On December 8, 2023, the Politburo held a meeting to analyze and study the economic work in 2024. The Politburo meeting was held against the backdrop of the economy recovering from the impact of the epidemic, but the recovery momentum is not yet stable, and released a more positive signal of stable growth. The text in the press release of the Politburo meeting that deserves great attention is "first establish and then break". This is not new in itself, but it contains new and targeted connotations and is therefore extremely important.
In the past three years, while China's automobile industry has made a historic breakthrough, China's economic prosperity has weakened. Among them, the real estate industry, which has fallen into a vicious circle due to the tightening of financing policies, is the main source of downward pressure on the economy. This shows that although China has "established" quite well in cultivating new growth points, it is still difficult to make up for the gap left by the excessive "breaking" of the traditional growth engine. If the policy cannot be more prudent in "breaking", the effect of "establishment" will be greatly reduced.
Two years ago, senior leaders put forward the guidance of "establishing first and then breaking" for the "dual carbon goals", and promptly corrected the undesirable tendency of excessive suppression of traditional energy supply in the "dual carbon" policy. Now, all parties hope that after the senior leaders re-propose "establish first and then break", they can correct the tendency of policies to excessively suppress old momentum and erode the fundamentals of economic growth in the transformation of China's old and new growth momentum, so that the policy will be more prudent when it is "broken". In this way, the upward trend of China's economy can be consolidated and social expectations can be improved.
On December 8, 2023, the Politburo held a meeting to analyze and study the economic work in 2024 [1]. The Politburo meeting held in early December each year sets the tone for the upcoming annual economic work conference and the economic work of the next year, and its importance can be imagined.
The Politburo meeting was held against the backdrop of an economy recovering from the impact of the pandemic, but the recovery momentum is not yet solid. In the first three quarters of 2023, China's GDP will grow at a cumulative year-on-year rate of 52%, significantly faster than the full year of 2022 by 30% growth. However, this is an improvement in year-on-year growth based on a low base in the first three quarters of 2022. If you calculate the two-year average GDP growth rate in the first three quarters of 2023 compared to the first three quarters of 2021, it is only 41%, significantly lower than 6 in the 3 years before the pandemic (2017-2019).GDP growth averages 6%.
In the two months leading up to the Politburo meeting, the momentum of China's economic recovery has weakened somewhat. The manufacturing purchasing managers' index (PMI), which reflects China's economic prosperity, rebounded in August and September this year, and regained its footing above the 50 critical point of expansion and contraction. However, in the following October and November, the economic sentiment weakened again, and the PMI fell back into contraction territory below 50. (Exhibit 1).
Against the backdrop of weakening economic recovery momentum, uncertain recovery prospects and weak market confidence, all parties are highly concerned about the policy signals released by the Politburo meeting. Compared with the Politburo meeting on December 6, 2022, this year's meeting released a more positive signal of stable growth. The meeting called for "improving social expectations and consolidating and strengthening the upward trend of the economy". While continuing the tone of "seeking progress while maintaining stability", it was proposed for the first time to "promote stability through progress". Obviously, the focus of economic policy should shift from "stability" to "progress." The communiqué of this meeting is basically the same as the December 2022 meeting, but requires fiscal policy to be "moderately strengthened". In terms of risk prevention, this meeting called for "resolutely adhering to the bottom line of no systemic risks", which is more than the word "resolute" in the 2022 meeting communiqué (do not underestimate the use of empty words in policy documents). Reading the communiqué of this meeting, the intention of stabilizing economic growth and promoting economic improvement is quite obvious. (Exhibit 2).
The text in the press release of the Politburo meeting that deserves great attention is "first establish and then break". This formulation is not new in itself, but it contains new and targeted connotations, and is therefore extremely important.
The expression "first establish and then break" appeared for the first time in the first important economic conference, which was held on December 10, 2021, in response to the "dual carbon" policy at that time [2]. At that meeting, it was required that "to adjust policies and promote reforms, we must grasp the timeliness and efficiency, insist on establishing first and then breaking down, and make steady and steady progress." The meeting also said: "It is necessary to correctly understand and grasp carbon peak and carbon neutrality. Achieving carbon peak and carbon neutrality is an intrinsic requirement for promoting high-quality development, and it must be unswervingly promoted, but it cannot be accomplished in one go. ......The gradual withdrawal of traditional energy should be based on the safe and reliable substitution of new energy. ”
In 2021, when China implements the "dual carbon" goal of "carbon peak and carbon neutrality", there is a tendency to rush for success. When the supply of new energy is still insufficient, the red light is turned on too early for the supply of traditional energy, and the pressure drop is made. This makes China's overall energy supply somewhat unable to keep up, and imposes obstacles to economic development. To this end, senior leaders clearly require that before the "breaking" of traditional energy, we must first do a good job in the "establishment" of new energy. Since then, China's "dual carbon" work has become more realistic, and while the new energy transformation is steadily advancing, there are no major problems in energy supply.
In this year's Politburo meeting, it was mentioned that "first establish and then break", and take it as the general tone of the policy, its connotation is not aimed at the "double carbon" policy, but to correct the problem of the transformation process of China's economy from the old and new kinetic energy.
On July 18, 2023, the author published an article "Economic Pressure Between Breaking and Building". Among them, it has analyzed the current problems of China's transformation of new and old growth momentum: [3].
