk warning: the pressure of real estate deleveraging exceeds expectations, and the implementation of growth and counter-cyclical adjustment policies is less than expected.
5. Guotai Junan Securities
Towards an accelerated period of high-quality development and a big year of reform - comments on the 2023 Central Economic Work Conference
(Dong Qi, Huang Runan, Liu Jiangfeng)
summary
1. The meeting set a positive tone for the economy, emphasizing expectation management and confidence building. The overall tone of economic work is more positive: first, the incremental expression of "promoting stability with progress, first establishing and then breaking", the core of which is a strategy aimed at dealing with risk issues such as real estate and debt. In the future, the economy will be moderately improved to alleviate internal pressure, and the pace of "breaking" of real estate and debt risks must be controlled. The follow-up risk-based policy will be more active. The second is the emphasis on high-quality development, which means that industrial policies related to high-quality development will be stronger in 2024. The meeting made it clear that the promotion of Chinese-style modernization must be regarded as the most important politics. Third, macroeconomic policy coordination and forward-looking improvement. On the one hand, the meeting called for non-economic policies to be included in the assessment of the coherence of macroeconomic policy orientations. On the other hand, the policy force is forward-loaded and the layout is forward-looking, which means that the policy environment will maintain the current heat, or even heat up slightly.
2. Moderate fiscal strengthening, monetary cost reduction. The meeting reaffirmed that the fiscal policy should be "moderately strengthened", and the scale of the deficit is expected to increase, and at the same time emphasized the "optimization of the expenditure structure", and it is expected that the fiscal will be inclined to the modern industrial system, agriculture, rural areas, urban-rural integration, green and low-carbon, people's livelihood and other fields in 24 years; Promote the steady decline of social comprehensive financing costs", it is expected that the cost of deposit and loan interest rates is expected to be further reduced in 24 years, and the downward cycle of China's real interest rates has just begun.
3. Form a virtuous circle in which consumption and investment promote each other. The meeting proposed to "stimulate potential consumption and expand profitable investment". From the point of view of consumption, cultivate new consumption, steadily expand traditional consumption, increase the income of urban and rural residents, and also mention the "old for new" consumer goods, it is expected that targeted policies will be introduced in the field of traditional and bulk consumption such as household appliances and automobiles; from the perspective of investment, the key direction is large-scale equipment renewal (general, special equipment update), it is expected that the growth rate of manufacturing investment will still maintain a high growth rate, and the new mechanism of government and social capital cooperation will be implemented in the institutional mechanism.
4. The modern industrial system takes scientific and technological innovation as the main line, and strengthens the chain and supplements the chain and new industrialization as the starting point. Accelerating the construction of a modern industrial system is at the top of the next year's work, one is to highlight scientific and technological innovation; the second is to reiterate the manufacturing industry to strengthen the chain and supplement the chain, highlight the focus on "security", and combine the construction of a modern industrial system with the prevention and resolution of risks; the third is to further refine the expression of the digital economy, emphasizing the artificial intelligence industry, and requiring the support of financial institutions. In addition, it also enriches the connotation of green and low-carbon development.
5. Deepen the reform in key areas, and 24 years is expected to become a big year for reform. Specifically, there are four areas: first, the reform of state-owned enterprises focuses on improving the core competitiveness; second, the implementation of policies to support and encourage private enterprises, and the business environment is expected to be further improved; third, accelerating the construction of a unified national market, reducing logistics costs is the breakthrough point; fourth, planning a new round of fiscal and taxation system reform, implementing the reform of the financial system, in the context of the unsustainable local land finance, reconstructing the fiscal and taxation relationship between the central government and the local government is a top priority.
6. Prevent and resolve risks in key areas, and the rhythm will be more prudent. Key areas include real estate, local debt, and small and medium-sized financial institutions. In terms of real estate risk resolution, it is emphasized that "active and prudent" and reiterates the "three major projects" of "equal treatment"; in terms of local debt risk resolution, it is necessary to "coordinate the resolution of local debt risks and stable development", and it is expected that the debt reduction work will not have a significant impact on local economic construction and people's livelihood security, and the complete clearance of risks depends on the implementation of a new round of fiscal and taxation system reform plan.
Risk warning: The recovery of endogenous economic momentum is less than expected, the exposure of risks in key areas is accelerating, and overseas political and economic risks are heating up.
The full report is available from your sales or analyst counterpart, and some of the reports include:
1. General understanding of the Central Economic Work Conference
The draft of this meeting revealed three characteristics, one is that the economic work field attaches great importance to the implementation of high-quality development in 2024. Second, the economic tasks in 2024 are more numerous, and the policy benefits are comprehensive, compared with the five major tasks in 2022, this meeting put forward nine major tasks. Third, a large number of incremental expressions in the draft mostly involve medium and long-term issues, which means that the big year of reform is coming.
From the Politburo meeting in December to the current Central Economic Work Conference, it can be seen that the central government has set a positive tone for the current economy, and at the same time, it also expresses difficulties and challenges such as "insufficient effective demand, overcapacity in some industries, weak social expectations, still many risks and hidden dangers, blockages in the domestic circulation, and the complexity and severity of the external environment". In particular, the emphasis on enhancing confidence and confidence and singing the bright future of China's economy shows that the central government attaches great importance to the guidance of economic expectations, which will be continuously reflected in the operation of the capital market and economic policy signals in 2024.
Overall, there are three points worth noting in setting the tone for economic work:
✔ The first is the incremental expression of "promoting stability with progress, first establishing and then breaking", and we understand that the core logic is still a strategy to deal with risk issues such as real estate and debt. In the future, the economy will be moderately improved to alleviate internal pressure, and the pace of "breaking" of real estate and debt risks must be controlled. This means that the follow-up risk-based policy will be more active, but the elasticity of fundamentals and earnings will not be large.
✔ The second is the emphasis on Chinese-style modernization and high-quality development, which means that industrial policies related to high-quality development will be stronger and more optimistic in 2024. Compared to the 2022 conference, the most striking feature of this press release is the significant increase in the frequency of words "high quality". It is clearly stated that the promotion of Chinese-style modernization must be regarded as the biggest politics. Since the beginning of this year, the three-year action plans for many high-quality related industries (such as the metaverse, green aviation, emergency equipment, and computing infrastructure) have been released in the third and fourth quarters, and we believe that the promotion of industrial policies will be significantly accelerated in the future.
✔ Third, macroeconomic policy coordination and forward-looking improvement. On the one hand, the meeting called for non-economic policies to be included in the coherence assessment of macro policy orientation, and we believe that in the coming period, the policies of various sectors will uniformly serve the goals of economic development and scientific and technological innovation. On the other hand, the policy force is forward-loaded and the layout is forward-looking, which means that after the beginning of the year, the policy environment will maintain the current heat, or even heat up slightly.
From the perspective of the nine specific tasks, we believe that economic policies in 2024 will be very diverse, including development, security, and reform, and a large number of policies will continue to be implemented. From an incremental perspective, we believe there are a few things to focus on:
✔ First of all, the construction of a modern industrial system led by scientific and technological innovation ranked first. This means that the promotion of industrial policies such as new industrialization, digital economy, and artificial intelligence will be relatively strong in 2024. Self-reliance and self-reliance in science and technology, as well as equipment manufacturing and data elements under the construction of the industrial system, will still become the focus of policies.
✔ Second, efforts to expand domestic demand ranked second. The core is to improve domestic consumption and investment, expand profitable investment, form a virtuous circle in which consumption and investment promote each other, cultivate and expand new types of consumption, and actively cultivate new consumption growth points. In the next year, the increase in the field of domestic demand will be mainly concentrated in two areas: first, large-scale equipment renewal, mainly in the direction represented by general and special equipment, and the capital expenditure of enterprises will be improved to a certain extent. The second is the trade-in of consumer goods, mainly the promotion of preferential policies for the consumption of large items such as household appliances and automobiles.
✔ The most important point is to deepen the reform of key areas, the meeting mentioned the reform of state-owned enterprises, the construction of a unified market (to reduce the logistics cost of the whole society) and a new round of fiscal and taxation system reform, financial system reform. The background of the reform is the weakening of the land finance model, and the transformation of land finance in 2024 will continue to catalyze the changes in the central state-owned enterprises and the central and local fiscal and taxation mechanisms, especially the direction of the Third Plenum will be crucial to the direction of the above-mentioned medium- and long-term issues.
✔ Other tasks include opening up to the outside world (cultivating new momentum for foreign trade, improving the business environment, and building high-quality Belt and Road cooperation), risk prevention (real estate, local debt, small and medium-sized financial institutions, etc., accelerating the construction of the three major projects, and accelerating the construction of a new real estate development model), agriculture, agriculture and rural areas (rural revitalization, agricultural product supply, cultivated land occupation and compensation balance system, agricultural modernization), urban-rural integration development (two-way flow of factors, smart cities, strengthening the construction of strategic hinterland, and vigorously developing the marine economy), Ecological civilization is green and low-carbon (accelerating the construction of a new energy system and improving the ability to guarantee energy resources), people's livelihood (employment priority orientation, childbirth support system, and the development of a silver economy).
