Chief Outlook|Zhao Wei of Guojin Securities: The economy is expected to improve in 2024, and the RMB may remain relatively strong

In 2024, how will China's macroeconomic trajectory begin, what are the driving forces for growth, and what are the new drivers for high-quality development?

On December 30, Zhao Wei, chief economist of Guojin Securities, was a guest on the surging news "Spring Breeze Blows and Born" - "Chief Connection" 2024 New Year's Eve Market Outlook Program, bringing analysis and outlook.

Currently, Zhao Wei also serves as a director of the China Chief Economist Forum and a member of the Chief Economist Committee of the Securities Association of China. At the same time, he served as an off-campus tutor for masters at Fudan University, Zhejiang University and Chinese Renmin University, and wrote books such as "Opportunity for Transformation" and "Transformation • Rebirth". On July 6, 2023, Zhao Wei was invited to participate in the expert symposium on the economic situation hosted by the Premier of the State Council.

The economic performance in 2024 may be better than that in 2023

"Looking back at 2023, in general, there are three main reasons why the domestic economic recovery has been somewhat lower than expected. Zhao Wei pointed out that the first is that in the early stage of economic repair, the broad fiscal expenditure is insufficient; second, the monetary policy multiplier effect is weak in the context of insufficient fiscal force due to the slow restoration of confidence; and third, the pressure on the stock of debt is relatively large, which suppresses the ability and willingness of enterprises to expand reproduction and residents to increase leverage, which in turn leads to the relatively weak financing demand after the credit surge at the beginning of the year.

Looking ahead to 2024, Zhao Wei believes that on the whole, next year's economic performance may improve compared with 2023.

"In 2024, as the fiscal policy shifts from 'accumulation' to 'strength', the strength of the economic 'cycle' is conducive to the lifting of the growth center. Historically, real interest rates have been inverse and weakly ahead of inventories. Real interest rates are now at historically high absolute highs and a downtrend is confirmed. At the same time, real inventory levels are at historic lows, and the trend of repair has begun. Zhao Wei said.

Zhao Wei said that after dismantling each item, it will be found that the economic highlights in 2024 can be found back to the policy itself. In order to ensure that the economic transformation is "seeking progress while maintaining stability", a more feasible idea is to directly support infrastructure investment and indirectly support consumption through the central government's "leverage", and the real estate policy focuses on the "three major projects". Therefore, infrastructure and consumption are expected to continue to improve, and the repair of the real estate chain will also weaken the drag on the economy.

Fiscal policy space may exist more at the central level

In terms of macroeconomic regulation and control, Zhao Wei said that the Central Economic Work Conference held in December added "strengthening the innovation and coordination of policy tools" and "strengthening the coordination and cooperation of fiscal, monetary, employment, industry, regional, science and technology, environmental protection and other policies".

"On the one hand, it refers to the follow-up fiscal and monetary policies or strengthening coordination and innovating policy tools to support stable growth. On the other hand, it may point to the need for multi-sectoral policies to 'form a synergy', and macroeconomic and monetary policies will pay more attention to coordinating with the promotion of reforms in key areas such as stabilizing employment and scientific and technological innovation. Zhao Wei said.

Zhao Wei pointed out that in terms of fiscal policy, the new emphasis is placed on making good use of fiscal policy space and optimizing the structure of fiscal expenditure. In 2024, the central government may continue to increase fiscal support for local governments, and moderately increasing the deficit ratio and "quasi-fiscal" are all potential ways to replenish funds.

"And 'improving the efficiency of funds and policy effects' echoes with 'major economic provinces should really provoke the beams', or point to the follow-up fiscal funds are more inclined to smaller debt burdens and larger economic provinces with more project reserves. Zhao Wei said.

Zhao Wei said that in addition to the "moderate afterburner" of the total amount and the optimization of structural expenditure, the "quality and efficiency improvement" of the fiscal in 2024 also needs to be supported by the matching of stable growth project reserves. Therefore, when the financial funds are sufficient, it is the key to reserve the declared projects in advance, increase the support of the early elements of the project, and focus on supporting the water conservancy and transportation high-quality projects in the "14th Five-Year Plan", or accelerate the implementation of the physical workload.

