Lian Ping, President and Chief Economist of Guangkai Chief Industry Research Institute, Chairman of China Chief Economist Forum
On April 30, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and economic work. At the same time, it must be noted that the mainland's economy has a stable foundation, many advantages, strong resilience, and great potential, and that a good start and a good rebound are the basic characteristics and trends of the current economic operation, and it is necessary to enhance confidence in doing a good job in economic work. Overall, the next macro policies will be more active, more vigorous and more targeted, and a series of important policy signals are worth paying attention to.
Aspect 1: Fiscal efforts focus on ultra-long-term special treasury bonds and local special bonds
The meeting pointed out that it is necessary to make efforts to effectively implement the macroeconomic policies that have been determined, and to implement a positive fiscal policy and a prudent monetary policy. It is necessary to issue and make good use of ultra-long-term special treasury bonds as soon as possible, speed up the issuance and use of special bonds, and maintain the necessary intensity of fiscal expenditure.
Since the beginning of this year, the central government's tone of fiscal policy has been to "moderately strengthen efforts and improve quality and efficiency." Specific work targets include: The deficit rate will be arranged at 3 percent, with a deficit of 4.06 trillion yuan, an increase of 180 billion yuan over the previous year's budget; the scale of general public budget expenditure will be 28.5 trillion yuan, an increase of 1.1 trillion yuan over the previous year; and 3.9 trillion yuan of local government special bonds will be arranged, an increase of 100 billion yuan over the previous year. What is particularly noteworthy is that the central authorities have decided to issue ultra-long-term special treasury bonds for several consecutive years starting this year, which will be used specifically for the implementation of major national strategies and security capacity building in key areas, and will first issue 1 trillion yuan this year.
Looking forward to the second quarter and the second half of the year, the mainland will coordinate the needs of macroeconomic regulation and control, fiscal sustainability, and optimization of the tax system, and comprehensively use the investment in the central budget, funds from newly issued treasury bonds, policy-related development funds, as well as policy tools such as financial subsidies, financial interest discounts, and financing guarantees, and take multiple measures to maintain a reasonable degree of expansion. The first is to implement the structural tax and fee reduction policy. We will improve the financial support policies for small and medium-sized enterprises, further reduce or exempt value-added tax and income tax for small, medium and micro enterprises, and implement tax incentives such as additional deductions for R&D expenses. The second is to increase financial support for industrial transformation and upgrading. We will increase tax and fee support for advanced manufacturing, digital economy and other industries, focus on the construction of a modern industrial system, and promote the construction of major infrastructure such as energy, water conservancy, transportation, and new infrastructure. The third is to increase fiscal spending in the field of people's livelihood. We will increase the reduction or exemption of taxes and fees and financial subsidies for small, medium, and micro enterprises, individual industrial and commercial households, enterprises that stabilize and expand jobs, and employment training institutions, and increase related expenditures on medical care, pensions, and education. Fourth, speed up the pace of local bond issuance. As the impact of new government bond issuance weakens, it is expected that the issuance of local government bonds, especially new special bonds, is expected to accelerate in the second quarter. As of late April, various localities have disclosed that they plan to issue more than 2.2 trillion yuan of local bonds in the second quarter, of which 1.2 trillion yuan are planned to be issued for special bonds. Fifth, the issuance of 1 trillion yuan of ultra-long-term special treasury bonds should be launched in a timely manner. Judging from historical experience, it is quite possible that the issuance of special treasury bonds will be carried out in the third quarter, but it cannot be ruled out that in order to form a physical workload as soon as possible, the issuance will be carried out at the end of the second quarter. For example, in 2020, the issuance of 1 trillion yuan of anti-epidemic special treasury bonds began in mid-June of that year and was completed by the end of July.
Aspect 2: Monetary policy is flexible and makes good use of tools such as double rates
The meeting pointed out that it is necessary to flexibly use policy tools such as interest rates and deposit reserve ratios to increase support for the real economy and reduce comprehensive social financing costs.
According to the spirit of last year's Central Economic Work Conference and this year's government work report, the monetary policy in 2024 will be "flexible, moderate, precise and effective", focusing on counter-cyclical and cross-cyclical adjustment, continuing to operate loosely, and cooperating with fiscal policy to focus on increasing support for scientific and technological innovation, advanced manufacturing, green transformation, inclusive small and micro enterprises, digital economy, etc., focusing on expanding domestic demand, boosting confidence, and promoting a virtuous cycle of the economy.
