Events
On December 8, the Political Bureau of the Communist Party of China held a meeting to analyze and study the economic work in 2024.
The Politburo meeting at the end of the year is very important, and it will set the general tone for the upcoming economic work conference and next year's "work report" and determine the general direction of next year's economic work. There are a number of new formulations for this meeting:"Next year, we must adhere to the principle of seeking progress while maintaining stability, promoting stability with progress, and establishing first and then breaking down", "intensifying macroeconomic regulation and control", "active fiscal policy should be moderately strengthened, quality and efficiency improved, and prudent monetary policy should be flexible, moderate, accurate and effective", "we must enhance the consistency of macroeconomic policy orientation, strengthen economic propaganda and guidance", "we must focus on expanding domestic demand, and form a virtuous circle in which consumption and investment promote each other". Risk Warning:The external shock exceeded expectations, and the real estate market was sluggish more than expected.
Interpretation
First, the overall situation judgment: the economic rebound is improving, and the achievements are not easy to come by;This year's economic recovery has been full of twists and turns, and it still needs to be consolidated and strengthened
The meeting stressed the importance of this year's economic work and affirmed the hard-won achievements. "This year is the first year for the full implementation of the spirit of the 20th National Congress of the Communist Party of China, and the year of economic recovery after the three-year transition of the new crown epidemic prevention and control", whether the economic growth target set at the beginning of the year can be successfully achieved is not only directly related to the national economy and people's livelihood, but also affects expectations. We "withstood external pressure, overcame internal difficulties", and finally achieved "China's economic rebound". From the perspective of economic operation, China's economic operation in 2023 will be a recovery of twists and turns, and it will be generally in a post-epidemic recovery trend, driven by the continuous recovery of the service industry, it has achieved a good start in the first quarter, increased downward pressure in the second quarter, and continued to rebound in the third quarter. At the same time, the meeting also pointed out that the economic recovery still needs to be "consolidated and strengthened". This stems from three core features of this year's economic recovery:First, the uneven nature of the economic recovery, the current economic recovery is a structural recovery, not a comprehensive recoveryIt is mainly driven by the service industry and high-end manufacturing, but the real estate, financial industry, and Internet platform economy are still affected by some impacts. Therefore, employment is also structural, and the employment situation of migrant workers has improved due to investment in the service industry and infrastructure, but the pressure on youth employment is greater. The reason for the structural recovery is that 2023 is the first year of post-epidemic recovery, and the agglomeration service industry suppressed during the epidemic has a first-class growth;Other industries such as real estate have been superimposed on the reversal of supply and demand on the basis of sluggish expectations, which has led to a continuous decline in real estate sales and investment. Second, the current economic recovery is unstableBecause of the lack of domestic vitality, which is reflected in the insufficient recovery of consumption and manufacturing investment, private investment is still negative. Under such a demand structure, the economy will be greatly affected by external changes, and changes in the external environment will lead to increased fluctuations in economic operation. For example, in 2023, China's exports will be relatively consistent with those of South Korea, Taiwan, and Vietnam, which is related to the pace of global economic operation, reflecting that the external environment still greatly affects China's economic operation. Third, the nominal economic growth rate this year is lower than the real growth rateAs a result, the growth rate of residents' income, the growth rate of fiscal revenue, and the growth rate of enterprise operating income and profits are low, resulting in the divergence between macro and micro feelings. Real GDP grew by 52%, with a nominal growth rate of only 49%。Second, the policy tone is more positive, emphasizing "promoting stability with progress, establishing first and then breaking", but it is not flood irrigation, so as to achieve effective qualitative improvement and reasonable quantitative growthThe meeting pointed out: "Next year, we must adhere to the principle of seeking progress while maintaining stability, promoting stability with progress, establishing first and then breaking down, strengthening counter-cyclical and cross-cyclical adjustment of macroeconomic policies, and continuing to implement active fiscal policies and prudent monetary policies" and "intensifying macroeconomic regulation and control." In fact, "first establish and then break" is not the first time that it has been mentioned**, which is particularly important for China's economy in the transition period of old and new kinetic energy. In the course of China's long-term reform, practices such as "crossing the river by feeling the