Luo Zhiheng: Eight signals released by the Politburo meeting

On April 30, the Political Bureau of the CPC Central Committee held a meeting and decided to convene the third plenary session of the 20th Central Committee of the Communist Party of China in Beijing in July this year, and to analyze and study the current economic situation and economic work. The April Politburo meeting is very important because it will decide whether to continue or adjust the previous policy tone and specific measures based on the economic performance since the beginning of the year. The 430 Politburo meeting in 2021 believed that "the economic recovery has achieved remarkable results" and called for "making good use of the window period with less pressure to stabilize growth, and concentrating on deepening the supply-side structural reform", the 429 Politburo meeting in 2022 believed that "stabilizing growth, stabilizing employment, and stabilizing prices are facing new challenges" and clearly called for "intensifying macroeconomic policy adjustment"; the 428 Politburo meeting in 2023 proposed that "the triple pressure has been eased and economic growth is better than expected", but at the same time emphasized that " The endogenous driving force is not strong, and the demand is still insufficient", so the main policy line of the Central Economic Work Conference and the National People's Congress and the National People's Congress has been continued on the whole. This year's 430 Politburo meeting affirmed the economic performance since the beginning of the year, believing that positive factors have increased and achieved a good start, but it still maintains a positive policy tone, and there is no policy shift due to the "good start" of economic data in the first quarter. Focus on the new proposals in the meeting, such as "persist in taking advantage of the momentum and avoid tightening before loosening", "relying on the front to effectively implement the macro policies that have been determined", "issuing and making good use of ultra-long-term special treasury bonds as soon as possible", "flexibly using policy tools such as interest rates and reserve requirement ratios", "developing new quality productive forces according to local conditions", "comprehensively studying and digesting the stock of real estate and optimizing the policy measures for incremental housing", "ensuring that provinces, cities and counties with high debt risks can truly reduce their debts and develop steadily". Risk warning: exports fell more than expected, and the real estate market downturn exceeded expectations

