2023 China Economic Trend Report National Research Political Situation and Decision-Economic Information Think Tank

2023 China Economic Trend Report National Research Political Situation and Decision-Economic Information Think Tank

Writers: Li Xuesong, Feng Ming, Zhang Huihui, Li Shuangshuang, Zuo Pengfei, Sun Bowen News China News Gathering and Editing Network China News Gathering and Editing Network China Entrepreneur Mobile News Seeking Research and Discussion Network National Research Politics and Decision-Economic Information Research Think Tank National Research Think Tank and China National Policy Research Forum and Research on China's National Conditions Business Association and All-China Federation of Industry and Commerce Economic and Information Research on China Economy and Information Technology and Informatization China Entrepreneurs Forum Philosophers and Business Dialogues and China Confucian Entrepreneurs Conference Winning in Business China Marketing Planning Healthy China Health and Pharmaceutical Industry Forum National Rice Seed Core, Medicine and Food Homology Health Industry Forum Wan Yingxin Editor:

In 2022, in the face of the complex and volatile external environment such as the accelerated evolution of the world pattern, the escalation of the Ukraine crisis, and high global inflation, China's economy has risen to the challenge of repeated domestic epidemics and triple pressures, with an overall stable industrial and supply chain, fruitful achievements in scientific and technological innovation, and comprehensive deepening of reform and opening up, maintaining overall economic and social stability.

2023 is the first year for the full implementation of the spirit of the 20th National Congress of the Communist Party of China, and a key year for the implementation of the 14th Five-Year Plan.

The economy is stable and improving, showing vitality and confidence

At present, the mainland's economic and social development is still in the recovery stage under exogenous shocks, and the overall economic environment is improving, promoting a steady economic recovery.

First, the economy has achieved restorative growth. In 2022, the output of new energy vehicles increased by 97.5% over the previous year, and the electrical machinery and equipment manufacturing industry increased by 11.9%, much higher than the growth rate of other industrial products and traditional manufacturing industries.

At the same time, the growth rate of fixed asset investment is relatively stable, the growth rate of infrastructure and manufacturing investment is relatively high, and the growth rate of investment in high-tech industries is relatively fast, with a year-on-year increase of 18.9% in 2022. Among them, the investment in medical equipment and instrumentation manufacturing, electronic and communication equipment manufacturing, scientific and technological achievements transformation services, and R&D and design services increased by 27.6%, 27.2%, 26.4%, and 19.8% year-on-year respectively, playing a stabilizer role in economic recovery.

Second, the comprehensive strength of innovation has been steadily enhanced. On the one hand, the ability to drive innovation-driven high-quality economic development continues to improve, the contribution of high-tech industries to economic growth continues to increase, and emerging technologies such as big data and artificial intelligence drive the rapid development of new products and new business formats, and the output of mobile communication base station equipment and industrial control computers and systems will increase by 16.3% and 15.0% year-on-year respectively in 2022.

On the other hand, the scientific and technological innovation system has been continuously optimized, the status of enterprises as the main body of innovation has been significantly enhanced, the national laboratory system has been further improved, the pilot work of scientific and technological talent evaluation reform has been carried out in an orderly manner, and the ranking of the global innovation index has steadily risen to 11th.

Third, reform and opening up continue to advance. As of December 15, 2022, the national tax system has handled more than 4 trillion yuan of new tax reductions and fee reductions and tax refunds and deferrals, and the VAT credits and refunds that have been refunded to taxpayers' accounts have reached 2.4 trillion yuan.

As of November 2022, the actual use of foreign investment in the mainland was 1.16 trillion yuan, a year-on-year increase of 9.9%, and the foreign non-financial direct investment was 687.86 billion yuan, a year-on-year increase of 7.4%.

Fourth, the price level is generally stable. In the face of market disruptions such as the epidemic, meteorological disasters, and international market fluctuations, the mainland has effectively implemented a series of measures to ensure supply and price stability, ensuring that the prices of important livelihood commodities such as grain and oil are stable and stable, and prices have generally remained low and moderate, with the CPI increasing by less than 3% year-on-year in each month and 2% for the whole year.

With the continuous improvement of the price monitoring and early warning mechanism, the mainland's ability to adjust commodity reserves has been further enhanced. In 2022, the mainland's power generation increased by 2.2% year-on-year, and the price of residential hydropower fuel rose by 2.9%, slightly higher than the overall CPI level. At present, the core CPI is at a low level, the PPI is declining rapidly, the scissor gap that was high in the early stage has narrowed and reversed, and the structural inflationary pressure in the industrial sector has eased.