On the whole, this meeting is a meeting that comprehensively sounded the clarion call for high-quality development, a meeting that systematically and comprehensively laid out the tasks of economic work, and a meeting that emphasized deepening reform. We believe that the high-quality development policy will be implemented in a more positive way in 2024, and at the moment, the risk protection policy (real estate, debt) will continue to advance, and at the same time, greater and deeper reforms are coming.
2. Fiscal policy is moderately strengthened, and monetary policy reduces costs
The meeting reaffirmed that the fiscal policy should be "moderately strengthened", while emphasizing the "optimization of the expenditure structure", and it is expected that the fiscal will be inclined to the modern industrial system, agriculture, rural areas, urban-rural integration, green and low-carbon, people's livelihood and other fields in 24 years. The meeting continued the December Politburo meeting on the fiscal "moderate afterburner" requirements, we estimate that the deficit rate in 2024 above 3.5% to support economic growth is more efficient, do not rule out on the basis of 23 years is expected to further increase the issuance of treasury bonds; people's livelihood and other fields.
Monetary policy plays the dual functions of aggregate and structure, focusing on reducing the cost of comprehensive social financing. At the same time, the Central Financial Work Conference continued the formulation of "giving full play to the dual functions of monetary policy instruments in terms of total quantity and structure", and added "promoting the steady and moderate reduction of comprehensive social financing costs" At present, due to the low level of CPI and PPI in the mainland year-on-year, the real interest rate calculated by nominal interest rate minus inflation is high, and it is expected that the interest rate cost of deposits and loans in 24 years is expected to be further reduced on the basis of 23 years to reduce the financing cost of the whole society.
3. Create a virtuous circle in which consumption and investment reinforce each other
The meeting continued the Politburo meeting's proposal to "form a virtuous circle in which consumption and investment promote each other", and the specific measures were to "stimulate potential consumption and expand effective investment". On the one hand, the consumption upgrade on the demand side can give rise to new investment demand on the supply side, and on the other hand, high-quality investment supply can also create and lead new consumption demand.
From the perspective of consumption, measures to "stimulate potential consumption" are put forward from the supply side and the demand side: one is to "actively cultivate new consumption growth points", the second is to "stabilize and expand traditional consumption and boost bulk consumption", and the third is to "increase the income of urban and rural residents and optimize the consumption environment". At the same time, the meeting also mentioned the "trade-in" of consumer goods, and it is expected that targeted policies will be introduced in traditional and bulk consumption fields such as home appliances and automobiles.
From the perspective of investment, on the one hand, the key investment direction in 24 years is large-scale equipment renewal, and the growth rate of manufacturing investment is expected to maintain a high growth rate; on the other hand, in the investment system and mechanism, "give full play to the amplification effect of government investment, implement a new mechanism of government-private cooperation, and support social capital to participate in the construction of new infrastructure and other fields." In November 23, the National Development and Reform Commission and the Ministry of Finance issued the "Guiding Opinions on Standardizing the Implementation of the New Mechanism of Public-Private Partnership", which further regulated the PPP model, and it is expected that this cooperation mechanism will be revitalized in 24 years.
4. Modern industrial system, science and technology innovation as the main line, strong chain supplement chain and new industrialization as the starting point
The full text specifically mentions the emerging industries and new tracks of high-tech strategies such as digital economy, artificial intelligence and new energy, and there are three main changes in the relevant content compared with previous years:
The first is to highlight scientific and technological innovation. The meeting echoed the December Politburo meeting "to lead the construction of a modern industrial system with scientific and technological innovation", and pointed out the significance of scientific and technological innovation: "to promote industrial innovation with scientific and technological innovation and develop new quality productivity". It shows that scientific and technological innovation is the main line and important starting point for high-quality development, and it is expected that there will be further policy support in the field of scientific and technological innovation in 2024.
The second is to reiterate the strong chain of manufacturing and supplement the chain. The meeting continued the requirements of the 2022 meeting for the "security" of the industrial chain and the 2021 meeting for the "resilience" of the industrial chain, indicating that in the process of building a modern industrial system, attention should also be paid to preventing and resolving risks.
The third is the refinement of the expression of the digital economy. In the meeting, "developing the digital economy" followed "promoting new industrialization", indicating the important position of the digital economy in the modern industrial system. Compared with the requirements of "developing the digital economy" in previous years, this meeting highlighted the focus of the industry on the one hand, emphasizing the specific field of artificial intelligence for the first time, and on the other hand, put forward specific measures, requiring "financial institutions to increase their support for ...... and digital economy" for the first time in "giving full play to the dual functions of monetary policy tools and structure".
In addition, the meeting also enriched the connotation of green and low-carbon development and green transformation. Different from the emphasis on low-carbon environmental protection in previous years, this conference focused on three specific aspects: "improving the value realization mechanism of ecological products", "accelerating the construction of a new energy system" and "improving the ability to ensure the security of energy resources", enriching the connotation of green and low-carbon development.
5. Deepen reforms in key areas, and 24 years are expected to be a big year for reform
The meeting put "deepening the reform of key areas" in the third place of the key work in the past 24 years, second only to the modernization of the industrial system and the expansion of domestic demand. Considering the important meetings that are likely to be held in 2024, "reform" is expected to be one of the most important keywords in 2024. Specifically, there are the following focus areas:
First, the reform of state-owned enterprises focuses on improving core competitiveness. 2024 will be the year when a new round of three-year action plan for the reform of state-owned enterprises will be in full swing. The three-year action plan for the reform of state-owned enterprises from 2020 to 2022 mainly solves the problem of focusing on the main business, while the new round of reform focuses on "enhancing core functions and improving core competitiveness".
Second, support the implementation of policies to encourage private enterprises. This meeting put forward more specific requirements for the implementation of the "two unswerving". In the field of private enterprises, it is proposed to "implement a number of measures in terms of market access, access to factors, fair law enforcement, and protection of rights and interests", and the business environment is expected to be further improved.
Third, it is necessary to speed up the construction of a large unified national market. In April 2022, the "Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of a National Unified Market" was released, aiming to promote the domestic circulation and stabilize the expectations of market players. The meeting re-proposed "accelerating the construction of a unified national market", and emphasized "effectively reducing the cost of logistics in the whole society", and it is expected that the reform of the logistics system will be a breakthrough in the construction of a unified national market.
Fourth, it is necessary to plan and implement the reform of the fiscal, taxation, and financial systems. The meeting proposed that "it is necessary to plan a new round of fiscal and taxation system reform and implement the reform of the financial system". Among them, the reform of the financial system has been made clear in the reform plan of the party and state institutions in March 23, and with the implementation of the "three determinations" plan of the financial regulators, it is expected that the implementation of the reform of the financial system will be accelerated. The term used in the new round of fiscal and taxation system reform is "planning", which means that a mature plan has not yet been introduced. In the context of the weakening of local land finance, reconstructing the fiscal and tax relationship between the central government and the local government, and straightening out the "financial power" and "administrative power" are expected to become an important direction of the fiscal and taxation system reform, and we believe that the consumption tax reform may be a breakthrough.
6. Prevent and resolve risks in key areas, and the rhythm is expected to be more prudent
The meeting once again took the prevention and resolution of risks in key areas as one of the important tasks in 24 years, and the key areas included real estate, local debt, and small and medium-sized financial institutions.
In terms of real estate risk resolution, the emphasis is on "active and prudent", and other contents, such as "meeting the reasonable financing needs of real estate enterprises with different ownership systems without discrimination", "accelerating the three major projects" and "accelerating the construction of a new real estate development model", etc., continue the tone set by the Central Financial Work Conference.
In terms of local debt risk resolution, the meeting called for "coordinating the local debt risk resolution and stable development", and implemented the idea of "establishing first and then breaking", we believe that the local debt risk resolution work will not have a significant impact on local economic construction and people's livelihood security, and the complete clearance of risks depends on the implementation of a new round of fiscal and taxation system reform plan.
7. Risk Warning
The recovery of endogenous economic momentum is less than expected, the exposure of risks in key areas is accelerating, and overseas political and economic risks are heating up.
6. China Merchants Securities
Five points of understanding of the Central Economic Work Conference
(Zhang Jingjing, Zhao Honghe)
Key takeaways
The Central Economic Work Conference was held in Beijing from December 11 to 12 to comprehensively summarize the economic work in 2023, deeply analyze the current economic situation, and systematically deploy the economic work in 2024.