First, the overall situation judgment: positive factors have increased, a good start has been achieved, but it is still facing many challenges such as insufficient effective demand and greater pressure on business operations, the meeting first affirmed the economic performance since the beginning of this year, "the positive factors in economic operation have increased, the momentum has continued to increase, social expectations have improved, and high-quality development has been solidly promoted, showing the characteristics of rapid growth, structural optimization, and good quality and efficiency, and the economy has achieved a good start." "January-February economic data "good start", followed by March PMI data again exceeded expectations, GDP in the first quarter increased by 5.3% year-on-year, higher than the market expectation of 4.9% and 5.2% in the fourth quarter of last year, and the overall recovery continued. From the perspective of industrial structure, the steady progress of high-quality development and the sustained development of new quality productivity are mainly reflected in the development of high-tech industries, the added value of high-tech manufacturing above designated size and the investment in high-tech industries have maintained rapid growth, and the competitiveness of the "new three" in exports is relatively strong. From the perspective of demand structure, it is mainly driven by service consumption, high-end manufacturing investment and infrastructure investment. At the same time, the meeting also pointed out that "the economy continues to rebound and still faces many challenges, mainly due to the lack of effective demand, the greater pressure on business operations, the risk and hidden dangers in key areas, the domestic cycle is not smooth enough, and the complexity, severity and uncertainty of the external environment have increased significantly." "The current economy is a structural recovery, with significant differentiation, and some industries and groups are experiencing the pain of structural transformation. The macro data in the first quarter showed a "triple divergence": one is the divergence between the real growth rate and the nominal growth rate, the second is the divergence between the macro data and the micro high-frequency indicators, and the third is the divergence between the economic data and the financial data. It is necessary to see that the economy in the first quarter was realized from a relatively high base in the first quarter of last year, and that the economy is indeed recovering, but also that the recovery is uneven, enterprises and employment in the real estate related chain are still affected, and local governments are still facing problems such as land finance and interest payment pressure. It is necessary to see both hope and the uncertainty and unevenness ahead. 2. The policy tone is still relatively positive, adhere to the momentum, avoid tightening before and then loosening, and effectively consolidate and enhance the economic rebound is also a good start for the economy in the first quarter, the 430 Politburo meeting in 2021 called for "making good use of the window period with less pressure to stabilize growth, concentrating on deepening the supply-side structural reform", and the efforts to stabilize growth have weakened; "After the 430 Politburo meeting in 2021, the economy has suffered multiple shocks such as real estate risk exposure and continuous market downturn, declining exports, and rebounding from the epidemic, the pace of economic recovery has slowed down, and the policy focus has returned to stable growth. The phrase "taking advantage of the momentum and avoiding tightening and loosening" in this meeting is a new formulation, which means that it will continue to maintain or even further strengthen policies until economic development is on the right track and endogenous growth is achieved. At present, the foundation for economic recovery is still not solid, and due to the complex and severe external situation, internal risks and challenges, etc., the rhythm may show the characteristics of "wave-like development and zigzag progress". It is necessary to prevent a policy shift due to the "good start" of economic data in the first quarter, maintain the stability and continuity of policies, continuously 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. Third, the active fiscal policy should be exerted in advance, and the issuance and use of special treasury bonds and special bonds should be accelerated, and it is necessary to take into account the development of debts and ensure that the three guarantees at the grassroots level are spent on time and in full. At present, the mainland's economy continues to rebound, but the problem of insufficient aggregate demand has not been fundamentally improved, and the price downturn caused by insufficient effective demand has further led to nominal GDP being lower than real GDP growth, triggering a slowdown in the growth rate of enterprise income, household income and fiscal revenue. Therefore, it is necessary for the policy to make further efforts and rely on the front to avoid the policy effect that may be caused by the tightening before and then loosening is not as expected. In order for the policy to achieve good results, both the intensity and the timing and rhythm need to be considered. The intensity is less than expected, and it is difficult to boost market confidence; the slow pace is also not conducive to boosting confidence, and the policy must go ahead of expectations. Speeding up the issuance of ultra-long-term special treasury bonds and special bonds is conducive to forming physical workload as soon as possible, expanding aggregate demand, and optimizing the supply structure. Second, since the beginning of the package of debts, remarkable results have been achieved in the work of reducing debts, debt risks have been alleviated on the whole, and the momentum of disorderly