Looking forward to 2023, on the one hand, the global economic growth rate will be significantly lower than in 2022, which will put greater pressure on the mainland's foreign trade and exports, and the scarring effect caused by the epidemic in the early stage will also affect the economic growth rate;

The mainland will continue to unswervingly deepen reform and opening up, optimize the business environment, vigorously boost the confidence of market players, make greater efforts to attract and utilize foreign investment, and stabilize and enhance the investment confidence of private enterprises. In addition, considering that the base effect of the low GDP growth rate in 2022 will also help push up the economic growth rate in 2023, it is expected that the mainland's economic growth rate will return to the potential growth rate, showing a clear recovery trend, and the overall economic operation will improve.

Macroeconomic policies maintain countercyclical adjustment

Under the current situation, promoting the return of economic growth to potential growth and maintaining reasonable growth in quantity is the basis for promoting the overall improvement of economic operation in 2023.

First of all, from the point of view of the potential growth level, on the one hand, factor and capacity resources can support the mainland to achieve a relatively high economic growth rate; on the other hand, only when it is close to or reaches the corresponding growth rate can factor and capacity resources be fully utilized, and the employment pressure that has been going on for a period of time can be effectively alleviated. Secondly, from the perspective of the development environment at home and abroad:

On the one hand, the global economic growth rate will weaken significantly in 2023, which will put greater pressure on the mainland's foreign trade and exports, and on the other hand, domestic consumption will be significantly boosted due to the optimization of epidemic prevention and control measures. Third, as a developing country, the mainland continues to maintain an appropriate economic growth rate, which is conducive to continuously improving people's living standards and comprehensive national strength, and achieving the 14th Five-Year Plan and the long-term goals through 2035 as scheduled.

Based on a comprehensive analysis of the internal and external environment and the basic trend of the economy, and the need for short-term macroeconomic regulation and control and medium- and long-term sustained and healthy development, macro policies should still maintain sufficient counter-cyclical adjustment in 2023 to promote a more stable and adequate economic recovery. Proactive fiscal policies should be strengthened to improve efficiency and effectively hedge the gap between insufficient demand in the private sector. Real output has been below potential output for some time, and fiscal policy macroeconomic control in 2023 should focus on hedging the lack of effective demand in the private sector and promoting the convergence of the output gap.

First of all, maintaining a moderate deficit scale is conducive to strengthening the expected guiding role of the proactive fiscal policy, and at the same time narrowing the difference between the target deficit ratio and the actual deficit rate, which is conducive to stabilizing the pace of government bond and local bond issuance. Second, optimize the options of policy tools. Under the circumstance that the tax reduction and fee refund policy has achieved positive results and the marginal efficiency has weakened, the fiscal and tax policy tools for residents, especially low-income people and the unemployed, should be optimized in a timely manner.

Strengthen the functions of fiscal and taxation policies to stabilize employment and promote consumption, and support market entities to upgrade and transform equipment through special financial discounts, so as to enhance development stamina. Third, improve the adaptability of special bonds to the demand for infrastructure construction. Taking into account both direct economic value and indirect social value, the positive externalities are taken into account in the comprehensive income, and appropriate investment and financing mechanisms are designed for municipal infrastructure projects with low or no cash flow returns, such as municipal roads and underground pipe networks.

A prudent monetary policy should be precise and effective to create a stable monetary and financial environment for the real economy. Monetary policy should focus on giving full play to the dual functions of aggregate and structure, taking into account short-term and long-term, internal and external equilibrium, reducing the financing cost and debt burden of the real economy, and preventing and resolving financial risks. The first is to maintain a steady growth in the total amount of credit in the real economy.

In the context of sluggish demand for credit in the private sector, a two-pronged approach is needed to prevent the adverse situation of liquidity traps and credit contraction. Vigorously boost market confidence, create convenience and reduce the burden on private entities such as enterprises and residents, and moderately increase public sector credit creation to make up for the private sector financing gap.

The second is to focus on innovating structural monetary policy tools in two directions: promoting transformation and making up for shortcomings. Through structural tools such as re-lending and re-discounting, on the one hand, we will increase monetary policy support for green and low-carbon transformation, technological innovation and industrial transformation and upgrading, and emerging infrastructure construction, and on the other hand, we will provide inclusive financial services at appropriate costs for small and micro enterprises, rural areas, rural areas, public services and other shortcomings.