stones" and "gradual experimentation" are the ways to first establish and then break down. The 2021 ** Economic Work Conference also mentioned this expression: "We must persist in seeking progress while maintaining stability, adjust policies and promote reforms, grasp the timeliness, and insist on establishing first and then breaking down, and making steady progress." It is necessary to strengthen overall planning and coordination and adhere to the concept of systems. On March 5, 2022, when participating in the deliberations of the Inner Mongolia delegation at the Fifth Session of the 13th National People's Congress, General Secretary ** emphasized: "Green transformation is a process, not an overnight thing. "To achieve the 'double carbon' goal, we must be based on national conditions, adhere to the principle of seeking progress while maintaining stability, and gradually achieve it, and we cannot detach ourselves from reality and rush to achieve success, engage in sports 'carbon reduction' and step on the 'emergency brake'". In the medium and long term, China's economy is facing a new "three-phase superposition", including: the period of resolving cumulative problems, the period of cultivating emerging drivers, and the period of economic transformation. These superposition periods themselves mean that the potential economic growth rate is downward, which means that it is more difficult to reform and macroeconomic control, and it is conducive to reducing the stall risk caused by the "new three-phase superposition". The cumulative problem resolution period refers to the factors that previously supported the rapid growth of the economy, its positive role gradually weakened, and the negative impact became more and more prominent, such as the demographic dividend, the brutal growth of real estate, and the local ** debt investment, etc., which have made great contributions to economic development, but at present, there are a series of problems such as the total population is decreasing, the aging is intensifying, the old model of real estate development is unsustainable, the local ** debt risk is rising, and there are shortcomings in public services. The cultivation period of emerging kinetic energy refers to the transformation of the economy from the stage of rapid growth to the stage of high-quality development, which needs the support of new kinetic energy, such as shifting from investment-oriented to consumption-oriented, from traditional industries to high-tech industries, and from being "stuck" in key areas to strengthening the chain and becoming self-reliant. The painful period of economic transformation refers to the fact that the resolution of accumulated problems and the cultivation of emerging drivers are not achieved overnight, but require a process, during which they may face the pains of economic transformation, such as the failure of new and old drivers to continue in time, resulting in increased downward pressure on the economyInnovation-driven industrial development is more difficult, riskier and less significant than debt-driven scalingIn the process of industrial transformation and upgrading, new companies and new jobs are constantly emerging, but they are also accompanied by the disappearance of old companies and old jobs. In the short term, the overall tone of the meeting on next year's economy and policy was positive, and further explained the relationship between stability and progressThat is, "seeking progress while maintaining stability, promoting stability through progress" and "intensifying macroeconomic regulation and control" are conducive to promoting the improvement of the economy next year and laying a solid foundation for recovery. A stable economic and social environment is a prerequisite for progress, and the achievement of a stable economic environment also requires the support of proactive policies, such as active fiscal policies, prudent monetary policies, and real estate policies that continue to exert force and optimize. It is expected to achieve economic growth of about 5% next year, and the main drivers will be the service industry, high-end manufacturing and infrastructure investment. Progressive policies promote a stable situation and stable expectations. At the same time, it is necessary to persist in seeking progress while maintaining stability, grasp the timeliness and effectiveness of adjusting policies and promoting reforms, and persist in establishing first and then breaking down, and making steady and steady progressDo a good job of connecting the old and new kinetic energy to prevent the risk of disposal risks. The meeting also made it clear that the expansionary policy should be "moderate", the active fiscal policy should be "moderate" to strengthen and improve quality and efficiency, and the prudent monetary policy should be flexible, "moderate", precise and effective. The ultimate goal is to "continue to promote the economy to achieve qualitative and effective improvement and reasonable quantitative growth", and prevent the risk of a new stimulus policy digestion period due to flooding and strong policy stimulus. During the 2008 international financial crisis, China launched a large-scale infrastructure and real estate stimulus plan, which led to the ensuing overcapacity, high leverage, high real estate inventory, soaring housing prices to exacerbate the gap between the rich and the poor and raise the cost of manufacturing, etc., and the economy fell into a "pre-stimulus policy digestion period". Third, the fiscal policy "moderately strengthened, improved quality and efficiency": from the