expansion of debts has been curbed, but there has also been a contraction effect in some places. First, the purpose of debt reduction is to resolve debt risks, not the scale of debt, and there should not be a situation where economic growth is limited in order to reduce the scale of debt, and debt risks are passively increased. In some areas, the tightening of financing conditions has led to the need to borrow funds at higher interest rates to repay interest and increase hidden debts, while in some areas, government investment has declined. Second, debt should be resolved in the course of development, by optimizing the structure of debt expenditure, improving expenditure efficiency, expanding the scale of the economy to reduce debt risks, and establishing a debt management mechanism that matches high-quality development. It is suggested that on the one hand, the provincial government can coordinate the issue of interest payment, support the district and county governments to continue to revitalize assets and resources, and on the other hand, strictly control the adjustment of new government projects from the province to the city, so as to stimulate the relevant city and county governments to release their investment potential. Third, the meeting proposed to ensure that the "three guarantees" expenditure is spent on time and in full, which is conducive to ensuring the provision of basic public services and improving the ability of grassroots units to develop the economy. In recent years, the overall financial situation is to move forward under the burden of tight balance, the financial pressure of districts and counties is relatively prominent, and the grassroots three guarantees in some areas are facing certain pressure, and it is difficult to provide public services in a timely manner and the phenomenon of "arbitrary charges" has emerged. Therefore, by increasing transfer payments and revitalizing assets and resources, the pressure on fiscal revenue and expenditure at the grassroots level will be reduced, which will help the grassroots to devote more energy to economic development and avoid behaviors that affect the business environment such as "arbitrary fees". Fourth, there is still room for a prudent monetary policy, and the meeting clearly stated that "it is necessary to flexibly use policy tools such as interest rates and reserve ratios, increase support for the real economy, and reduce comprehensive social financing costs." "Monetary policy needs to be further strengthened, as prices remain depressed and real interest rates are high. From the fourth quarter of 2021 to the fourth quarter of 2023, the GDP deflator fell by 7 percentage points, while the weighted average interest rate of RMB loans of financial institutions fell by only 0.9 percentage points in the same period, which means that the real interest rate rose by 6.1 percentage points, inhibiting the rebound of household consumption and corporate investment. The central bank should take maintaining price stability and promoting a moderate price recovery as an important consideration in grasping monetary policy, maintain reasonable and abundant liquidity, and match the scale of social financing and money supply with the expected targets of economic growth and price levels. There is still room for further monetary policy, which should cut the reserve requirement ratio and cut the interest rate. After the RRR cut on February 5, 2024, the weighted average reserve ratio of financial institutions will be about 7.0%, and the one-year MLF interest rate will be 2.5%, indicating that the policy space is relatively sufficient. In addition, it is necessary to give full play to the structural monetary policy tools and increase support for major strategies, key areas and weak links. Make good use of the newly established 500 billion yuan of re-loans for scientific and technological innovation and technological transformation to support the digital, intelligent and high-end upgrading and transformation of small and medium-sized science and technology enterprises and key areas. Give full play to the role of re-lending, re-discounting, and inclusive small and micro loan support tools, and guide financial institutions to increase loans to private and small, medium, and micro enterprises, and reduce financing costs. 5. Expanding domestic demand, continuously unleashing and stimulating the potential and vitality of consumption and investment, and expanding domestic demand are the key measures for China's economy to break through the current adversity. On the one hand, the effective domestic demand is still insufficient, and the foundation for economic stability and improvement is not yet solid; on the other hand, the complexity, severity and uncertainty of the external environment have increased significantly, for example, the West has recently frequently stigmatized China's "overcapacity", which is essentially its own trade protection and industrial protection, and violates the basic principles of free trade and market competition. Expanding domestic demand is an inevitable choice to accelerate the construction of a new development pattern with the domestic cycle as the mainstay and the domestic and international cycles reinforcing each other, and it is also a strategic decision to promote the long-term development and long-term peace and stability of the mainland. The meeting put forward four measures: First, "implement the action plan for large-scale equipment renewal and trade-in of consumer goods". Promoting large-scale equipment renewal and trade-in of consumer goods will help coordinate the expansion of effective demand and supply-side structural reforms, consolidate the foundation for economic recovery, and accelerate the green transformation of the economy. It is necessary to give full play to and coordinate the support of fiscal, taxation and financial policies, and fully mobilize the enthusiasm of enterprises and residents through incentive