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Economic Work Conference releases six positive signals
The Central Economic Work Conference was held last week to analyze the current economic situation and deploy economic work in 2023. Consistent with the author’s expectations in the previous column “Prospects for 2023: Three Major Changes in Economic Work”, this economic work conference reflects a clear problem orientation, attaches great importance to the current severe economic situation and triple pressures, and emphasizes that “development is The first priority” and increase the central government’s fiscal expenditures around the requirements of stable growth, give priority to boosting consumption, re-emphasize the status of real estate as a pillar industry, and substantially adjust platform enterprises and private economic policies. In my opinion, the more we fully understand the seriousness of the problem, the more effective the policies will be, the more effective the implementation will be, the faster the market confidence will improve, and the faster the economy will recover next year. The Second Economic Work Conference released the following six positive signals.
Signal 1: The focus of work is to stabilize growth and promote development
The meeting emphasized that “development is the first priority”. The meeting first put forward the “Nine Persistences” for doing a good job in economic work in terms of methodology, which clearly requires that “adherence to development is the party’s top priority in governing and rejuvenating the country, and development must be high-quality development.” Nine times in the press release Emphasis on promoting high-quality development. The last time the Central Economic Work Conference emphasized development was in 2015. At that time, it was to speed up economic development and ensure the goal of building a well-off society in an all-round way. This meeting once again emphasized that “development is the top priority” in order to alleviate the current downward pressure on the economy and promote high-quality development.
Make targeted responses to economic development issues. Regarding issues such as lack of market confidence, insufficient central fiscal strength, continued slump in consumption, private enterprise investment, platform enterprise development, high youth unemployment, and continued deterioration of real estate, which have been receiving much attention this year, the meeting made special policy arrangements and required “Improve the implementation mechanism of the Party Central Committee’s major decision-making arrangements” and strengthen the implementation of policies to achieve results. At the same time, in terms of “coordinating epidemic prevention and control and economic and social development”, the trend of accelerating the shift of work focus from “epidemic prevention and control” to “economic development” has become clearer.
Next year’s economic work requires emphasizing stable growth. The meeting bluntly pointed out the severe situation facing the current economic development. “The triple pressure of demand contraction, supply shock, and weakening expectations is still relatively large, and the external environment is turbulent, which has deepened the impact on my country’s economy.” Focus on stabilizing growth, employment, and prices.”
Among them, stabilizing employment is mainly aimed at the unemployment rate of 16-24 years old remaining at a high level of around 18% this year, and more college graduates (more than 11.3 million) and returning overseas students will be under employment pressure in 2023, but the unemployment problem will eventually be solved. It should also be based on steady growth. In terms of prices, in 2023, there is a high probability that CPI will grow moderately and PPI will fall into deflation. The overall inflationary pressure will not be great. Stabilizing prices is mainly due to the impact on production and circulation caused by the sharp increase in the number of infected people after the epidemic prevention and control is relaxed. “Timely and effective mitigation of the impact of structural price increases on some people in need.”
Signal 2: All kinds of policies focus on stabilizing growth, focusing on increasing central fiscal expenditures
In order to achieve the goal of steady growth, the meeting also gave a very clear deployment. On the one hand, it is required to “continue to implement a proactive fiscal policy and a prudent monetary policy, and increase the intensity of macro-policy regulation”; Strengthen the overall view and strengthen the consistency assessment with the macro policy orientation”.
With high leverage ratios and record low interest rates, monetary policy has shifted to structural easing. As the author pointed out in the previous article “Prospects for 2023: Three Major Changes in Economic Work” (20221207), the current leverage ratio of the real sector has also risen to a global high of 274%, and the weighted average interest rate of loans (4.34%) is at a new low since statistics. The balance of re-lending and structural monetary policy tools exceeded 5.5 trillion yuan. This year’s monetary policy has been relatively loose, but due to insufficient effective demand, the transmission of loose money to loose credit is not smooth.
The meeting called for “prudent monetary policy to be precise and powerful”: “powerful” means to keep the growth rate of broad money supply and social financing scale basically matching the nominal economic growth rate; Monetary policy tools guide financial institutions to increase support for small, medium and micro enterprises, technological innovation, and green development.
With insufficient effective demand, increasing the intensity of central fiscal expenditure has become a new focus. The meeting called for “proactive fiscal policy to increase efficiency”, the meaning is very clear. On the one hand, in order to alleviate the constraints of the current insufficient demand on economic growth, it is required to promote economic growth, especially high-quality development, by optimizing the combination of deficits, special bonds, interest discounts and other tools; In the first three quarters, the general public budget balances of 31 localities were all negative), requiring the promotion of financial resources to sink and increase transfer payments from the central government to local governments to ensure fiscal sustainability and local government debt risks are controllable.