The third is to guide the real economy to reasonably reduce the financing cost and debt burden. Economic growth and return on capital are important factors affecting the equilibrium interest rate, and the policy interest rate should be dynamically adjusted with the natural interest rate as the anchor to guide the market interest rate to change in a reasonable direction. Fourth, in the special external environment of high US dollar interest rates, we will strengthen monetary policy response, prevent external economic and financial risk spillovers, enhance the flexibility of two-way fluctuations in the RMB exchange rate, and strengthen macro-prudential management of cross-border capital flows.

Strengthen coordination and cooperation among various policies. Monetary policy should provide support for active fiscal policy, reduce the government's incremental financing cost and stock debt burden by guiding the relevant interest rate downward, and prevent liquidity shocks and debt burden from driving up local government fiscal risks. Strengthen fiscal and financial cooperation in the infrastructure sector, increase the quota of infrastructure investment funds in an orderly manner on the basis of the pilot projects in the early stage, gradually expand the pilot scope of infrastructure REITs, revitalize the existing infrastructure assets of local governments, drive the construction of incremental projects, and form a virtuous circle between the stock and increment of infrastructure investment and financing.

Coordinate fiscal and monetary policies with industrial and scientific and technological policies, increase the support of fiscal, taxation and monetary and financial policies for industrial upgrading and scientific and technological innovation, promote the virtuous cycle of "science and technology, industry, finance, taxation and finance", and form a joint force to promote high-quality development. Strengthen the coordination of fiscal policy, monetary policy and macro-prudential policy, strengthen the financial stability guarantee system, timely handle and resolve risks in key areas such as real estate and small and medium-sized banks, and prevent risks from spreading across regions and markets.

Weak links still need to be consolidated and strengthened

With the introduction and implementation of the State Council's 33 measures to stabilize the economy and 19 successive policies, the mainland's economy has stabilized and improved amid fluctuations, but the foundation is not yet solid.

Weak private sector consumption and investment, and insufficient domestic demand constrain economic growth. Looking back at the year-on-year growth rate of total retail sales of consumer goods in 2022, there was positive growth in the first and third quarters and negative growth in the second and fourth quarters. After deducting price factors, the per capita consumption expenditure of residents for the whole year fell by 0.2 percent in real terms. The relatively high growth rate of household consumption expenditure on grain, oil, food, medicine and other necessities, combined with the high year-on-year growth rate of the deposit balance of financial institutions, indicates that residents' effective consumption demand, especially the contraction of improved consumption and the increase of precautionary savings.

As far as investment is concerned, due to the unstable expectations of market players, private investment continued to be weak, and the decline in real estate investment further expanded. In addition, in the manufacturing and non-manufacturing PMI sub-items, new orders and orders in hand continue to be below the critical value, and the effective demand in the market is insufficient. The recovery of the labor market is slow, and the expansion and quality of employment still need to be strengthened.

In 2022, 12.06 million new jobs were created in urban areas, but the surveyed urban unemployment rate of people aged 16 to 24 remained at a high level, putting greater pressure on the job market. As far as the main body of employment is concerned, the inactivity of the market directly restricts the expansion of labor demand, and the rigidity of wage payment prompts formal enterprises to be more inclined to adapt to the needs of phased expansion through automation and intelligent means, squeezing the potential jobs of unskilled labor. As far as the key groups are concerned, the job creation rate in the main industries favored by college students has declined, the labor saturation level of migrant workers who have gone out is not high on the whole, and it is still difficult for the unemployed to find new jobs.

The global industrial and supply chains continue to adjust, and the weak links need to be consolidated and strengthened urgently. The global industrial and supply chains are accelerating differentiation and reconstruction, bringing a series of new challenges. First, the development logic of the global industrial chain is shifting from efficiency priority to efficiency and safety, the industrial chain division pattern is accelerating the evolution from globalization to regionalization, and the diversion pressure faced by the mainland industrial chain has increased.

Second, the global industrial and supply chain pattern is facing challenges, with some developed countries trying to interfere with the normal operation of the industrial and supply chains through multilateral export controls, legislative obstacles and other means, and the profit differentiation between the upstream and downstream of the mainland's industrial chain needs to be improved, and some shortcomings need to be filled urgently.