measures; the central government should assume greater responsibility for expenditure and expand the policy space of relevant departments and institutions through reasonable measures. At the same time, it is also necessary to avoid one-size-fits-all and sporty administrative regulation and control, so as to prevent the expectations and confidence of micro subjects from being dampened by rushing for results. The second is to "create more consumption scenarios to better meet the diversified and high-quality consumption needs of the people". At present, the people's yearning for a better life has generally shifted from "whether there is" to "whether it is good or not", showing diversified, multi-level and multi-faceted characteristics, and it is necessary to meet the needs of the people by increasing the supply of high-quality products and services, and promote the supply and demand to achieve a virtuous circle at a higher level. While enriching consumption scenarios, it is also necessary to create a good, fair and transparent consumer market environment, protect the rights and interests of consumers, and let consumers dare to consume and be willing to consume. The third is to "further promote a new type of people-oriented urbanization and continue to release the potential of consumption and investment". It is necessary to promote the reform of the fiscal system, income distribution, and household registration system, and resolve the long-term problem of low household consumption rate. We will promote a new type of urbanization that is people-oriented, narrow the gap between the urbanization rate of the registered population and the permanent population, promote the equalization of basic public services and narrow the gap between the rich and the poor, and build a childbirth-friendly society to cope with the aging population and the declining birthrate. Fourth, "implement the new mechanism of public-private cooperation and fully stimulate the vitality of private investment". Standardizing the implementation of the new mechanism of public-private cooperation is conducive to smoothing the channels for private capital to participate in infrastructure investment, broadening the space for private investment, giving full play to the role of the market mechanism, and improving the construction and operation level of infrastructure and public utilities projects. Sixth, the three major tasks of real estate: to ensure the delivery of housing, to digest the stock of real estate, to optimize the incremental housing for the real estate field, on the one hand, the meeting continued to prevent and resolve real estate risks, to promote the high-quality development of real estate, on the other hand, there are also many new proposals, requiring "to consolidate the responsibilities of local governments, real estate enterprises, financial institutions, and do a good job in ensuring the delivery of housing", "combined with the new changes in the supply and demand relationship of the real estate market, The people's new expectations for high-quality housing, and the overall study of policies and measures to digest the stock of real estate and optimize the incremental housing". The first is to ensure the delivery of the house. Ensuring the on-time delivery of off-plan housing is not only directly related to the legitimate rights and interests of buyers, but also an important part of blocking the contagion chain of "residents' lack of confidence in buying houses, the decline in sales collection of real estate enterprises, and the unfinished off-plan housing". It is necessary to meet the reasonable demand for real estate financing, provide appropriate rescue and support for the cash flow problems of real estate enterprises caused by industry problems, and prevent systemic risks; deal with the problems caused by non-compliance and self-reckless operation according to the principle of marketization and rule of law, so as to minimize the impact of real estate enterprises' insurance on demand; and appropriately adjust the assessment indicators of financial institutions to avoid a hard landing of real estate thunderstorms. In short, local governments, real estate enterprises, and financial institutions should work together to ensure the delivery of housing. The second is to digest the stock of real estate. The current downturn in the real estate market is the crux of real estate risks. The reversal of the real estate supply and demand situation, the insurance of some real estate companies, the downward pressure on housing prices, and the restrictive measures in some cities still exist have led to sluggish demand, which has affected the normal collection and cash flow of the industry. In the first quarter, the area and sales of commercial housing decreased by 19.4% and 27.6% year-on-year, respectively, and real estate investment decreased by 9.5% year-on-year. The sluggish real estate sales have exacerbated the financial constraints and debt pressure of real estate companies, and the total sales of the top 100 real estate companies from January to March fell by 49% year-on-year. It is necessary to take great measures to stabilize the real estate market, such as relaxing or even gradually canceling the real estate restrictions introduced in the non-core areas of first-tier cities during the overheating period, and more precise regulation and control on a district-by-district basis to release potential demand; releasing some housing purchase qualification indicators according to the number of years of social security payment to boost demand; reducing the cost of buying a house in all links, such as increasing the range of mortgage interest deduction and reducing taxes and fees in transaction links. Finally, there is the optimization of incremental housing. At present, the main contradiction in mainland society is the contradiction between the people's ever-growing needs for a better life and unbalanced and inadequate development, and