There are still "bright spots" in exports

In terms of structure, Zhao Wei expects that after the base impact is weakened, the convergence of consumption growth to the income side will continue, driving a slight improvement in consumption. The extent of the recovery of social group consumption activities has a more critical impact on the growth rate of total consumption, and the changes in relevant policies deserve close attention.

"In 2024, consumption growth may further converge to income growth, rebounding to about 5.3%. As of the third quarter of 2023, the cumulative growth rate of per capita disposable income has recovered to 5.2% (a two-year compound growth rate of 4.7%, stable at about 8% before the epidemic), and the cumulative growth rate of total retail sales of consumer goods is 6.8% (a two-year compound growth rate of 3.7%, about 10% before the epidemic). Zhao Wei pointed out.

In terms of exports, Zhao Wei said that under the scenario of a further slowdown in the global economy in 2024 and a resilient export share, the export growth rate may decline slightly compared with 2023 (expected to be -3.0% in 2023 and -4.0% in 2024).

However, Zhao Wei stressed that there are still "bright spots" to be tapped in mainland exports in 2024.

First of all, ASEAN countries represented by Vietnam are still in the early stage of industrialization, and they have a relatively large import demand for some resources and consumer goods from the mainland. Secondly, under the change of geopolitical pattern, the mainland's share of imports from Russia, Argentina and the Middle East has risen trendingly, and automobiles and electrical equipment are expected to continue to benefit.

Thirdly, the phased decline in U.S. bond interest rates has led to the improvement of the prosperity of interest-rate sensitive industries, and the inventory replenishment of some industries will drive related trade demand. In the context of the relatively certain downward trend of the U.S. economy, inventory replenishment is likely to be structural, represented by some interest-rate sensitive industries with low inventories, such as real estate chain, electromechanical, and equipment manufacturing. From the perspective of the structure of the mainland's exports to the United States, mechanical and electrical equipment, furniture, textiles, etc. happen to be the categories with the highest proportions.

The RMB is expected to remain relatively strong

In terms of exchange rate, Zhao Wei said that the appreciation of the RMB in the early stage was more dependent on the decline of the US dollar. However, since mid-November, the renminbi has shifted from "passive" appreciation to "active" appreciation. At the same time, the strength of "foreign exchange settlement" has emerged.

"Since the beginning of 2023, under the concern of RMB depreciation, a large amount of foreign exchange settlement demand has been 'backlogged', and the release of year-end seasonal foreign exchange settlement demand may have obvious support for the exchange rate. The concentrated release of the backlog of foreign exchange settlement demand at the end of the year may support the strengthening of the RMB. Zhao Wei pointed out.

Zhao Wei further pointed out that the continuation of the policy attitude of "stabilizing the exchange rate" has a certain support for market confidence, and the derivatives market has also released a positive signal that the exchange rate will continue to strengthen. The Central Financial Work Conference proposed to "strengthen the management of the foreign exchange market, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and the consistency of the exchange rate stabilization policy has certain support for market confidence."

"In the derivatives market, the strengthening of the forward exchange rate and the decline of the risk reversal factor have also released a signal of the continuation of the appreciation of the RMB. Zhao Wei said.

In the medium term, Zhao Wei believes that the resonance of internal and external factors may support the RMB to remain relatively strong. In terms of internal factors, the current inventory is at an absolute low level, superimposed by the decline in real interest rates, the signal of economic stabilization and upward has become more and more clear, and the "acceleration" of broad fiscal spending may further inject upward "momentum" into the economy.

"From the perspective of external factors, the U.S. economy continues to weaken, the expectation of interest rate cuts is gradually rising, and the 'top' of the U.S. dollar may have appeared, and the trend of falling may support the RMB exchange rate. Zhao Wei said.