Real estate has not yet come out of the deep adjustment period, and the pressure on local fiscal revenue and expenditure has increased. The overall performance of real estate is still sluggish, and the situation of weak supply and demand has not been fundamentally improved, which has dragged down the macroeconomic market. From the perspective of the supply side, the liquidity risk and credit risk of real estate enterprises are still large, the willingness to purchase land is insufficient, and the area of new construction continues to shrink.

The initiative to slow down tax rebates and the increase in epidemic prevention expenditures have led to increased pressure on local governments, especially grassroots governments, to balance their fiscal revenues and expenditures. In addition, the downturn in the real estate market has caused a double blow to local governments' real estate-related tax revenues and land transfer revenues, and the real estate-land transfer-infrastructure investment cycle has shrunk significantly. Some districts and counties have difficulties in transferring funds, and it is necessary to guard against hidden debt risks.

Better coordinate the improvement of quality and the growth of quantity

Entering a new stage of development, it has become more important to coordinate the effective improvement of economic quality and the rational growth of quantity. In 2023, in order to accelerate the construction of a new development pattern and focus on promoting high-quality economic development, it is necessary to focus on boosting confidence, expanding domestic demand, stabilizing employment and increasing income, and fully stimulate the vitality of market players.

Boost the confidence of market players, and focus on expanding private investment and household consumption. The first is to optimize the environment for the development of private enterprises, protect the property rights of enterprises and the rights and interests of entrepreneurs in accordance with the law, and promote the development and growth of the private economy. The second is to further give full play to the supporting role of tax and fee reduction and inclusive credit measures for small, medium and micro enterprises, strictly regulate government non-tax revenue, improve the efficiency of government special bond expenditure, enhance the leading role of government investment in private investment, and effectively stimulate the key role of investment in optimizing the supply structure.

The third is to give full play to the important role of macroeconomic policies in stabilizing asset prices, pay attention to the health of corporate balance sheets, prevent the unexpected downturn of the real estate industry and the rapid decline in financial asset prices from having a negative impact on enterprises, and avoid the loss of corporate balance sheets leading to the contraction of credit and dragging down economic growth.

Fourth, we will step up efforts to protect jobs and build stable expectations of residents' future income levels, so as to alleviate the precautionary savings motive squeezing consumer spending, and ensure the sustainability of business activities in offline consumer industries such as catering and tourism, so as to release residents' consumption demand to a greater extent and stabilize the positive role of domestic demand in economic recovery.

Improve the scientific and technological innovation system and enhance the efficiency of the national innovation system. At present, the virtuous cycle of science and technology, industry, and finance on the mainland is not smooth enough, and the pace of reform needs to be further accelerated. The first is to strengthen the main position of enterprise innovation. Increase the supporting role of government funds in basic research of enterprises, encourage the integration and innovation of large and medium-sized enterprises, improve the collaborative innovation system of industry, university and research oriented by the scientific and technological needs of enterprises, and enhance the participation of enterprises in major national research and development projects.

The second is to establish a diversified investment system for scientific and technological innovation, and organically combine the funds of the government, enterprises and society. Increase the banking system's support for science and technology credit products, open up financing information in key science and technology innovation fields to financial institutions and venture capital that meet the conditions, and improve the financial support system around key core technologies and major original technologies.

The third is to expand the boundaries of the international innovation network and deeply integrate into the global innovation network. Make full use of the major strategic opportunities in the high-level opening up, encourage enterprises to go global, lay out the innovation chain and talent chain around the industrial chain, and strengthen cooperation with international R&D institutions. Fourth, we should further improve the classification and evaluation system of diversified talents in universities and research institutes, strengthen the peer review and supervision mechanism, guide scientific researchers to pay attention to the quality of achievements, and reduce the hot spots and short-term behaviors of scientific research projects.

Enhance the resilience of industrial and supply chains, and improve the level of modernization and international competitiveness. The first is to strengthen the orientation of industrial demand, and coordinate the promotion of making up for shortcomings and forging long boards. Focus on key areas and core components, target a number of key technologies that are "stuck in the neck", and accelerate the localization and substitution of key products in the industrial chain. Stimulate the vitality of the development of the real economy, pay attention to the leading role of the industrial chain, and guide and promote the in-depth cooperation and collaborative innovation of the upstream, midstream and downstream of the industrial chain, large and small enterprises.

The second is to strengthen the supply of systems and improve the accuracy and implementation of policies. We will further promote the expansion and strengthening of strategic emerging industries such as new energy vehicles, accelerate the upgrading of the industrial base and the modernization of the industrial system, and enhance the competitiveness of the entire industrial chain in the fields of high-speed rail, shipbuilding, and aerospace. The third is to strengthen the bottom-line thinking of food and energy security and accelerate the construction of the national food security industrial belt.