Looking forward to the second quarter and the second half of the year, the monetary policy orientation will remain steady and loose, and efforts will be made to create a favorable monetary and financial environment for the economic recovery. First, we will continue to make good use of aggregate and price tools to maintain reasonable and abundant liquidity. In addition to the scale of social financing and M2 to maintain a growth rate of not less than 8%, the possibility of another RRR cut in the second or third quarter cannot be ruled out, and the possibility of another RRR cut is mainly targeted. At present, the weighted average reserve requirement ratio of small and medium-sized banks has dropped to 5.0-6.5%, while the weighted average reserve ratio of large banks is 8.5%, and there is still some room for reduction. As the central banks of the United States and the European Union and some developing countries turn to interest rate cuts in the second half of 2024, the room for a reduction in the mainland's policy rate will be further opened. It is expected that there is room for MLF to decline by 10-20bp, and LPR may still be lowered accordingly. The second is to make good use of structural monetary policy tools and strengthen guidance and incentives for financial institutions. This includes continuing to implement re-lending to support carbon emission reduction, expanding the scope of support and increasing the scale of re-lending, appropriately increasing the scale of re-lending to support agriculture and supporting small and medium-sized enterprises, continuing to implement inclusive small and micro loan support tools, and expanding the standard of inclusive small and micro loans covered by relevant incentive policies from no more than 10 million yuan to no more than 20 million yuan for a single household. In April this year, the central bank also announced the establishment of a new structural monetary policy tool "scientific and technological innovation and technological transformation re-lending" on the basis of the original scientific and technological innovation re-lending and equipment renovation special re-lending, aiming to encourage and guide financial institutions to increase financial support for small and medium-sized scientific and technological enterprises, technological transformation and equipment renewal projects in key areas. Third, we should reasonably grasp the relationship between the two largest financing markets, bonds and credit, and support enterprises in issuing bonds to release more credit resources. On the one hand, we will strengthen coordination and cooperation with fiscal policies to ensure the smooth issuance of government bonds and continue to promote the development of the corporate credit bond and financial bond markets; on the other hand, we will support financial institutions to actively tap credit demand and project reserves, and take multiple measures to promote the reasonable growth of loans. In the future, the scale of central and local bond issuance is expected to be moderately expanded, and corporate bond financing is likely to continue to increase. The freed up bank credit can be used to meet the capital needs of enterprises and residents in other areas.
Monetary policy will also work closely with fiscal policy. The two work together and complement each other to create loose macro policy space, create a good monetary and financial environment, and jointly help the economy operate within a reasonable range. If monetary policy can play a more active role in smoothing out the impact of daily fiscal revenue and expenditure, supporting the centralized issuance of government bonds, meeting the financial needs of key areas and weak links of the state, and supporting the establishment of policy-oriented development financial instruments, the dual expansion effect of macroeconomic policies will be able to better meet the actual needs of economic operation. The central bank's appropriate increase in the purchase of treasury bonds is an important manifestation of monetary policy to support fiscal policy, which is conducive to the stable operation of the bond market. This measure will help enrich the central bank's monetary policy toolbox and enhance the functions of base money supply and policy control mechanism.
Aspect 3: Effectively digest the stock of real estate and optimize the incremental housing
For the first time, the meeting proposed to "comprehensively study and digest the stock of real estate and optimize the policy measures for incremental housing." "The current real estate market is still in the stage of grinding the bottom, and the demand for housing is still relatively sluggish, with the cumulative sales area of commercial housing in the first quarter of 2024 falling by 19.4% year-on-year, and housing prices continue to fall. The inventory-to-sales ratio is one of the core indicators to measure the cycle of the commercial housing market, and the inventory-to-sales ratio is currently at a historical high. As of the end of March 2024, the national inventory-to-sales ratio of commercial housing was 5.6, down from 6.2 at the end of 2023, but still at a historical high; the last time the inventory-to-sales ratio exceeded 5.5 was in the first half of 2015, and the inventory-to-sales ratio finally fell back to the level of 2-3 relatively stable operating range was from the second half of 2017 to 2018, roughly after about 2 years. It is expected that in the next stage, housing support policies need to be further strengthened, promote the acceleration of the pace of decentralization of stock housing, balance the relationship between stock and increment, and promote the high-quality development of real estate.
The meeting once again emphasized that "the responsibilities of local governments, real estate enterprises and financial institutions should be consolidated, and the work of ensuring the delivery of housing should be done to protect the legitimate rights and interests of buyers". This part of the content basically follows the formulation of several major central meetings in the past. Considering that the current real estate market risk is mainly the liquidity risk of real estate enterprises, the poor housing sales since the beginning of the year have led to the continuous decline in the operating income of real estate enterprises, resulting in the increase in the difficulty of their market-oriented financing, and more than forty percent of listed real estate enterprises have a cash short-term debt ratio of less than 1; the overall asset-liability ratio of real estate enterprises is at a high level of more than 70%, and the debt problems of some leading real estate enterprises are now worrying, and the risks of real estate enterprises are still worrying. It is expected that from the second quarter to the end of the year, in the context of real estate macro-prudential, the central bank will continue to implement the implementation period of the "16 financial policies" for real estate, increase the support of bond financing support tools for private enterprises, meet the reasonable financing needs of private real estate enterprises, and accelerate the implementation of the urban real estate financing coordination mechanism.