quantity and scale type to the efficiency and effect type, optimize the structure of fiscal expenditure, and improve the performance of expenditureThe meeting pointed out: "continue to implement a proactive fiscal policy" and "moderately strengthen efforts to improve quality and efficiency". The tone of fiscal policy is roughly the same as last year, on the one hand, it maintains a positive trend, that is, it strengthens to support the expansion of aggregate demand and prevent and defuse economic and social risks, and on the other hand, it proposes "moderation" and "improving quality and efficiency" and "strengthening counter-cyclical and cross-cyclical adjustment", that is,It should be implemented according to the needs of the economy and society, not to engage in flood irrigation, and the active fiscal is still active under the framework of high-quality development, so as to avoid greatly increasing fiscal risks and make the fiscal more sustainable. "Improving quality and efficiency" is an important goal of fiscal policy in recent yearsThis is determined by the tight balance of the current fiscal situation, the more the contradiction between revenue and expenditure increases, the more it is necessary to improve the performance of fiscal expenditure, which requires the revenue side to reduce taxes and fees from the pursuit of quantity and scale to efficiency and effect;On the expenditure side, it is necessary to optimize the structure of fiscal expenditure, reserve and excavate good projects in advance, and improve the economic and social benefits of projects. Specifically, next year's fiscal policy needs to exert force in the following three aspects:First, the main tone of the active fiscal policy remains unchanged, and the deficit rate may need to exceed 3% in 2024, and the scale of the deficit will be dominated by **. The issuance of an additional 1 trillion yuan of treasury bonds in the fourth quarter of 2023 and the issuance of part of the new local bond quota in 2024 in advance will help form a physical workload as soon as possible and form a good start in 2024. It is necessary to seek truth from facts and face the real deficit rate, and avoid the situation that the long-term use of "deficit control + expansion of special bonds" leads to a situation in which the deficit scale is too small and the efficiency of special bonds is low. The deficit ratio exceeding 3% can send a more positive fiscal policy signal to the international and domestic markets, which will help boost the confidence of micro entities. At the same time, taking into account the current contradiction between local fiscal revenue and expenditure and the prevention and resolution of debt risks, the first leverage will be used to assume more expenditure responsibilities or transfer funds to local governments. Second, the fiscal policy should focus on the expenditure policy, supplemented by revenue policies such as tax cuts and fee reductions, so as to improve the efficiency of the use of fiscal funds. During economic downturns, spending policies tend to be more effective than income policies. Because the income policy of tax reduction has to work through market entities, the transmission chain is long, and it is easy to be interfered by other factors. Once the confidence of market players is insufficient, revenue-side policies such as tax and fee reductions can not only stimulate economic growth, but also push up deficits and debts, falling into the "tax and fee reduction trap". In the past, China continued to introduce tax cuts, fee reductions, tax refunds and tax deferrals, which effectively alleviated the problem of tight cash flow of market entities and improved the anti-risk ability of enterprises, but also led to the continuous decline of the macro tax burden. The third is to promote the gradual shift of fiscal policy from heavy investment to equal emphasis on investment and consumption, and issue cash subsidies to some specific groups to promote consumption to rebound as soon as possible, and implement it in the form of proportional responsibility by local and local sub-regionsGradually use the individual income tax app to establish a screening mechanism and infrastructure for subsidy groups. At present, China's subsistence allowance coverage is relatively complete, so we should pay special attention to three groups: 1) urban low-income groups above the threshold of subsistence allowance and below the average social wage;2) Rural low-income groups, especially the elderly, above the threshold of subsistence allowance and below the average wage;3) Unemployed college students. Fourth, the monetary policy is "flexible, appropriate, precise and effective": better meet reasonable financing needs and maintain reasonable and abundant liquidityThe meeting called for "a prudent monetary policy to be flexible, moderate, precise and effective", which is expected to be reflected in four aspects:First, more attention is paid to the actual effect of monetary policy rather than the growth rate of credit cooperatives. In November 2023, the People's Bank of China, the State Administration of Financial Supervision and the China Securities Regulatory Commission jointly held a forum for financial institutions, requiring "overall consideration of credit delivery in the second two months of this year and the beginning of next year" and "optimizing the capital supply structure and revitalizing existing financial resources", which may make credit union financing in 2024 less impressive in terms of data, such as weakening the "good start" of credit delivery in the first quarter, but the