there is still a lot of room for improvement in the per capita housing area, housing conditions, and quality on the mainland. It is necessary to adapt to the development trend of new urbanization and the changes in the relationship between supply and demand in the real estate market, accelerate the construction of a new model of real estate development, accelerate the construction of the "three major projects" such as the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes, and the transformation of urban villages, improve the basic systems related to commercial housing, and better meet the needs of residents for rigid housing and diversified improved housing. Seventh, the capital market emphasizes multiple measures at the same time, entering the policy landing period, a series of measures will be intensively introduced The meeting proposed: "multiple measures to promote the healthy development of the capital market". If the Politburo meeting on July 24 last year proposed that the "active capital market" is still in the policy planning period, the initiative exploration period, and the plan demonstration period, then the mention of this meeting means that the capital market has entered the policy landing period, the rule improvement period, and the market verification period. First, a series of measures will be intensively introduced around the nine aspects of the "Several Opinions of the State Council on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market" (the new "National Nine Articles"). On April 12, the new "National Nine Articles" were promulgated, proposing nine work arrangements, including strict access to issuance and listing, strict continuous supervision of listed companies, and increased supervision of delisting. Subsequently, the China Securities Regulatory Commission and the exchange responded quickly, 1) for the entry side, the China Securities Regulatory Commission optimized the evaluation guidelines for scientific and technological innovation attributes, and the exchange raised the threshold of the main board and the Growth Enterprise Market to improve the coverage of on-site supervision. 2) For the export side, the China Securities Regulatory Commission issued the "Opinions on Strictly Implementing the Delisting System", and the exchange revised the supporting rules to increase the mandatory delisting standards. 3) On the trading side, the China Securities Regulatory Commission (CSRC) has formulated the Regulations on the Administration of Programmatic Trading in the Securities Market (for Trial Implementation) to clarify the quantitative reporting requirements and strengthen the supervision of high-frequency trading. 4) For the investment side, the China Securities Regulatory Commission has reduced the commission rate of fund stock trading. 5) In response to market opening-up, the SFC has relaxed the scope of eligible products for equity ETFs under Stock Connect, and supported the inclusion of RMB stock trading counters in Southbound Stock Connect. In the future, the policies that have been promulgated will be further refined and strengthened, and at the same time, the policies that have not been planned and introduced will be gradually implemented, such as reducing holdings, refinancing, and entering the market with long-term funds. For example, the Measures for the Administration of Shareholding Reduction by Shareholders of Listed Companies have been promulgated, a shelf issuance system has been established on the Science and Technology Innovation Board, and a fast approval channel for exchange-traded index funds (ETFs) has been established. Second, policy communication will be strengthened, and it will become the norm to actively correct deviations in response to market "misreading". The 2024 government work report proposes to "accurately do a good job in policy publicity and interpretation", and after the release of the new "National Nine Articles", the interpretation and correction of relevant policies in the capital market have increased significantly, and it may become the norm in the future to create a predictable policy environment. 1) The market misread that the new "National Nine Articles" in the dividends, delisting and other arrangements are aimed at the "small-cap stocks" purge, and then the CSI 1000 and other small-cap stock indices continued to fall, and the CSRC immediately held a press conference to make it clear that the institutional arrangements are to clear the "black sheep" and not for small-cap stocks, and the CSI 1000 rose 4.4% on April 17. 2) The market misread the new "National Nine Articles" in strict issuance and listing access, is to restrict the listing of enterprises, the China Securities Regulatory Commission immediately issued the "capital market to serve the high-level development of science and technology enterprises 16 measures" to clear the source, clearly put forward "priority to support the breakthrough of key core technology technology enterprises in the capital market financing." "With more accurate policy publicity and deeper communication between the government and the market, market volatility will be reduced and operation will be smoother. Third, it is pointed out that "it is necessary to actively develop venture capital and expand patient capital", and the energy efficiency to support new quality productivity will be significantly improved. Venture capital has always been the key to activating scientific and technological innovation, but it still accounts for a low proportion of direct financing, mainly due to difficulties in exiting and lack of long-term capital. The China Securities Regulatory Commission's "Sixteen Measures for the High-level Development of Capital Market Services for Science and Technology Enterprises" clearly proposes to expand the pilot project of private equity venture capital funds to distribute shares in kind to investors and the pilot of share transfer, broaden exit channels, and promote the virtuous cycle of "investment-exit-reinvestment". In the future, more policies will be introduced to enrich the exit channels of venture capital, guide the expansion of the sources of funds for venture capital and venture capital by optimizing the institutional mechanisms such as taxation, supervision, fault tolerance and assessment, and appropriately relax the restrictions on long-term capital investment in venture capital and venture capital such as pensions, insurance funds, and enterprise annuities. 