On December 17, at the Interpretation Meeting of the Central Economic Work Conference held by the China International Economic Exchange Center, Xu Hongcai, Vice Minister of Finance, also made it clear that “reasonably arrange the deficit ratio and the scale of local government special bonds, and appropriately expand the investment areas and uses of special bond funds.” Make sure that the scope of the capital fund is not diminished.” It is expected that the fiscal deficit rate will exceed 3% in 2023, and may even increase to around 3.5%.
Signal 3: The expansion of domestic demand will give priority to boosting consumption
Under the influence of recession in Europe and the United States, expanding domestic demand has become a new strategy for coping with economic downturn and long-term development. The current global economic downturn has led to a rapid decline in China’s exports. In November, exports fell to -8.7% year-on-year, a new low since February 2020. It is expected that exports will grow at zero or lower in 2023. To this end, the meeting focused on stabilizing growth on expanding domestic demand, and called for “better coordination of supply-side structural reforms and expanding domestic demand, creating effective demand through high-quality supply, and supporting the expansion of domestic demand in various ways and channels,” ” It is necessary to fully tap the potential of the domestic market and enhance the role of domestic demand in stimulating economic growth.” At the same time, on December 15, the Party Central Committee and the State Council jointly issued the “Strategic Planning Outline for Expanding Domestic Demand (2022-2035)”. Expanding domestic demand has also become a medium- and long-term strategy for China’s economic development in the next 10 years.
Compared with investment, we should prioritize the recovery and expansion of consumption in expanding domestic demand. Since the beginning of this year, with the support of local special bonds and policy development funds, infrastructure investment has continued to grow at a high rate, but the multiplier effect is small. Government-led infrastructure investment has not driven private investment to pick up, and the trend of weakening domestic demand has not been reversed. At the same time, the proportion of my country’s final consumption expenditure in GDP has remained at more than 50% in the past ten years, and it will be as high as about 65% in 2021. Boosting consumption is crucial to stabilizing growth. For this reason, the meeting called for boosting consumption and expanding investment channels in terms of expanding domestic demand, but the focus was on consumption. It called for “enhancing consumption capacity, improving consumption conditions, and innovating consumption scenarios. Increase the income of urban and rural residents through multiple channels and support housing improvement.” , new energy vehicles, elderly care services and other consumption”.
It is expected that in 2023, the central government will increase its support for consumption. The meeting no longer mentioned tax cuts and fee reductions to help companies bail out, indicating that spending policies to boost consumption will take precedence over income policies that reduce taxes and fees for companies. The central government supports local governments to increase the issuance of consumer vouchers and directly subsidize the poorest groups through transfer payments and the issuance of special treasury bonds.
Signal 4: Real estate has returned to its status as a pillar industry
The continuous deterioration of the real estate industry has become the biggest constraint on the current economic recovery and risk prevention and control. Real estate investment accounts for total investment, real estate loans account for total banking loans, and real estate-related industry output value accounts for 25% of GDP. Real estate-related revenue accounts for more than 50% of local fiscal revenue. Its importance is self-evident. In November, the main indicators of the real estate market were still declining rapidly. The investment fell by 19.8% year-on-year, which was more than that in February 2020 when the epidemic broke out. The year-on-year declines of sources expanded to 33% and 35% respectively. For this reason, the meeting will ensure the stable development of the real estate market as the focus of effectively preventing and defusing major economic and financial risks.
The meeting faced the problem directly and called for efforts to reverse the situation of the real estate market from the three aspects of supply, demand and transformation. On the supply side, it is required to “meet the reasonable financing needs of the industry, promote industry restructuring and mergers, effectively prevent and resolve the risks of high-quality leading real estate companies, improve the asset and liability situation, and at the same time resolutely crack down on illegal and criminal activities in accordance with the law.” On the demand side, it is required to “support rigid and improved housing needs, solve the housing problems of new citizens and young people, and explore the construction of the long-term rental housing market.” In addition, the meeting focused on long-term sustainable development, and called for adhering to the positioning of “housing for housing, not speculation”, “promoting the smooth transition of the real estate industry to a new development model”, and changing the current real estate industry’s “high debt, high leverage, and high turnover” development model.
At the same time, re-emphasize that the real estate industry is a pillar industry with room for development. After the 20th National Congress of the Communist Party of China, real estate-related policies have been actively adjusted. In order to support the stabilization of the real estate market, financial regulatory authorities have launched “three arrows” (credit support, issuance of debt, and equity financing). On December 15, Liu He, Vice Premier of the State Council, emphasized in his written speech at the fifth round of China-EU Business Leaders Dialogue, “Real estate is a pillar industry of the national economy. In response to the current downside risks, we have introduced some policies and are considering The new measures strive to improve the industry’s assets and liabilities, and guide market expectations and confidence to pick up. For a period of time to come, China’s urbanization is still in a stage of rapid development, and there is enough room for demand to provide support for the stable development of the real estate industry.”