In general, the meeting took "economic construction" as the "central work" and "high-quality development" as the "primary task", set a positive tone and clear thinking, and laid an important foundation for the smooth development of economic work and the realization of goals next year. Based on the order of the draft, we will talk about the learning Xi experience of the five key contents.
body
The Central Economic Work Conference was held in Beijing from December 11 to 12 to comprehensively summarize the economic work in 2023, deeply analyze the current economic situation, and systematically deploy the economic work in 2024. In general, the meeting took "economic construction" as the "central work" and "high-quality development" as the "primary task", set a positive tone and clear thinking, and laid an important foundation for the smooth development of economic work and the realization of goals next year. Based on the order of the draft, we will talk about the learning Xi experience of the five key contents.
1. Difficult challenges: insufficient demand, overcapacity, and weak expectations
The meeting pointed out that to further promote the economic recovery for the better, we need to overcome some difficulties and challenges, mainly due to the lack of effective demand, overcapacity in some industries, weak social expectations, and still many hidden risks. ”
With regard to the difficulties and challenges in economic work, the top three are insufficient demand, overcapacity and weak expectations, among which the issues of demand and expectations have been mentioned in many high-level meetings, including last year's Central Economic Work Conference. What has changed is the supply problem, from "supply shock" to "overcapacity in some industries", we mentioned in many reports this year that there is currently structural overcapacity in the manufacturing industry, especially in the middle and lower reaches, which not only leads to downward pressure on inflation, but also causes a difference between "macro data and micro feelings".
The capacity cycle is an economic cycle with a longer time span than the inventory cycle. Different from the overcapacity around 2015, the excess industries at that time were mainly in the upstream, the industry concentration was high, the proportion of the state-owned economy was high, and the supply-side capacity reduction could be more quickly and effectively realized through administrative measures;
Second, the overall requirements: the "neglected" general tone of seeking progress in stability
"The meeting demanded that next year we should adhere to the principle of seeking progress while maintaining stability, promoting stability with progress, establishing first and then breaking down, and creating more policies that are conducive to stabilizing expectations, stabilizing growth, and stabilizing employment. ”
"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. ”
With regard to the overall requirements for economic work, although the market has put most of the energy interpreted by the Politburo meeting in December on "promoting stability through progress, first establishing and then breaking down", what has always been in the position of "general tone of work" is "seeking progress while maintaining stability". The mainland is in a critical period of transformation from old to new drivers, and there are many factors that need to be considered and carefully weighed, including "expanding domestic demand and deepening supply-side structural reform", "resolving local debt risks and stabilizing development", "speed and quality, macro data and micro feelings, economic development and improvement of people's livelihood, development and security", etc.
Seeking a dynamic balance in multiple goals requires that the policies of all parties must form a system integration effect, support each other and promote each other, and can neither fight separately and work together to offset each other, nor can it be too sudden because a single goal is too abrupt and then take care of one or the other, the overall situation is unfavorable, or even become a contractionary policy. Therefore, the meeting's requirements for macroeconomic policies to be consistent and coordinated are very important - this may be a more fundamental concern than the expectation of whether and how to expand macroeconomic policies, and it is the basic guarantee for achieving stable expectations, stable growth, stable employment, and risk prevention.
In August this year, the leaders of the National Development and Reform Commission (NDRC) mentioned that "before various departments formulate and issue policy documents, carry out an assessment of the consistency between the content and timing of policy documents and macro policy orientations, and promote the strengthening of policy coordination and work coordination among various departments,... to prevent the 'fallacy of synthesis'". Taking economic policies as an example, the most frequently mentioned is the coordination between monetary and fiscal policies, and this year it is further required to include non-economic policies in the evaluation, which is intended to make economic and non-economic policies better coordinated, such as the relationship between industrial production and environmental protection and carbon reduction, and the relationship between major economic provinces and regional coordinated development.
3. Specific arrangement: to promote stability, first establish and then break the further interpretation
The meeting emphasized that next year we should focus on promoting high-quality development, highlight the key points, grasp the key, and do a solid job in economic work. The first is to lead the construction of a modern industrial system with scientific and technological innovation. "Fifth, continue to effectively prevent and resolve risks in key areas. It is necessary to coordinate and resolve risks such as real estate, local debt, and small and medium-sized financial institutions,... and resolutely adhere to the bottom line of no systemic risk. Actively and prudently resolve real estate risks,... Coordinate the resolution of local debt risks and stable development".
"Promote stability with progress, establish first and then break", what is to "advance" and "establish", the draft of the Central Economic Work Conference gives a further interpretation. Judging from the specific arrangements for economic work, scientific and technological innovation and the construction of a modern industrial system are placed in the first place, and the second priority is to expand domestic demand. Although the above adjustments do not necessarily have a clear connotation, in the past, similar situations occurred at the Central Economic Work Conference at the end of 2020 and the Politburo meeting in April this year, so they may indeed reflect a certain trend.
According to this speculation, it is not only the annual economic growth target that is more challenging than this year that needs to be "advanced" and "established", but also scientific and technological innovation and industrial innovation, and the acceleration of the modern industrial system to stimulate economic growth and residents' employment, and enhance international competitiveness. The fifth point of the specific arrangement of economic work requires the overall resolution of the risks of real estate, local debt, and small and medium-sized financial institutions, which echoes the above-mentioned requirements for the general tone of seeking progress while maintaining stability and the consistency and coordination of macroeconomic policies.
Fourth, macro policy: still emphasize the timing, degree and effectiveness of policy
"It is necessary to 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 active fiscal policy should be moderately strengthened, and the quality and efficiency should be improved. ... Improve the efficiency of funds and policies. ... Reasonably expand the scope of local government special bonds to be used as capital. Implement the policy of structural tax reduction and fee reduction,... Strict financial discipline. Enhance fiscal sustainability and strengthen the bottom line of the "three guarantees" at the grassroots level. "Regarding the understanding of the timeliness and effectiveness of macro policies, we have elaborated in the comments of the Politburo meeting in December, that is, if we can try to improve policy efficiency, then under the appropriate or even limited aggregate policy resources, we can produce a better counter-cyclical adjustment effect, and the grasp of the rhythm of policy force should also take into account the cross-cyclical perspective and dynamic adjustment according to the situation. The second is to emphasize the implementation of tax and fee reductions and enhance fiscal sustainability, pointing to the fact that we do not expect a new large-scale tax and fee reduction policy for the time being; third, we should strictly enforce financial and economic discipline, pointing to that strictly controlling the increase of local hidden debts is a task next year, and the specific intensity and rhythm of promotion should be coordinated with other goals; and fourth, the grassroots level and people's livelihood are still the key directions of fiscal expenditure.
Fifth, several suspense: expanding domestic demand and reforming the fiscal and taxation system
"The second is to focus on expanding domestic demand. ... It is necessary to improve technology, energy consumption, emissions and other standards as the traction, and promote large-scale equipment renewal and consumer goods trade-in. Give full play to the amplification effect of government investment, focus on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction, and cultivate new momentum for development. "The third is to deepen reforms in key areas. ... It is necessary to plan a new round of reform of the fiscal and taxation system and implement the reform of the financial system. Regarding the expansion of domestic demand, the most noteworthy statement is that "it is necessary to promote large-scale equipment renewal and consumer goods trade-in with the improvement of technology, energy consumption, emission and other standards." Consumption is pro-cyclical, essentially dependent on residents' income and propensity to consume, and is mainly the result of economic development. As for investment, there is already local overcapacity, and the problem will be further exacerbated by simple investment in new equipment. Therefore, stock replacement and update iteration are not only conducive to stimulating domestic demand, but also reducing derivative problems. The key is how to take the improvement of technology, energy consumption, and emission standards as the traction? Taking investment as an example, a few years ago, when environmental protection policies were relatively intensive, a number of highly polluting industries were encouraged to invest in large-scale technological transformation. Another example is consumption, in 2019-20, the China V emission standard was upgraded to China VI, which also once boosted automobile consumption. At present, there is still a gap between the energy consumption and carbon emission indicators per unit of GDP in mainland China and the targets of the 14th Five-Year Plan. Regarding the deepening of reform, the meeting proposed that "it is necessary to plan a new round of reform of the fiscal and taxation system". The last round of fiscal and taxation system reform was launched in 2014, that is, on the occasion of the 20th anniversary of the reform of the tax-sharing system launched in 1994, which involved major issues such as the improvement of the budget system, the division of financial powers between the central and local governments, and the debt mechanism. Next year will be the 30th anniversary of the reform of the tax-sharing system, and it is worth paying close attention to how to promote the new round of fiscal and taxation system reform.
Risk warning: export demand is weaker than expected, and there is uncertainty about the effect of the policy.