In the past three years, China's automotive industry has made a historic breakthrough, achieving corner overtaking in the tide of new energy transformation, and its brilliant performance has continued from 2020 to the present. The overtaking of corners in China's automobile industry can give people two inspirations. On the one hand, the industrial transformation and upgrading of China's supply side has been advancing rapidly. On the other hand, when a large industry such as the automobile has made a historic breakthrough, China's macro economy is still sluggish, which fully shows that China's macro policy should not only promote the 'establishment', but also prevent the 'break'. When the market has been ready to 'establish', China's macro policy needs to correct the inappropriate 'break'. Only by stopping the artificial 'breaking', maintaining the stock of China's economy, and at the same time promoting 'establishment', and cultivating more new growth points, can China's economy achieve the requirements of high-quality development. "Since 2020, China's automotive industry has achieved remarkable results: China's automobile exports in 2020 still lagged significantly behind Japan, Germany and South Korea, and now it has jumped to the first place in the world;In the domestic market, the sales of China's own brand cars have lagged behind the joint venture brands for more than ten consecutive years, and now they have also surpassed significantly.
While China's automobile industry has made a historic breakthrough, China's economic prosperity has been weakening since 2021. Among them, the real estate industry, which has fallen into a vicious circle due to the tightening of financing policies, is the main source of downward pressure on the economy. In the third quarter of 2023, among China's major economic indicators, real estate investment, which has experienced significant negative growth, can be described as an "elephant in the room". The reason why the real estate industry has come to this point has been analyzed by the author in the article "The Dilemma and Countermeasures of China's Real Estate Industry" published as early as July 25, 2022, and will not be repeated here [4]. (Figure 3).
Although the scale of China's automobile industry is not small, it is still far from the volume of the real estate industry. In 2022, the total industrial added value of key car companies according to the China Association of Automobile Manufacturers will reach 848.1 billion yuan. But with the same period about 7Compared with the added value of the real estate industry of 4 trillion yuan, it is still a small drop. Therefore, although the industrial added value of China's key car enterprises in 2022 will increase by 18% (an increase of 130.9 billion yuan) compared with 2021, it is still difficult to hedge the added value of China's real estate industry in the same period4% decline (the added value of China's real estate industry will decline by 339.5 billion yuan in 2022). This fully shows that although China has "established" quite well in cultivating new growth points, it is still difficult to make up for the gap left by the excessive "breaking" of the traditional growth engine. If the policy cannot be more prudent in "breaking", the effect of "establishment" will be greatly reduced.
It can be seen that this Politburo meeting re-mentioned "first establish and then break", and the spearhead should be directed at the real estate industry that has been excessively "broken" since 2021. From the launch of the "guaranteed delivery" policy at the end of 2022, the "three arrows" policy of real estate financing and restoration, to this year's "recognition of housing without loan" policy, ** has actually been trying to repair the real estate industry. But the problem is that the real estate industry has long been caught in a vicious circle due to the pressure of the "three red lines" policy, and it is deeply overshooting. Therefore, even with the repair policy in the past year, the general tone of the policy of the real estate industry is still tight, and it is still bringing pressure to the real estate industry to "break". When the Politburo meeting made it clear that the current policy is aimed at "improving social expectations, consolidating and enhancing the upward trend of the economy", and requires "enhancing the consistency of macro policy orientation", the real estate policy needs to be adjusted significantly in the direction of easing in order to truly implement the requirements of the Politburo meeting. How far the real estate policy (especially the financing policy of real estate developers) will go in the direction of easing will highly affect the direction of China's economy in 2024, as well as the expectations and confidence of all walks of life.
After the 20th National Congress of the Communist Party of China, China's economy has entered a new era. The transformation and upgrading of China's economic structure is not only a manifestation of the law of economic development itself, but also the expectation of all parties for China's economy. In this process, policies should, of course, play a positive role in cultivating new growth points and new driving forces for economic development, and do a good job in "establishing." But it is also important to stabilize the traditional growth engine and maintain the fundamentals of China's economy. The weakness of China's real estate industry since 2021 and the ensuing downward pressure on the economy have fully illustrated the harm of excessive policy "breaking". The transformation of the economic structure will not be achieved overnight, let alone overnight. Ignoring the actual situation and blindly "breaking" will not only be difficult to promote the transformation of the economic structure, but will put pressure on growth and bring risks to the economy, which is not conducive to China's firm foothold in the process of the Sino-US great game.
In the just-concluded Politburo meeting, the senior leaders once again mentioned "first establishing and then breaking" and elevated it to the general tone of the entire macroeconomic policy, which can be said to accurately grasp a major problem in the implementation of the current policy. Two years ago, senior leaders put forward the guidance of "establishing first and then breaking" for the "dual carbon goals", and promptly corrected the undesirable tendency of excessive suppression of traditional energy supply in the "dual carbon" policy. Now, all parties hope that after the senior leaders re-propose "establish first and then break", they can correct the tendency of policies to excessively suppress old momentum and erode the fundamentals of economic growth in the transformation of China's old and new growth momentum, so that the policy will be more prudent when it is "broken". In this way, the upward trend of China's economy can be consolidated and social expectations can be improved. (ENDS).
1] December 8, 2023, "*Communiqué of the Politburo Meeting", 2] December 10, 2021, "Communiqué of the *Economic Work Conference", 3] Xu Gao, July 18, 2023, "Economic Pressure Between Breaks".
4] Xu Gao, July 25, 2022, "The Dilemma and Countermeasures of China's Real Estate Industry", Risk Warning: Uncertainty of Macro Policy;The policy effect is not as expected).