support for the real economy is actually enhanced. Second, it is necessary to better meet the needs of residents for rigid and improved housing, meet the reasonable financing needs of real estate enterprises of different ownership without discrimination, and continue to tilt structural monetary policy tools towards scientific and technological innovation, advanced manufacturing, green development and micro, small and medium-sized enterprises. Third, monetary policy and fiscal policy should be coordinated to maintain a steady and loose intensity. For example, the issuance of additional treasury bonds and the issuance of special refinancing bonds by local governments will tighten the liquidity of the interbank market, and the central bank should maintain reasonable and sufficient liquidity through RRR cuts, MLF, open market operations, etc.;Although the main responsibility of the local government should bear the main responsibility for the delivery of buildings, the transformation of urban villages, and the construction of affordable housing, financial institutions should also provide sufficient financial support. Fourth, enhance the independence and flexibility of monetary policy, and there is room for RRR and interest rate cuts. Multiple policy objectives should be achieved by multiple policy instruments, and there should be no expectation of a single policy instrument, which can play its main role, and negative impacts can be hedged and eliminated through supporting tools. Fifth, enhance the coherence of macroeconomic policies, coordinate fiscal and monetary policies, and coordinate economic and non-economic policiesThe meeting emphasized that "it is necessary to enhance the consistency of macro policy orientation", "coordinate the expansion of domestic demand and deepen the supply-side structural reform, coordinate the comprehensive revitalization of new urbanization and rural areas, and coordinate high-quality development and high-level security". This requires that next year's macro policy should have an overall awareness and system concept, and the policy formulation and implementation should focus on the overall strategic deployment of the first policy, and deal with the relationship between the demand side and the supply side, the city and the countryside, and the security and sustainability of development. In recent years, the overall policy implementation has been good and has achieved positive results, but there is a lack of systematic and overall planning between some policies, and there is a tendency to fragmentation, which restricts the coordinated play of policy effects. The premise of effective and efficient policies is the systematic planning and coordination between policies, that is, to avoid the impact of contractionary non-economic policies on expansionary economic policies, and to proceed from the overall situation rather than the sectoral standard. On the one hand, fiscal and monetary policies should be actively coordinated. Monetary and financial policies should be coordinated with fiscal bond issuance and debt conversion in terms of quantity and quality, and monetary and financial policies should support real estate risk prevention, which is expected to continue next year. On the other hand, we need to enhance the coordination between economic and non-economic policies. The austerity effect of some non-economic policies, such as the one-size-fits-all environmental protection policies that existed in some regions in the past, power rationing, and the adjustment of some industries, have objectively led to a lack of confidence among enterprises and residents. After the tax and fee reduction, enterprises still do not dare to significantly increase investment, and residents do not dare to increase consumption, the result is that tax and fee reduction can not effectively stimulate economic growth, the effect of tax and fee reduction is attenuated, and it falls into the "tax and fee reduction trap". Therefore, it is necessary to comprehensively consider the impact of non-economic policies on the economy to avoid triggering supply shocks and discouraging the enthusiasm of market players. 6. Strengthen market communication and expectation guidance to effectively boost confidenceThe meeting proposed to "strengthen economic propaganda and guidance". In recent years, some policies have shown the characteristics of "forced and passive response" to a certain extent, mainly due to insufficient communication with the market and insufficient efforts to actively guide expectations. At present, the economy is a structural recovery rather than a comprehensive recovery, and some of the damaged groups have a stronger ability to speak out on social networks, and this kind of negative emotions are more transmissible than positive emotions, which is more likely to attract widespread attention and discussion from the public. If left unguided, and allowed to contag such negative emotions to each other, the situation of low confidence of micro subjects will continue, dragging down the process of economic recovery. Next year, it is necessary to do a good job of full and effective communication with the market in advance, respond to the concerns in a timely, effective and effective manner, and improve the way of publicity. There are bright spots and hidden worries in the economy, and only by responding and responding positively can we truly dispel public doubts. At the same time, the policy should also guide expectations by walking ahead of market expectations and strengthen communication with the market. To avoid letting the market wait for the policy, it is necessary to let the policy go ahead of market expectations and exceed market expectations, so as to break the sluggish market sentiment and mobilize the enthusiasm of micro subjects. 