7. Shenwan Hongyuan Securities
Three-pronged approach - interpretation of the 2023 Central Economic Work Conference
(Tu Qiang, Jia Dongxu, Wang Sheng)
1. Overview: policy afterburner, means change, three-pronged approach
In terms of setting the tone of the economic situation, this meeting was more positive than last year, with a new emphasis on "economic recovery and improvement", continuing the relatively positive statement of the Politburo meeting. Under the influence of the epidemic last year, the meeting set the tone of the economic situation as "maintaining the overall stability of the economy and society", and this meeting set a more positive tone for the economy than the same period last year, emphasizing that the economy overcomes internal and external pressures and achieves a rebound, continuing the relatively positive statement of the Politburo meeting, including "The Party Central Committee with Comrade Xi Jinping as the core unites and leads the whole party and the people of all ethnic groups throughout the country to withstand external pressure, overcome internal difficulties, comprehensively deepen reform and opening up, increase macro-control and control, focus on expanding domestic demand, optimizing the structure, Boost confidence, prevent and resolve risks, and the mainland's economy is picking up." In terms of risks, in addition to continuing to emphasize the lack of effective demand, compared with the Politburo meeting in July, two key issues of "overcapacity in some industries" and "weak social expectations" were added. Last year, under the influence of the epidemic, the meeting still emphasized the "triple pressure of demand contraction, supply shock, and weakening expectations", and this year, with the effective control of the epidemic, the "triple pressure" was not mentioned again during the two sessions. Compared with the Politburo meeting in July, "structural overcapacity" and "weak social expectations" are new terms, and compared with the "supply shock" in the impact stage of the epidemic, the current policy is actually more concerned about the supply from "shock" to "surplus" after the epidemic is controlled. Therefore, there will be a big change in the policy deployment next year, from last year's "stability first" to this year's "progress to promote stability". Last year's meeting still emphasized that "we must adhere to the principle of stability and seek progress while maintaining stability", while this meeting emphasized that "we should 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, stabilizing growth, and stabilizing employment, and actively forging ahead in changing the mode, adjusting the structure, improving quality, and increasing efficiency, so as to continuously consolidate the foundation for stability and improvement." In addition to more active policies, the specific means of primary emphasis on supply and demand and other types of policy "coordination", which is also the area of last year's meeting did not focus much, "expanding demand", "optimizing supply", "boosting expectations" policy "three-pronged". "Insufficient effective demand", "structural overcapacity", and "weak social expectations" are not separate problems, but affect each other. Therefore, in terms of policy deployment, in addition to continuing to emphasize "increasing macroeconomic regulation and control", more attention is paid to the synergistic effect of various policies. In the part of summarizing past experience and looking forward to the future, it is first pointed out that "we must adhere to deepening the supply-side structural reform and focusing on expanding effective demand and making concerted efforts", "coordinate the expansion of domestic demand and deepen the supply-side structural reform", and the summary part also emphasizes that "we must accurately grasp the policy orientation of next year's economic work, strengthen coordination and linkage in policy implementation, and amplify the combination effect". In addition, it also added a new emphasis on "effectively enhancing economic vitality, preventing and resolving risks, and improving social expectations", continuing the spirit of the Politburo meeting, and still paying close attention to the traditional kinetic energy risks, which on the one hand affect economic demand and lead to structural overcapacity, while real estate risks also have an impact on residents' expectations, which is also the key to stabilizing expectations. (For details, see ""Establish First and Then Break" Two Layers of Connotation and Four Main Lines - Interpretation of the December Politburo Meeting).
2. Supply: The policy sequence is front-loaded to optimize supply and create demand
2.1 The order of policies to optimize supply is placed firstIn terms of specific policy work, the order of "optimizing supply" is placed first, focusing on the construction of a modern industrial system, including the high-quality development of the manufacturing industry chain, digital economy, and new industrialization. Last year's meeting still emphasized the expansion of demand and then the optimization of supply in terms of specific work deployment, but this meeting put the order of "optimizing supply" in the first place, and clearly pointed out that "leading the construction of a modern industrial system with scientific and technological innovation." It is necessary to promote industrial innovation with scientific and technological innovation, especially to use disruptive technologies and cutting-edge technologies to give birth to new industries, new models, and new kinetic energy, and develop new quality productive forces. "Improve the new national system, implement high-quality development actions for key industrial chains in the manufacturing industry, strengthen quality support and standard guidance, and improve the resilience and safety of industrial and supply chains." In terms of specific directions, it is necessary to vigorously promote new industrialization, develop the digital economy, and accelerate the development of artificial intelligence. We will build a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, open up new tracks for future industries such as quantum and life sciences, widely apply digital intelligence technology and green technology, and accelerate the transformation and upgrading of traditional industries. ”
2.2 Optimizing supply also has three "synergistic effects" of creating demand. 1) The overall increase in the industrialization rate is conducive to accelerating the urbanization process again and promoting the release of domestic demand. Compared with the same stage of development of major economies, the urbanization process of the mainland is obviously slow, and the urbanization rate still has room for improvement of nearly 10 percentage points, and compared with the steady-state level, there is still room for an additional 5-10 percentage points of improvement. The process of urbanization is highly tied to the process of industrialization. Global economic history proves that due to the nature of the tradable sector, under the theory of comparative advantage, the transfer of manufacturing capacity to low-cost areas can drive more balanced + accelerated urbanization, and all the more successful urbanization economies are dependent on the industrialization process. The service industry due to the non-trade sector, highly dependent on human capital, the strong will always be strong, so it will only form a "central urbanization" + urbanization slowdown, and the construction of a modern industrial system will lead to the stabilization of the industrialization rate, and even further increase, which will directly help to promote the stabilization and improvement of the urbanization rate and promote the re-release of domestic demand.
2) The new round of industrialization will also lead to a more balanced population flow within cities and towns, with the population of central cities in urban agglomerations flowing into non-central cities, and the purchasing power of real estate in first-tier cities to be relieved in surrounding non-central cities. In the past decade, the population has concentrated in the eastern region, which has a high urbanization rate, and the contradiction between people and land has been prominent, and the population has flowed from the second and third lines to the first line in one direction. However, before 2010, the mainland's population flow was "more balanced", and the non-eastern regions were urbanizing significantly faster than the eastern regions. From the perspective of actual industrial distribution, the experience of Jiangsu, Zhejiang and Shanghai proves that the industrial distribution area is more balanced and the population flows more evenly during the industrial development period (before 2010), but the industrial distribution in the service industry period (after 2010) is highly inclined to the core cities, siphoning non-core cities and one-way population flow. Therefore, in the future, a new round of industrialization will be more balanced between the low-end manufacturing regions, which will guide the real estate purchasing power that is currently precipitated in the first-tier cities to buy housing prices, alleviate the matching of more land supply in surrounding cities, and form the release of real estate sales.
3) New technologies such as the digital economy can also change residents' preferences and create demand. In 1983, the wave of informatization changed residents' preferences and boosted demand from the supply side, and the technological progress of the United States at that time was very consistent with the spending on information-related products in the consumption of American residents. In addition, the wave of informatization has also promoted the optimization of the demand-side structure of the U.S. economy, which is reflected in the increase in the proportion of endogenous private consumption, private equipment and software investment, while the proportion of exogenous government investment, residential investment and net exports has decreased. The digital economy fully has the development potential of analogy with the wave of informatization, and the breakthrough of disruptive new technologies will also create endogenous demand momentum in the future.