Looking ahead to the second and third quarters, the real estate market is expected to reach a phased bottom and then stabilize after bottoming. The decline in sales and housing prices is expected to narrow marginally, the debt repayment pressure of real estate enterprises will be reduced, the land market in first-tier and some key second-tier cities may recover marginally, and the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes and the transformation of urban villages and other "three major projects" may accelerate the implementation of project construction, and the trend of real estate investment may first decline and then rise.
Aspect 4: Effectively expand domestic demand through equipment renewal and trade-in of consumer goods
The meeting pointed out that it is necessary to actively expand domestic demand and implement the action plan for large-scale equipment renewal and trade-in of consumer goods. Large-scale equipment renewal will play a role in stimulating effective investment, accelerating industrial upgrading, and developing new quality productivity. With the in-depth promotion of new industrialization in the mainland, the demand for advanced equipment in the field of industrial production will continue to grow, which is a key area for large-scale equipment renewal. Whether it is infrastructure investment or manufacturing investment, it is inseparable from the strong support of advanced equipment. Advanced equipment can effectively improve production efficiency and improve product quality, thereby strengthening the competitive advantage of products, and at the same time, it is also the basis and guarantee for vigorously developing new quality productivity. According to estimates, with the in-depth promotion of high-quality development and the accelerated development of new quality productivity, the demand for equipment renewal will continue to expand, and it will be a huge market with an annual scale of more than 5 trillion yuan. The trade-in policy for consumer goods will play a positive role in boosting consumption. The mainland has a huge trade-in durable goods consumer market. With the economic development and the increasing improvement of people's living standards, large durable consumer goods such as automobiles and home appliances have entered the era of both increment and stock from the era of simple increment. In 2023, the number of cars will be about 336 million, and the number of major categories of household appliances such as refrigerators, washing machines, and air conditioners will exceed 3 billion. In the short term, the trade-in policy can stimulate consumer demand and drive related investment, effectively stimulating and expanding domestic demand. In the long run, the trade-in can further promote the transformation and upgrading of consumption and the optimization and upgrading of the industrial structure, and drive the economy to achieve high-quality transformation and development. According to estimates, automobiles and home appliances are expected to bring a total consumption increase of about 350 billion to 400 billion yuan, driving the year-on-year growth rate of total retail sales of consumer goods to increase by 0.7 percentage points to 6.2% in 2024. It can be seen that the implementation of the trade-in policy for consumer goods will effectively expand domestic demand.
Aspect 5: Actively innovate and increase efforts to promote exports and investment
The meeting pointed out that it is necessary to actively expand intermediate goods trade, service trade, digital trade, and cross-border e-commerce exports, support private enterprises to expand overseas markets, and increase efforts to attract and utilize foreign investment. Compared with commodity trade, the mainland's trade in services has a perennial deficit and accounts for a relatively low proportion of the world, so trade in services is a potential source for the mainland's expansion of exports in the future. In 2023, the total import and export volume of services in mainland China will be 6,575.43 billion yuan, a year-on-year increase of 10%, and the scale of service trade will reach a record high. Digital trade is an effective means of expanding trade through cross-border transactions (including digital products and services) conducted by digital means and traditional goods and services facilitated by digital technology. Digital transactions can break the space and time constraints of traditional trade, making transactions more efficient, convenient, and cheaper, and the circulation of goods and services more rapid and extensive. According to the latest data, the total value of China's digital service imports and exports was US$371.08 billion, up 3.2 percent year-on-year, ranking third among the top 10 countries in terms of growth rate, and digital service exports accounted for 5.1 percent of the world's total, up 0.2 percentage points year-on-year. Cross-border e-commerce transactions not only meet the diversified and personalized needs of domestic consumers, but also help mainland products reach the world, and at the same time shorten the distance between foreign trade enterprises, especially small and medium-sized enterprises, and the international market, becoming an important driving force for the development of mainland foreign trade. In 2023, the mainland's cross-border e-commerce imports and exports will reach 2.38 trillion yuan, an increase of 15.6%, and the number of consumers participating in cross-border e-commerce imports will increase to 163 million. Cross-border e-commerce has become an innovative and important carrier of mainland exports, and has a sustained and positive role in promoting exports. High-level opening up to the outside world is inseparable from the active participation of outstanding foreign enterprises and foreign investment. It is necessary to further strengthen the correlation and interaction of domestic and foreign industrial chains, deeply participate in the global industrial division of labor and cooperation, seize the new opportunities brought about by the adjustment of the global industrial structure and layout, stabilize and attract foreign investment, and optimize the structure of foreign investment. We will give more preferential treatment to foreign investment, gradually relax the pilot projects for foreign investment in the fields of scientific and technological innovation and financial capital, reasonably shorten the negative list for access, and expand the catalogue of industries and foreign-funded projects that encourage foreign investment.
Report Writers:
Lian Ping, President of Guangkai Chief Industry Research Institute
Liu Tao is the vice president of Guangkai Chief Industry Research Institute
Ma Hong, Senior Researcher of Guangkai Chief Industry Research Institute
Luo Huanjie is a senior researcher at Guangkai Chief Industry Research Institute