Promote the formulation of the food security law in an orderly manner, and at the same time consolidate the foundation for coal supply and strengthen the independent energy supply capacity. Fourth, strengthen international cooperation in key industries. Enhance the ability of cross-border allocation of important resources, support domestic enterprises to deeply integrate into the global production network, promote the construction of a mutually beneficial and win-win global industrial and supply chain system, and promote the construction of an early warning and monitoring system for risks in important industrial and supply chains, so as to enhance the ability and level of risk prevention and resolution.

Build a long-term mechanism to promote the healthy and stable development of the real estate market. Although the policy of "guaranteed delivery" has gradually taken effect, due to the meeting of short-term and long-term factors, the imbalance between supply and demand and the superposition of financial factors, the deep adjustment and risk release of the real estate industry may continue. It is necessary to effectively resolve real estate-related risks, and classify and manage and dispose of real estate enterprises according to the type and severity of risks.

It is necessary to stabilize housing prices, stabilize land prices, and stabilize housing-related credit by market-oriented means, not only to prevent frequent failure of land auctions to dampen expectations, but also to prevent some hot cities from skyrocketing housing prices in the later period due to insufficient land supply, and promote the smooth transition of the real estate industry to a new development model. According to the situation of population flow, it is necessary to rationally adjust the housing construction land indicators in various regions and cities, realize the "linkage between people and land", introduce special policies to support the development of the commercial housing rental market, especially long-term rental apartments, increase the supply of affordable rental housing with a net inflow of population into cities, and steadily implement a long-term real estate mechanism.

We will accelerate the pace of reform in key areas, deepen opening-up and respond to external challenges. The first is to promote the pilot reform of the marketization of factors to achieve new results, accelerate the construction of the basic system of data elements and the national unified market, and promote the continuous optimization of the high-standard market system. The second is to stabilize and improve the quality of trade in goods, innovate the development mechanism of trade in services, and further promote the pilot comprehensive reform of the service industry, further reduce the negative list for foreign investment access, and make greater efforts to attract and utilize foreign investment, and align with international high-standard economic and trade rules to improve the level of facilitation of cross-border flow of various factors.

The third is to strengthen cooperation with Germany, France and other developed countries in the fields of science and technology, industry and investment, deepen cooperation under the Belt and Road Initiative, deepen participation in the global industrial division of labor and cooperation, and promote the G20 and other countries to play the role of international macroeconomic policy communication and coordination, jointly maintain the stability and smoothness of global industrial and supply chains and financial markets, and jointly respond to the risk of world economic recession.

Coordinate development and security, and do a good job in risk prevention and mitigation in key areas. On the one hand, take the initiative to deal with local financial pressure. Increase the transfer payment of grassroots finance, and adhere to the bottom-line thinking to do a good job of "ensuring people's livelihood, wages, and operation". Accelerate the reform of the vertical fiscal and taxation system of the government, strengthen the financial resources of local governments, especially grassroots governments, hedge the gap caused by the decline in land transfer revenue, and guard against hidden debt risks. Improve the institutional construction of non-tax revenue, prevent non-tax revenue from interfering with the business environment and dampening the expectations of market entities.

On the other hand, it is necessary to prevent and resolve major financial risks. Accelerate the introduction of the Financial Stability Law to provide institutional compliance for the prevention and handling of financial risks. Guide and support financial institutions to replenish capital, optimize the layout of small and medium-sized banks, improve the modern corporate governance of small and medium-sized commercial banks, and enhance their ability to resist risks.

At the same time, we should adhere to the macro policy of focusing on ourselves, effectively respond to changes in the external environment and policy shocks, guard against the financial risks that may be caused by the macro policies of the United States, European countries and some emerging market economies stepping on the seesaw between "inflation suppression" and "recession prevention", and make a plan to deal with the new round of international financial crisis.

(Author: Chinese Academy of Social Sciences Macroeconomic Research Think Tank Economic Daily China Economic Trends Research Institute) @ State Information Center, China Economic Information Agency, China Economic and Information Research Center, National Research Political Information Economic Information Think Tank, National Research Political Information Strategy (Shandong) Economic Information Co., Ltd. News China, China News Gathering and Editing!

2023 China Economic Trend Report National Research Political Situation and Decision-Economic Information Think Tank