3. Boosting confidence: Added emphasis on non-economic policy coherence
The assessment of the deepening drag of inventories on economic growth since the beginning of this year reflects that the lack of confidence of market players has led to weaker production than demand, and to a certain extent, the consistency of macroeconomic policy orientation still needs to be improved. It is estimated that this year's inventory changes will drag down GDP growth by more than 1 percentage point, which also means that although the foundation for demand recovery is not solid, the performance of supply is weaker, which is superimposed on the problem of insufficient confidence of market players. From the perspective of the split structure, the overall decline in the actual inventory of the industry this year, and at the same time the overall strength of service consumption this year, the inventory of the service industry is more of a slowdown in the speed of destocking, but has not yet begun to replenish the warehouse, indicating that the boost of business confidence is also particularly critical. In addition to the impact of macro demand, the weak confidence of entrepreneurs also includes many micro obstacles encountered in daily operations, as well as the lack of confidence of entrepreneurs caused by the low consistency of some policy orientations. Therefore, compared with last year, this meeting has more clearly emphasized the need to enhance the consistency of macroeconomic policy orientations, and has added a new emphasis on "incorporating non-economic policies into the evaluation of macroeconomic policy orientation coherence". Last year's meeting only briefly mentioned that "it is necessary to better coordinate economic policies and other policies, enhance the overall view, and strengthen the evaluation of consistency with macroeconomic policy orientation." The meeting carried out a comprehensive refinement, pointing out that the coordination and cooperation of fiscal, monetary, employment, industrial, regional, science and technology, environmental protection and other policies should be strengthened, and non-economic policies should be included in the consistency assessment of macro policy orientation, and policy coordination should be strengthened to ensure that the same direction is used to form a joint force. Strengthen economic propaganda and public opinion guidance, and sing the bright theory of China's economy. In addition, it also emphasizes the "continuous improvement and implementation of the "two unswerving" systems and mechanisms, and fully stimulates the endogenous power and innovation vitality of various business entities. ”
4. Currency: The focus on prices may point to a drop in real interest rates
4.1 Pay attention to the signal conveyed by "matching the expected target of the price level", and the overall tone of the monetary policy is consistent with the Politburo meeting in December, adding "the scale of social financing and money supply match the expected target of economic growth and price level", first of all, indicating that the monetary policy is positive on the target of credit expansion. The 2022 Central Economic Work Conference only stated that "the growth rate of broad money supply and social financing scale should be basically matched with the growth rate of the nominal economy", and this meeting added a requirement to match the expected target of the price level. This may be due to the fact that the current relatively low price level has lowered nominal GDP growth, and if it is not adjusted, the monetary policy target for credit expansion will also be lowered. However, if the actual inflation level is replaced by the price level expectation target, it indicates that the government's target for credit expansion remains positive. But what is more noteworthy is the other implication of the "price expectation target", that is, dissatisfaction with the current relatively low level of inflation. Since the fourth quarter, the price "drag" caused by the overcapacity we prompted in the early stage has continued to ferment, resulting in PPI and CPI falling again more than expected. The price drag items suggested in our previous report "Neglected Price "Drag Items" - A Brief Analysis of Inflation (23.10): "Downstream Investment Overheating - Structural Overcapacity - Downstream PPI Downward - Core Goods CPI" continued to ferment, PPI and CPI continued to be lower than expected, and CPI fell to a low point of the year (-0.5%) in November. Among them, the decline of PPI is highly consistent with our leading index of PPI based on capacity utilization, and structurally, the price decline of downstream (investment by more than 10% year-on-year, exceeding the demand for industrial products) that has been significantly overheated in the past two years is greater than expected, reflecting the impact of overcapacity. In the CPI structure data, it also shows a continuous decline in the CPI of core commodities of the same caliber as the PPI, although the decline is smaller than the PPI of means of living, reflecting that the terminal demand is actually better than the oversupply, but it is difficult to cover up the supply problem.
4.2 The low level of inflation has made the real interest rate of the mainland high, which has dragged down credit and residents' expectations, and the low inflation level of the mainland has also caused the real interest rate of the mainland to remain at a high level, which is significantly higher than that of the United States, Japan and Germany. If the difference between the 2-year Treasury yield and core inflation is used as a proxy for the continent's real interest rate, the mainland (1.8% in Nov '23) has a higher level of real interest rates than the rest of the world's economy, even higher than the United States (0.9%), where policy rates have been climbing in the past and inflation has tended to fall, and significantly higher than Japan (-2.8%) and Germany (-0.5%). In the future, monetary policy may choose to moderately lower the nominal interest rate to lower the level of real interest rate, ensure the reasonable release of credit, and change residents' inflation expectations, so as to promote the recovery of prices in the future. On the one hand, the continued weakening of inflation has caused household consumption to choose to wait and see, further accelerating the downward trend of prices, and on the other hand, it has caused corporate profits to be sluggish and weakened enterprises' willingness to invest. In order to get out of this cycle, monetary policy can choose to lower the nominal interest rate level to lower the real interest rate, promote a reasonable release of financing demand, and achieve a moderate upward trend in prices. Looking ahead to 2024, monetary policy to lower nominal interest rates is likely to be the main means of operation, which will have a more direct impact on reducing household debt interest payments, revising inflation expectations, and ultimately implementing a moderate expansion in demand and a resurgence in prices. On the other hand, the decline in nominal interest rates and the moderate rise in inflation in the future will leave room for fiscal policy to resolve local government debt. The decline in nominal interest rates will reduce the interest payment of fiscal debt, especially given that the government is constantly replacing implicit debt with explicit debt, and this decline in debt interest payment can ensure the effectiveness of fiscal space. In addition, the moderate upward trend in inflation will actually be reflected in the improvement of nominal GDP growth, which is crucial for the stability and even improvement of government leverage.
4.3 Exchange rate: Maintain bottom-line thinking, or maintain range-bound fluctuations, or indicate that the requirements for exchange rates are still bottom-line thinking, rather than unilateral strengthening. Given the current uncertainty in domestic demand, it is only natural for monetary policy to choose to lower nominal and real interest rates, but the exchange rate will also be disturbed by interest rates. Fortunately, the current export momentum has improved, the interest rate gap between China and the United States has narrowed, and the RMB exchange rate has shown more two-way fluctuations rather than a single depreciation trend. It is expected that the subsequent exchange rate will still maintain a fluctuation range between 7.0-7.3, and more space will be left for monetary policy to adjust domestic demand.
5. Finance: It is the right time to turn debts into debts, and the responsibility of stabilizing growth is entrusted to major economic provinces
The tone of fiscal policy was the same as that of the Politburo meeting in December, which stressed the need to "make good use of fiscal policy space, improve capital efficiency and policy effectiveness" and "optimize the structure of fiscal expenditure". The Central Economic Work Conference emphasized the use of fiscal policy space, or pointed to the new trillion national bonds in 23Q4 and the scale of the new fiscal budget deficit during the two sessions in 2024, clearly indicating that funds should be used on the cutting edge, that is, areas that can really stimulate economic growth, and "optimizing the structure of fiscal expenditure" may also point to this. In addition, the meeting once again emphasized fiscal discipline and clearly proposed to "enhance fiscal sustainability", which is a step further than 2022, and 2024 will remain a key year for resolving local government debt risks. The 2022 meeting emphasized "ensuring fiscal sustainability while effectively supporting high-quality development", while this meeting placed more emphasis on "strengthening", which may mean that the 2024 annual debt will still be the focus. Correspondingly, in the investment part, this conference emphasizes more on projects with sufficient future cash flow, such as "focusing on supporting key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction, cultivating and developing new kinetic energy", "supporting social capital to participate in the construction of new infrastructure and other fields", rather than traditional infrastructure investment. Provinces with relatively small debt risks may bear greater pressure to stabilize growth, and may also bear greater demands for infrastructure investment growth, which also alleviates the market's concerns about the overall credit contraction of financing platforms in different regions across the country. In the risk part of the meeting, it was clearly stated that "to coordinate the resolution of local debt risks and stable development, the major economic provinces should really take the lead and make greater contributions to the stabilization of the national economy". In the work stage of other provinces, the task of stabilizing growth will be handed over to the major economic provinces, and the tone given by the meeting is also conducive to alleviating the market's concerns about the overall credit contraction of local financing platforms in different regions of the country. We maintain the same pace and magnitude of fiscal policy expansion in the interpretation of the Politburo meeting in December: "Establish first and then break" may also indicate that the fiscal will be moderately strengthened in the short term, and the core of the decision to increase infrastructure in mid-2024 is also to hedge the risk of further weakening of traditional momentum in 24H2. In terms of specific forecasts, we maintain the judgment that the deficit rate of the two sessions in 2024 will be 3.0% (which can be flexibly adjusted in the middle of the year, which is also one of the potential meanings of "late breaking"), and the judgment that the growth rate of infrastructure investment in the broad sense will be above 15%.
6. Real estate: Policies focused on supply are also the key to stabilizing demand and expectations
6.1 In terms of risk, real estate is still the primary emphasis, and more attention is paid to the "supply side" risk mitigation meeting, which is still the primary emphasis on real estate, and at the same time, more attention is paid to the "supply side", and the "equal treatment" is continued to be emphasized to meet the financing needs of real estate enterprises. Last year's meeting on the discussion of real estate is also more focused on supply, emphasizing that "to ensure the steady development of the real estate market, do a solid job in ensuring the delivery of buildings, ensuring people's livelihood, ensuring stability, and meeting the reasonable financing needs of the industry", this meeting continued this orientation, and went further, in addition to the primary emphasis on "to coordinate and resolve the risks of real estate, local debt, small and medium-sized financial institutions, crack down on illegal financial activities, and resolutely adhere to the bottom line of no systemic risks." In addition, it is pointed out that "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." "6.2 One is aimed at hedging the potential pressure of real estate investment, and behind the continued emphasis on the three major projects and the "stable supply" of real estate, the other is aimed at hedging the potential downside risk of real estate investment in 24H2, including the continued mention of the "three major projects". Our previous leading indicators show that real estate investment in the second half of next year will lag to reflect the sharp weakening of new construction starts and off-plan sales after 21H2, when the endogenous decline in real estate investment may be greater than the current one. Therefore, in addition to continuing to emphasize "accelerating the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes, and the transformation of urban villages", and aiming to hedge the pressure of old projects through new project investment, this policy continues to point out that "actively and steadily resolve real estate risks, meet the reasonable financing needs of real estate enterprises of different ownership systems without discrimination, and promote the stable and healthy development of the real estate market." "It is also in order to stabilize the financing demand of existing projects, and to speed up the construction of projects that have been further slowed down since 2021 due to the "three red lines" through "guaranteed delivery", so as to achieve the purpose of reducing the downside risk of real estate investment. 6.3 It is more important to stabilize residents' expectations, release the synergistic effect of supply and demand policies, and more importantly, to reduce the risk of off-plan delivery, which is also the most critical part of stabilizing the current residents' expectations, which can truly achieve the effect of supply and demand policy synergy. This year, the real estate demand-side policy has been relatively loose, but the actual sales performance is weak, in addition to the downward trend in housing prices caused residents to wait and see, more is the real estate supply side risk caused residents to "dare not" buy a house (worried about delivery risks), the data also shows that the growth rate of first-hand existing house sales (15.6% from January to October, excluding the base is even significantly stronger than the second-hand house) is significantly higher than the situation of 28.3 percentage points of off-plan housing. At the same time, although the completion of real estate has increased significantly this year, almost all of the contribution comes from the completion of existing houses, and the completion rate of off-plan houses is still low (40%). Only by stabilizing residents' balance sheets and confidence can we alleviate the impact of the decline in the effect of real estate demand-side policies and truly achieve the coordination of supply and demand policies.