8. Industrial development highlights new quality productivity, emphasizes "adapting measures to local conditions", and further clarifies the path of industrial development. In the future, it will become the key to industrial development to balance the relationship between war-revitalizing industries, future industries and traditional industries around the new quality of productivity. The meeting proposed: "It is necessary to develop new quality productive forces in accordance with local conditions. It is necessary to strengthen the layout of national strategic scientific and technological forces, cultivate and expand emerging industries, advance the layout and construction of future industries, and use advanced technology to empower the transformation and upgrading of traditional industries. First, it emphasizes that the development process should be "adapted to local conditions", and it also points out that the transformation and upgrading of traditional industries are indispensable. In recent years, in the process of implementing policies such as carbon reduction, the mainland has seen a situation of sporty development, resulting in the original intention of the policy from the good, but the policy effect is not satisfactory. The development of new quality productivity is a new path and specific starting point proposed by General Secretary Xi Jinping for high-quality development, and in the process of implementation, it is necessary to avoid past problems and learn from past experience. First, traditional industries should not be regarded as backward industries. The development of new quality productive forces cannot only focus on "high-tech" industries, and traditional industries can also be replaced by upgrading. For example, the automobile manufacturing industry is a typical traditional industry, but with the acceleration of electrification and intelligence, the demand for new energy and intelligent networked vehicles is increasing day by day, and it has become a "bonanza" to expand domestic demand. The development of traditional industries should be combined with policies such as "equipment renovation and transformation" and "green carbon reduction", and the overall idea is to make the industrial chain high-end, intelligent and green. At the same time, with the continuous implementation of relevant policies, it will also bring about an increase in investment in technological transformation. Second, all localities cannot rush to the top and compete in homogeneity. The eastern region has a good economic foundation, and it can be encouraged to play an exemplary and leading role in the development of high-end manufacturing and modern service industries. However, the central and western regions have different resource endowments and relatively weak industrial foundations, so we should encourage them to stabilize the overall market of traditional industries and develop industries with special characteristics and advantageous advantages. Second, the policy system for strategic emerging industries and future industries will be improved at an accelerated pace. Since the beginning of this year, along the development direction clearly pointed out in the government work reports such as low-altitude economy and digital economy, various industrial policies have been intensively introduced, the development space of related industries is broad, and the investment opportunities in related tracks have increased. For example, the low-altitude airspace is opened and the division is completed, so that the industrial development has a law to follow, and CCID Consulting predicts that by 2026, the scale of the mainland's low-altitude economy is expected to exceed one trillion yuan. For another example, the General Office of the National Development and Reform Commission and the General Department of the National Data Administration issued the "Key Points of the Digital Economy in 2024", which put forward specific measures in nine aspects, including the appropriate advance layout of digital infrastructure and the acceleration of the construction of data infrastructure systems. Ahead of the curve means that investment is expected to expand further. Liu Liehong, director of the National Data Bureau, said that data infrastructure will attract about 400 billion yuan of direct investment every year. The improvement of the data system means that the introduction of policies such as data development and utilization and data rights confirmation will be accelerated, providing a basis for governments and enterprises to use data assets for trading, realization, and financing.

——————

Luo Zhiheng: How to understand the overall performance of the economic data in the first quarter and the triple divergence?

Luo Zhiheng丨Fiscal and Taxation System and High-quality Development: Current Constraints and Future Reform Directions

Luo Zhiheng: The highlights and concerns of the "good start" of economic data

Luo Zhiheng: The basic characteristics, influencing factors and policy suggestions of residents' wage income

Luo Zhiheng: Nine signals released by the government work report

Luo Zhiheng: What do you think about "large-scale equipment renewal and trade-in of consumer goods"?

Luo Zhiheng丨Asymmetric interest rate cuts that exceeded expectations: causes, impacts and prospects

Luo Zhiheng丨Spring Festival Return to Hunan Essay: What kind of countryside, what kind of love?

Luo Zhiheng: What will local governments do in 2024?