On December 17, at the Interpretation Meeting of the Central Economic Work Conference held by the China Center for International Economic Exchanges, Liu Guoqiang, Deputy Governor of the People’s Bank of China, once again emphasized that “real estate is currently both a key area and a weak link, and financial support should be increased”, “real estate It is a pillar industry, and the pillar cannot fluctuate significantly, and the overall stability must be maintained. The previous macro-control has resolved the risk of a sharp rise, and now the sharp fall has become the main contradiction, and it is urgent to stop the fall.” With the continuous implementation of relevant policies, it is expected that the real estate market will gradually stabilize and rebound after mid-2023.
Signal 5: Clearly support the five major requirements for the development of private enterprises
Private enterprises are under enormous operating pressure, and the problem of not wanting to invest is prominent. Since the beginning of this year, the profits of private enterprises have been in negative growth for most of the time. From January to October, the profits of private industrial enterprises fell by 8.1%. At the same time, private investment continued to slump. In November, private investment fell by 3.4% year-on-year, hitting a new low since April 2020. The growth rate has been near zero or below for seven consecutive months.
To this end, the meeting called for the earnest implementation of the “two unwavering” and clarified five support requirements for the development of private enterprises. In terms of policy direction, it is required to be clear and unambiguous about the incorrect argument that no longer adheres to the “two unwavering”; in terms of system and law, the requirement for equal treatment of state-owned and private enterprises must be put down; In terms of government and public opinion, it is necessary to encourage and support the development and growth of the private economy and private enterprises; in terms of protection of rights and interests, it is necessary to protect the property rights of private enterprises and the rights of entrepreneurs in accordance with the law; in terms of administrative management, leading cadres at all levels are required to solve problems for private enterprises, run To build a pro-Qing political and business relationship.
After the 20th National Congress of the Communist Party of China, on November 7, the National Development and Reform Commission issued the “Opinions on Further Improving the Policy Environment and Strengthening Support for the Development of Private Investment”, which clearly defined specific measures to support the development of private investment. With the implementation of these policy measures and the stabilization and recovery of the macro economy, private investment is expected to rebound significantly in 2023.
Signal 6: Major adjustments to platform policies, opening up space for the development of platform companies
From the perspective of speeding up the construction of a modern industrial system, the meeting called for “vigorously developing the digital economy, improving the level of normalized supervision, and supporting platform companies in leading development, creating jobs, and demonstrating their talents in international competition.” This is particularly obvious compared to previous policy deployment adjustments.
In terms of policy tone, compared with the requirements of the 2020 Economic Work Conference to “strengthen anti-monopoly and prevent the disorderly expansion of capital. … regulate the development of (platform enterprises) according to law”, the 2021 Economic Work Conference required “set up ‘traffic lights’ for capital” , strengthen the effective supervision of capital in accordance with the law, and prevent the barbaric growth of capital.” This meeting made a big change, from anti-monopoly and anti-disorderly expansion to actively supporting development.
In terms of development positioning, at the end of May 2022, the State Council issued the “Package of Policy Measures to Stabilize the Economy”, which elaborated on the development positioning of platform companies, mainly to stabilize employment, corporate bailouts, epidemic prevention and supply guarantees, and breakthroughs in technological research and development. The conference’s positioning of “leading development, creating employment, and international competition” is bigger, wider, and higher, releasing greater development space for platform companies in the future.
In terms of regulatory requirements, the meeting no longer mentioned the completion of special rectification of the platform and the setting of “traffic lights”, but changed it to “enhance the level of normalized supervision”. This shows that the special rectification of the platform economy has basically ended, and the platform supervision policy will not be further tightened. Moreover, compared with the previous requirement of “implementing normalized supervision”, “enhancing the level of normalized supervision” is no longer aimed at the implementation of supervision on platform companies, but requires the supervisory department to improve its supervisory capabilities.
On the whole, the author believes that this Central Economic Work Conference is facing the current downward pressure on China’s economy, and the policy deployment is very targeted and requires “improve the Party Central Committee’s major decision-making and deployment implementation mechanism”, which will help stabilize market confidence. And effectively alleviate the current “triple pressure”. Looking forward to 2023, if these policy deployments can be effectively implemented, coupled with the help of “planning a new round of comprehensively deepening reforms”, China’s economy will undoubtedly return to the track of rapid development and become a “retrograde” in the overall downturn of the global economy.