7. Consumption: Tap potential growth points and hedge against post-cycle fluctuations in real estate
The judgment of the meeting on consumption is to "stimulate potential consumption", that is, to tap the potential growth point within consumption. The meeting divided consumption into two parts, one is new consumption, which requires "vigorously developing digital consumption, green consumption, and healthy consumption, and actively cultivating new consumption growth points such as smart homes, cultural and entertainment tourism, sports events, and domestic "trendy products". The second is to stabilize and expand traditional consumption, mainly including "boosting bulk consumption such as new energy vehicles and electronic products". That is to say, the meeting did not choose to stimulate consumption in aggregate, but more hoped for the structural improvement of consumption, and the formation of a good interactive relationship with production and investment. The meeting may also be concerned about the potential downside risks of real estate completion in the future on the consumption of optional commodities such as home appliances and furniture in the post-cycle of real estate, and more emphasis on "promoting large-scale equipment renewal and consumer goods trade-in". The mainland's household appliances and furniture consumption has reached the trillion level on an annual basis, making it the second largest consumer market for durable goods after automobiles, but its growth has stagnated in the past six years. In the future, the decline in real estate completions brought about by the gradual passing of the peak of real estate delivery may put pressure on the consumption of household appliances and furniture. It is in this context that the meeting will focus on the growth point of household appliances and furniture consumption on the replacement cycle of equipment, which may play a role in alleviating the natural downward pressure on household appliances and furniture consumption in the second half of next year.
At the same time, the meeting actually paid attention to the fact that a considerable part of the current income shortfall of residents comes from the reduction of net transfer income, and the meeting added "weaving a dense and solid social security net and improving the social assistance system of hierarchical classification", indicating that the policy has been paying attention to the issue of residents' income, and expects the follow-up fiscal policy to invest more in the residential area after short-term stable investment. After the epidemic, the shortfall in the disposable income of mainland residents comes from net property income and net transfer income, among which the decline in net property income is related to many factors such as the real estate market and the decline in deposit interest rates, which is difficult to boost in the short term. The decline in net transfer income is more worthy of the government's initiative to ensure the overall stability of residents' income. The discussion of the social assistance system at this conference has allowed us to see some changes, which may have an effect on supporting the low- and middle-income groups in the future and even stabilizing the growth rate of consumption.
8. Stabilize foreign trade: pay more attention to it and accelerate the cultivation of new momentum
Compared with last year's meeting, this meeting focused more on "stabilizing foreign trade", behind which the overall export growth rate was under pressure this year. Last year's meeting did not discuss much about "stabilizing foreign trade", but only mentioned "improving the quality and level of trade and investment cooperation." But this meeting obviously paid more attention, and the risk clearly pointed out that "the complexity, severity and uncertainty of the external environment have increased." "It is also due to the overall weak performance of export growth since the beginning of this year. As a result, the meeting also clearly pointed out that "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. "Looking ahead to next year, recessionary pressures in the U.S. economy in the second half of the year will increase downside risks for domestic exports, so this meeting will focus more on cultivating new drivers, including new forms of trade and trading partners. On the one hand, the meeting emphasized the expansion of intermediate goods trade, service trade, digital trade, cross-border e-commerce exports, etc., and at the same time, it also pointed out that "we should do a good job in supporting the implementation of the eight actions of high-quality Belt and Road cooperation, and coordinate the promotion of major landmark projects and 'small but beautiful' livelihood projects." "In fact, this year, in addition to the export growth rate of the Belt and Road countries is higher than the overall and contribution to the resilience, the mainland's export structure to the Belt and Road countries has also shown more tilt towards intermediate goods and consumer goods to meet the domestic demand of emerging countries, such as steel, plastics, automobiles, etc., and the export commodity structure to emerging countries has been "decoupled" from developed countries, and is no longer dependent on traditional processing trade goods. In the process of the return of manufacturing in developed countries and the weakening of the demand side in the medium term, emerging countries also need to boost domestic demand (especially investment), and marginally replace the potential impact of weaker demand from developed countries on mainland exports. Therefore, in 2024, it is recommended to pay attention to the share of mainland exports to continue to accelerate from developed countries to emerging countries such as the "Belt and Road".
Risk warning: the real estate market changes more than expected, the policy promotion speed is not as expected, and the exchange rate situation changes.
8. Galaxy Securities
Five "musts" and nine "key tasks" - interpretation of the 2023 Central Economic Work Conference
(Zhang Jun, Gao Ming, Xu Dongshi, Zhan Lu, Wu Jing)
First, the core viewpoint
From December 11 to 12, 2023, the Central Economic Work Conference was held. The meeting required the economic work in 2024 to enhance confidence and confidence, and do a good job in the "five musts" and nine "key tasks". The "five musts" are that we must adhere to high-quality development as the last word in the new era, we must persist in deepening supply-side structural reform and focus on expanding effective demand, we must insist on relying on reform and opening up to enhance the endogenous driving force of development, we must adhere to the benign interaction between high-quality development and high-level security, and we must take the promotion of Chinese-style modernization as the biggest politics. Corresponding to the requirements of the "five musts", the order of the "nine key tasks" is: leading the construction of a modern industrial system with scientific and technological innovation, expanding domestic demand, deepening the reform of key areas, expanding high-level opening up, preventing and resolving risks in key areas, "three rural" work, urban-rural integration and regional coordinated development, ecological civilization construction and green and low-carbon development, and ensuring and improving people's livelihood.
1. The judgment of the meeting on the current economic situation is: "To further promote the economic rebound, we need to overcome some difficulties and challenges, mainly due to the lack of effective demand, overcapacity in some industries, weak social expectations, and many hidden risks. Judging from the content, this is actually a more specific elaboration of the "triple pressure" of demand contraction, supply shock, and weakening expectations. Compared with the past, last year's Central Economic Work Conference emphasized that the foundation for the mainland's economic recovery is not yet solid, and the "triple pressure" is still relatively large. The meeting of the Political Bureau of the CPC Central Committee on April 28 this year believed that "the economy and society have fully resumed normal operation, macro policies have been coordinated at the front, and the 'triple pressure' has been alleviated". At the meeting of the Political Bureau of the Central Committee on July 24 this year, it was believed that "domestic demand is insufficient, some enterprises are in difficulty, there are many risks and hidden dangers in key areas, and the external environment is complex and severe." After the smooth transition of epidemic prevention and control, economic recovery is a process of wave-like development and zigzag progress", so it began to deploy "strengthening counter-cyclical adjustment". It can be seen that the central government's understanding of the "triple pressure" situation continues to deepen. For 2024, this meeting further put forward judgments such as insufficient demand, overcapacity, weak expectations, hidden risks, and blocking points, which are obviously more specific and in-depth.
2. The general tone of fiscal policy has been adjusted from last year's "afterburner and efficiency" to "moderate afterburner, quality and efficiency". "Moderate afterburner" was proposed for the first time in recent years. The intuitive feeling of "moderate afterburner" is weaker than last year's "afterburner efficiency", but this year more emphasis is placed on strengthening fiscal and monetary coordination to improve policy effects. To understand the policy expression of "moderate afterburner", it is more necessary to combine the comprehensive analysis of "increasing macroeconomic regulation and control" and "enhancing the consistency of macroeconomic policy orientation" mentioned in this meeting. We believe that the connotation of "moderate afterburner, quality and efficiency" is, on the one hand, "afterburner" counter-cyclical adjustment to ensure the smooth operation of the economy, focusing on supporting real estate and local debt risks, and on the other hand, "moderately" taking into account cross-cyclical adjustment, reflecting the leading role of fiscal policy in high-quality economic transformation and avoiding traditional overcapacity. On the whole, "moderate afterburner" takes into account both counter-cyclical and cross-cyclical, and the intensity is between "afterburner and efficiency" and "quality and efficiency". As for the focus of financial support, the meeting proposed to "strengthen the financial guarantee of major national strategic tasks", mainly corresponding to the fiscal expenditure will tend to the "three major projects", as well as stabilizing the economy, preventing risks, and adjusting the structure. In terms of tax and fee reduction, the focus is on "implementation", that is, on the basis of the past structural tax and fee reduction, further optimization and improvement of efficiency.