7. Prevent and resolve the risks of local debt, real estate and small and medium-sized banksThe meeting proposed "prevention and resolution of risks", "we must continue to effectively prevent and resolve risks in key areas, and resolutely adhere to the bottom line of no systemic risks." "At present, major risks are mainly concentrated in the areas of local ** debt, real estate and small and medium-sized banks, and the prevention and resolution of risks will be focused on next year. The first is to continue to promote the prevention and resolution of local debt risks, harden local debt constraints, and prevent hidden debts from being unstoppable. On July 24, after the Politburo meeting put forward the "package of debt reduction plan", all localities actively promoted the resolution of hidden debts in the region through fiscal debts and financialized debts. As of December 8, a total of 27 provinces across the country have issued a total of 13,770 special refinancing bonds1.7 billion yuan. From the perspective of regional distribution, Guizhou, Tianjin, Yunnan, Hunan, Inner Mongolia and other provinces with heavy debt burdens have become the main force in the issuance of this round of special refinancing bonds, with an issuance scale of more than 100 billion yuan, respectively 2148800 million yuan, 1286300 million yuan, 125.6 billion yuan, 112.2 billion yuan and 106.7 billion yuan. However, from a longer-term perspective, the special refinancing securitization debt mainly alleviates the current risk, and it is still necessary to curb the soil for implicit debt through the linkage reform of the institutional mechanism. While stabilizing the macro tax burden, it is fundamental to clarify the relationship between the market and the market, define the responsibility and scale, and solve the problem of excessive function and excessive expenditure responsibility of unlimited liability. The second is to resolve real estate risks and build a new model of real estate development. With the major changes in the relationship between supply and demand in China's real estate market, some risks have gradually been exposed in the real estate field in recent years, such as the debt risk of real estate enterprises, the risk of unfinished real estate, and the continued downturn in real estate sales and investment, which have had a significant impact on finance, finance, economy and other aspects. To resolve the current real estate risks, there are several important starting points: first, do a good job of "ensuring the delivery of buildings", strengthen the supervision of pre-sale funds of real estate enterprises, prevent off-plan housing from being unfinished, and protect the legitimate rights and interests of buyers;The second is to prevent the liquidity shortage of healthy real estate enterprises, and to meet the reasonable financing needs of real estate enterprises of different ownership systems without discriminationThe third is to boost residents' confidence and demand for housing purchases, and make good use of the policy toolbox according to the city's policies to better support the demand for rigid and improved housingFourth, we should speed up the construction of the "three major projects" of affordable housing, the transformation of urban villages, and the "dual-use" public infrastructure, which can not only hedge against the decline in real estate investment, but also improve the living conditions of residents. The third is to deal with the risks of small and medium-sized financial institutions in a timely manner to prevent the spread of risks. In recent years, small and medium-sized banks have accumulated more risks in the process of development and operation. Since 2019, risk events have broken out in some urban commercial banks and village and township banks in some areas. To resolve and deal with the risks of small and medium-sized financial institutions, we must first clarify the principles. The measures to deal with bank risks are divided into three types of administrative measures: lender of last resort measures (liquidity support), deposit guarantee measures and administrative takeover measures, as well as two types of market-oriented measures: self-rescue measures and interbank mutual rescue measures. The second is to consolidate territorial responsibility. In 2022, the People's Bank of China (PBOC) issued the Regulations on Local Financial Supervision and Administration (Draft for Solicitation of Comments), which clearly put forward the principle of "unified rules, local supervision, who approves, supervises, and who bears responsibility", clarifying the relationship between central and local financial supervision and bringing various local financial formats into a unified regulatory framework. Finally, we will vigorously promote mergers and reorganizations. In the process of merger and reorganization, the purpose of the reorganization should be clarified: if the main purpose is to resolve risks, the treatment of non-performing assets in the process of merger and reorganization should be considered. If the main purpose is to seek development, the development status of the bank should be fully analyzed, and a set of characteristic development strategies should be formulated for the new bank. Analyst: Luo Zhiheng, Practice Number: S0300520110001 Analyst: Ma Jiajin, Practice Number: S0300522110002 Analyst: Niu Qin, Practice Number: S0300523050001