3. There are two important changes in monetary policy compared with last year. First, the overall positioning has been adjusted from "precise and powerful" to "flexible, moderate, precise and effective". "Flexible" refers to self-centered, taking into account both internal and external camera choices; "moderate" means matching the total amount; "precision" emphasizes the guidance of the direction of credit, and "effective" has two meanings: on the one hand, it is to improve the transmission efficiency of monetary policy, prevent capital arbitrage and idling, and guide more funds into the real economy; on the other hand, it is to "revitalize the stock and improve efficiency", which means that in the two-way adjustment of the aggregate and the structure, the structure takes precedence over the aggregate. Structural tools focus on the "five big articles" and provide financial support for the "three major projects". The second change in monetary policy is to require "the scale of social financing and money supply to match the expected targets of economic growth and price levels", and on the basis of the past three matches, the matching of "expected targets of price levels" has been added for the first time. The background is that in the process of economic transformation, the lack of aggregate demand in stages has led to the low operation of the price index. In general, the current monetary policy should support economic growth in the process of switching between old and new kinetic energy, because the switching of old and new kinetic energy is a medium and long-term process, so the current cross-cyclical adjustment should have stability and continuity, and it is a neutral and loose policy tone. Looking ahead to 2024, it is expected that the PBOC will further implement RRR and interest rate cuts (especially after the Fed starts to cut interest rates in the second quarter), and coordinate with other macro policies such as fiscal policy to maintain the forward-looking, continuity and stability of macro policies.
2. Risk Warning:
The risk of inadequate policy understanding.
Strategy: Implications for investment at the December 2023 Central Economic Work Conference
(Yang Chao)
First, the core viewpoint
Economic Situation and Economic Goals: The judgment of the Central Economic Work Conference in December 2023 on the economic situation is that it is "picking up and improving", but it still faces difficulties and challenges such as "insufficient effective demand, overcapacity in some industries, and weak social expectations". On the whole, "the favorable conditions facing the mainland's development are stronger than the unfavorable factors, and the basic trend of economic recovery and long-term improvement has not changed." The economic goal for 2024 is to "improve social expectations, consolidate and enhance the positive trend of economic recovery, and continue to promote the economy to achieve qualitative and effective improvement and reasonable quantitative growth".
Policy objectives: (1) The policy tone in 2024 is "seeking progress while maintaining stability, promoting stability through progress, and establishing first and then breaking", and for the first time proposes to "strengthen economic propaganda and public opinion guidance, and sing the bright theory of China's economy", which echoes the macroeconomic goal of "improving social expectations", that is, to enhance social confidence in economic growth. (2) The fiscal policy emphasizes "moderate strengthening, improving quality and efficiency", which is higher than last year's "afterburner and efficiency", mainly "optimizing the structure of fiscal expenditure and strengthening the financial guarantee of major national strategic tasks". (3) Monetary policy emphasizes "flexibility, moderation, precision and effectiveness", maintaining reasonable and abundant liquidity in terms of quantity, and promoting a steady and moderate decline in comprehensive social financing costs in terms of price.
Implications for investment in 2024: (1) Scientific and technological innovation: It is necessary to lead the construction of a modern industrial system with scientific and technological innovation, especially mentioning the fields of digital economy, artificial intelligence, biomanufacturing, commercial aerospace, low-altitude economy, quantum, life sciences, digital intelligence technology, and green technology. (2) Expand domestic demand: Efforts should be made to expand domestic demand and form a virtuous circle in which consumption and investment promote each other. Consumption mainly involves themes such as "digital consumption, green consumption, and healthy consumption", new consumption growth points such as "smart home, cultural and entertainment tourism, sports events, and domestic products", and bulk consumption such as "new energy vehicles and electronic products". It is necessary to give full play to the government's driving amplification effect in investment, mainly involving investment in the fields of "key core technology research, new infrastructure, energy conservation, emission reduction and carbon reduction". (3) Reform and opening up: In 2024, it is necessary to deepen the reform of key areas, mainly involving the reform of state-owned enterprises, the development of private enterprises, the reform of the fiscal and taxation system, and the reform of the financial system. (4) Finance and real estate: risk prevention in key areas, mainly including real estate, local debt, small and medium-sized financial institutions, etc. (5) "Three rural" work, regional coordination and green and low-carbon: to do a good job in the "three rural" work, mainly to build an agricultural power, promote farmers' income, and build a livable, workable and beautiful village; urban-rural integration and regional coordination are long-term development goals, this year's meeting proposed to promote the construction of "new urbanization with county towns as an important carrier", and once again emphasized the need to "actively and steadily promote carbon peak and carbon neutrality".
2. Risk Warning:
The risk that domestic policies are not implemented as expected, and the risk of market sentiment fluctuations.
9. Haitong Securities
The economy is stable, and the stock market is advancing - interpretation of the Central Economic Work Conference
(Xun Yugen, Liang Zhonghua, Wu Xinkun)
The Central Economic Work Conference was held in Beijing from December 11 to 12. In his important speech, the general secretary comprehensively summarized the economic work in 2023, deeply analyzed the current economic situation, and systematically deployed the economic work in 2024. Our understanding of the main content of the meeting is as follows: the mainland's economy is rebounding and high-quality development is being solidly promoted, but some difficulties and challenges need to be overcome to further promote the economic rebound, so the policy side will actively promote stable growth, increase macroeconomic regulation and control, and focus on expanding domestic demand under the premise of focusing on high-quality development, but the policy intensity and scale will be "moderate". Fiscal policy will be moderately strengthened to make good use of the space. Monetary policy will be flexible, moderate, precise and effective, and there is still room for adjustment of the mainland's policy interest rate to reduce the cost of real financing. It is necessary to expand domestic demand, stimulate consumption with potential, expand productive investment, and promote consumption and investment each other. It is necessary to coordinate and resolve risks such as real estate, local debt, and small and medium-sized financial institutions. The industrial policy emphasizes the leadership of science and technology innovation and the development of new quality productivity. In terms of the equity market, as the economy continues to recover, the upward trend of A-share earnings in 24 years is expected to promote the rise of the valuation center, and the growth of Baima will be better in the future, focusing on hard technology and medicine.
1. Policy tone: high quality, steady growth
The meeting believed that this year is the first year for the full implementation of the spirit of the 20th National Congress of the Communist Party of China, and a year for economic recovery and development after the three-year transition of new crown epidemic prevention and control. The meeting believed that this year, "withstanding external pressure and overcoming internal difficulties", "the mainland's economy has rebounded for the better, and high-quality development has been solidly promoted". He affirmed the achievements made in economic development since the beginning of this year. At the same time, the meeting also pointed out that some difficulties and challenges need to be overcome to further promote the economic recovery, mainly "insufficient effective demand, overcapacity in some industries, weak social expectations, and still many hidden risks", "There are blockages in the domestic cycle, and the complexity, severity and uncertainty of the external environment are rising".
Therefore, in terms of policy setting, it is necessary to "adhere to the general tone of seeking progress while maintaining stability, completely, accurately and comprehensively implement the new development concept, accelerate the construction of a new development pattern, focus on promoting high-quality development, comprehensively deepen reform and opening up, promote high-level scientific and technological self-reliance and self-reliance, and increase macroeconomic regulation and control". "Effectively enhance economic vitality, prevent and defuse risks, and improve social expectations", and "more policies that are conducive to stabilizing expectations, growth, and employment".
We believe that the macro policy direction is still "positive" and stable growth under the premise of high quality. The policy will pay more attention to the transformation of "new" and "old" economic momentum, strive to enhance the momentum of new economic growth points, support the development of the traditional economy, and prevent risks. While ensuring stable economic growth in the short term, it is also necessary to emphasize "cross-cyclical" adjustment and pay attention to the long-term impact of policy tools.
It is worth mentioning that "next year, we must insist on seeking progress while maintaining stability, promote stability with progress, and establish first and then break down", and we believe that "promoting stability with progress" means promoting economic stability through the development of the new economic field. "Establish first and then break" means that there must be a "foundation" for the traditional economic field, especially the debt problem, and keep the bottom line.
2. Expand domestic demand: "potential" consumption, "efficiency" investment
The meeting pointed out that "efforts should be made to expand domestic demand", which is consistent with the tone of last year's economic work conference. It is worth noting that the meeting 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."
In terms of promoting consumption, it is necessary to "shift from post-epidemic recovery to continuous expansion", and the main directions include three aspects. The first is to cultivate and expand new consumption, to "vigorously develop digital consumption, green consumption, healthy consumption, and actively cultivate new consumption growth points such as smart home, entertainment tourism, sports events, and domestic 'trendy products'". The second is to stabilize and expand traditional consumption, and to "boost bulk consumption such as new energy vehicles and electronic products". The third is to increase the income of urban and rural residents and optimize the consumption environment.
In terms of investment, the meeting pointed out that "it is necessary to promote large-scale equipment renewal and consumer goods trade-in with the improvement of technology, energy consumption, emission and other standards", "give full play to the driving amplification effect of government investment", "implement a new mechanism of government-private cooperation, and support social capital to participate in the construction of new infrastructure and other fields".
We expect that new consumption categories, equipment investment, and new infrastructure investment may become important support points for domestic demand in 2024.
3. Fiscal policy: moderate afterburner, make good use of space
The meeting proposed to "continue to implement a proactive fiscal policy and a prudent monetary policy." Compared with the Politburo meeting in July this year and the Central Economic Work Conference in December last year, this tone remains unchanged. Fiscal policy should be "moderately strengthened, quality and efficiency improved." It is necessary to make good use of the fiscal policy space and improve the efficiency of funds and the effect of policies", which is different from the expression of "strengthening the efficiency and maintaining the necessary intensity of fiscal expenditure" at last year's meeting. We believe that this means that the direction of fiscal policy is still "positive", but the intensity and scale of the force are "moderate", and there is no large-scale stimulus policy. We expect the deficit ratio and special debt quota to rise "slightly" in 2024. However, considering the decline of local incremental implicit debt, it is necessary to observe the changes in the overall scale of broad finance.
In the direction of fiscal expenditure, the meeting proposed to "optimize the structure of fiscal expenditure, strengthen the financial guarantee of major national strategic tasks", "implement the structural tax and fee reduction policy, and focus on supporting scientific and technological innovation and manufacturing development". In addition, "the scope of local government special bonds used as capital will be reasonably expanded".
4. Monetary policy: flexible, moderate, precise and effective
In terms of monetary policy, the prudent monetary policy is "flexible, moderate, precise and effective", "maintains reasonable and abundant liquidity, and matches the expected targets of economic growth and price levels in the scale of social financing and money supply", and "promotes a steady and moderate decline in the cost of comprehensive social financing". We believe that monetary policy may be further prudent and easing, and there is still some room for adjustment of policy interest rates, including interbank funding rates and bank deposit rates.
This meeting emphasizes "moderation", and we believe that monetary policy will not be flooded with strong aggregate stimulus, and the magnitude of policy interest rate adjustment may be moderate. The expression "precise" may mean paying more attention to the supporting role of structured policy tools in key economic areas, "guiding financial institutions to increase support for scientific and technological innovation, green transformation, inclusive small and micro enterprises, digital economy, etc.", and doing a good job in the "five major articles" through "precise" support.
In summary, this meeting emphasized "moderation" in fiscal and monetary policies. We believe that macro policies focus on promoting high-quality development, and policy efforts are needed to stabilize growth, but they will not rely on strong stimulus, and active policies will maintain a certain degree of determination.
5. Real estate: focus on the bottom and pay attention to the "three major projects"
The meeting pointed out that it is necessary to actively and prudently resolve real estate risks, "meet the reasonable financing needs of real estate enterprises of different ownership 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.
In our view, the real estate policy focuses on the bottom line, rather than strong stimulus. It is necessary to pay attention to the marginal impact of the "three major projects" on the supply and demand of real estate. It is the starting point for the implementation of a new model of real estate development, which can buffer the downward pressure on real estate investment to a certain extent.
6. Industrial direction: led by science and technology, the development of "new quality productivity"
The meeting pointed out that "leading the construction of a modern industrial system with scientific and technological innovation". It is necessary to "promote industrial innovation with scientific and technological innovation, especially to promote new industries, new models and new kinetic energy with disruptive technologies and cutting-edge technologies, and develop new quality productive forces".
We believe that the industrial policy still adheres to the "entity" and pays attention to the new quality of productivity. In the stage of economic transformation from "new" to "old", it is crucial to enhance the new momentum of development, so it is necessary to speed up the formation of new quality productive forces. On the one hand, we should actively cultivate strategic emerging industries. On the other hand, we are actively nurturing future industries. The meeting pointed out that "it is necessary to vigorously promote new industrialization, develop the digital economy, and accelerate the development of artificial intelligence." We will build a number of strategic emerging industries such as biomanufacturing, commercial aerospace, and low-altitude economy, open up new tracks for future industries such as quantum and life sciences, widely apply digital intelligence technology and green technology, and accelerate the transformation and upgrading of traditional industries." We believe that future policies will continue to support the technology sector in the long run. In addition, the meeting pointed out that "the development of venture capital and equity investment is encouraged".
In addition, in terms of the digital economy, the meeting pointed out that "the development of the digital economy and the acceleration of the development of artificial intelligence". In terms of energy, the meeting pointed out that "accelerate the construction of a new energy system, strengthen resource conservation, intensive recycling and efficient utilization, and improve the ability to ensure the security of energy resources". "Actively and steadily promote carbon peak and carbon neutrality, and accelerate the creation of a green and low-carbon supply chain". In terms of agriculture, the meeting pointed out that "explore the establishment of an inter-provincial horizontal interest compensation mechanism in grain production and marketing areas" and "establish a big agricultural concept and a big food concept, and build agriculture into a modern big industry".
7. Risk prevention: focus on key areas
In terms of risk prevention, the meeting emphasized that we should continue to effectively prevent and resolve risks in key areas, and resolutely adhere to the bottom line of no systemic risks. The risks in key areas mainly lie in the need to "coordinate and resolve risks such as real estate, local debt, and small and medium-sized financial institutions".
The meeting pointed out that "to coordinate the resolution of local debt risks and stable development, major economic provinces should really take the lead and make greater contributions to stabilizing the national economy". We believe that with the issuance of special refinancing bonds and the active participation of financial institutions, the risk of local government debt stock may be effectively controlled. In addition, it is still necessary to pay attention to the risk prevention of real estate-related fields and small and medium-sized financial institutions.
8. Stock market: Proactive policies help the market to rise
Policies support the recovery of fundamentals and help the stock market to rise. The overall tone of the meeting was positive, and it was proposed to adhere to the principle of "seeking progress while maintaining stability, promoting stability with progress, establishing first and then breaking, and producing more policies that are conducive to stabilizing expectations, stabilizing growth, and stabilizing employment", requiring "a positive fiscal policy to be moderately strengthened, improve quality and efficiency", and "a prudent monetary policy should be flexible, moderate, precise and effective", and the general tone of the work of seeking progress while maintaining stability is clear. In our annual strategy report "Dawn - 2024 A-share Outlook-20231208", we pointed out that from the perspective of trading, asset price comparison and valuation indicators, the current A-share adjustment has been significant, and market sentiment and risk appetite have fallen to a low level. Looking ahead, with the continuous development of the steady growth policy and the bottoming out of the inventory cycle, the economy is expected to further recover in 24 years, and the year-on-year growth rate of net profit attributable to the parent company is expected to reach 5-10% in 24 years. In addition, the overseas macro environment will also improve marginally, the 24-year U.S. bond interest rate may enter a downward cycle, the valuation center of A-shares is expected to rise, and foreign capital will gradually return. Catalyzed by a variety of positive factors, A-shares are expected to usher in the dawn next year, and new opportunities may emerge in the capital market.
Pay attention to the strategic development positioning of hard technology, and there are structural opportunities for consumption. In terms of the development of scientific and technological innovation, the meeting pointed out that it is necessary to "promote high-level scientific and technological self-reliance and self-reliance", emphasizing "leading the construction of a modern industrial system with scientific and technological innovation", "developing new quality productivity", and at the same time requiring "developing the digital economy and accelerating the development of artificial intelligence". We believe that with the increase of policy support for scientific and technological innovation and the acceleration of technological breakthroughs, artificial intelligence technology is accelerating the application of artificial intelligence, hard technology is expected to become a field leading the development of new quality productivity, and profit growth may usher in a significant improvement, focusing on electronics where the semiconductor cycle has bottomed out, digital infrastructure under fiscal policy, and AI applications driven by policy + technology. In terms of expanding domestic demand, the meeting called for "cultivating and expanding new consumption, vigorously developing digital consumption, green consumption, and healthy consumption, and actively cultivating new consumption growth points such as smart homes, cultural and entertainment tourism, sports events, and domestic 'trendy products'", while emphasizing the need to "increase the income of urban and rural residents and expand the scale of middle-income groups". In the medium and long term, the transformation of the mainland's industrial structure is expected to provide support for the expansion of mainland consumption, and the fundamentals of consumption may be gradually repaired, especially focusing on technology-based consumption such as medicine, smart cars, and smart homes, as well as new cultural consumption that combines culture with tourism, sports, science and technology, and other fields.
Risk warning: the domestic steady growth policy is less than expected, and overseas demand is declining.