Text: Global Chief Economist of Bank of ChinaGuan Tao
A few days ago, while affirming the rebound of China's economy and the solid progress of high-quality development, the first economic work conference pointed out that some difficulties and challenges still need to be overcome, mainly due to insufficient effective demand, overcapacity in some industries, weak social expectations, and many hidden risks. The meeting stressed that next year's economic work should earnestly enhance economic vitality, prevent and resolve risks, improve social expectations, 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. In a market economy, confidence is more important than the best. Obviously, expectation management will be a major part of next year's economic work.
Weak social expectations are related to the difficulties and challenges currently being encountered
This is the third time that the annual economic work conference has mentioned the issue of expectations. The 2021 annual meeting for the first time proposed that China's economic development is facing the triple pressure of demand contraction, supply shock, and weakening expectations, and in 2022, it maintained the important judgment of "weakening expectations", and this meeting pointed out that "social expectations are weak". Although this statement is softened from the "expected weakening", it shows that there is still a certain gap from the ideal state. The reason for this is related to the difficulties and challenges that need to be overcome to further promote the economic rebound pointed out at this meeting.
First, the effective demand is insufficient. **Levels are a thermometer of the macroeconomy. For some time, China's consumer prices have been operating at a low level, which is an objective reflection of the current lack of effective economic demand. In November, the CPI fell by 05 percentage points, the third year-on-year decline in the year, with a cumulative increase of 03%, well below the expected regulatory target of 3% set at the beginning of the year. During the same period, the core CPI increased by 06%, with a cumulative year-on-year increase of 07%。Insufficient effective demand and weak price trends will further highlight the problems of overcapacity and high actual financing costs in some industries, and at the same time lead to operational difficulties for some enterprises. In the first three quarters, China's industrial capacity utilization rate rebounded to 74 quarter by quarter8%, but 07 percentage points;Eight of the 15 industrial subsectors were below the average for the fourth quarter of 2016 and the fourth quarter of 2022. In the third quarter, the weighted loan ratio of financial institutions has fallen to 4.A record low of 14%, but the real interest rate, adjusted for the GDP deflator for the current quarter, reached 498%, but it is at a record high, pushing up the debt service pressure of the corporate sector. According to data from the Bank for International Settlements, in the second quarter of 2023, China's private non-financial sector debt service provision ratio continued to hit a new high since data became available in the fourth quarter of 1999, reaching 214%。Second, there are many risks and hidden dangers. According to the data of the Department of Investigation and Coordination of the People's Bank of China in 2020, China's household assets are dominated by physical assets, and housing accounts for nearly 70%, indicating that real estate is an important livelihood industry. As the largest cyclical consumption, real estate shows the characteristics of buying up but not buying down, and the downward pressure is reflected in both supply and demand, and the endogenous hematopoietic capacity of the industry is obviously insufficient. In November, the National Bureau of Statistics' 70 new commercial housing and second-hand housing** fell by 07% and 37%, the decline has widened since May this year, and it is also at this time that commercial housing sales began to weaken. In the first 11 months, the cumulative sales of commercial housing fell by 5 percent year-on-year2%, down 14 percentage points from the April high. Among them, affected by the negative news of real estate companies, the sales of off-plan properties fell by 82%, which is lower than the growth rate of existing home sales of 23 in the same period6 percentage points. At the same time, the downward pressure on real estate is transmitted to local debt. Due to the deep binding and intertwining of the expansion of the financial system and "land finance" in the past, some small and medium-sized banks and non-bank financial institutions have also been exposed to risks in the real estate downturn.
Third, the economic cycle is not smooth. After the transition of epidemic prevention and control at the end of 2022, it is widely expected that China is expected to have retaliatory consumption. In the first quarter of this year, China's economy ushered in a wave of strong recovery, and the manufacturing PMI index was in the boom range for three consecutive monthsThe Consumer Confidence Index of the Statistics Bureau was 6 compared to the fourth quarter of 20227 percentage points, a new high since the data began;Other hard economic indicators also improved significantly. Therefore, at the beginning of the year, the market's expectations for China's economic growth "rose all boats". However, the annual consumption recovery is characterized by a wave-like "U" shape. The cumulative year-on-year growth rate of total retail sales began to decline month by month from June, and continued to reach 7 in November after bottoming out in September2%, but still below the level of the same period in 2019. Moreover, residents generally "save more and borrow less". In the first 11 months, new deposits and loans from residents were 147 trillion yuan and 41 trillion yuan, with a difference of 10 yuan between deposits and loans6 trillion yuan, although it is about 710.9 billion yuan less than the same period last year, it is significantly higher than the average of 1 in the same period in 2019 and 20214 trillion yuan, indicating that residents' expectations are weak, and their spending ability and willingness are not strong. Fourth, external shocks have intensified. Monetary tightening in major advanced economies has continued this year, and the global economy is on a downward trend. As of November, the global manufacturing PMI index was below the withering line for 15 consecutive months, and the United States, the eurozone and Japan were below the boom and bust line for 13 consecutive months. Affected by this, China's exports (in US dollars) fell by 5 in the first 11 months2%, 15 percentage points lower than the same period last year. In addition, the rise of protectionism and unilateralism, and the regionalization and fragmentation of the global industrial chain and the first chain, have also had a great impact on the situation of foreign investment in China. In the first 10 months, the actual use of foreign direct investment by the Ministry of Commerce of China decreased by 14 percent year-on-year3%；In the third quarter, foreign direct investment in the balance of payments showed a net outflow for the first time, and the cumulative net inflow in the first three quarters fell by 90% year-on-year. At present, various rumors about the loss of orders in China, the withdrawal of foreign capital, and the relocation of industries are rampant, further suppressing market confidence. The key to stabilizing expectations is to use the method of development to solve the problems in progressThe meeting demanded that next year, we should persist in seeking progress while maintaining stability, promoting stability through progress, establishing first and then breaking down, and come up with more policies that are conducive to stabilizing expectations, growth, and employment, and actively forging ahead in changing the mode, adjusting the structure, improving quality, and increasing efficiency, so as to continuously consolidate the foundation for stability and improvement. This has pointed out the direction for properly handling the relations between "stability" and "progress" and between "establishment" and "breakdown" in economic work. "Stability" is the overall situation and foundation, and "progress" is the direction and driving force. At the same time, it is necessary to make steady progress in adjusting policies and promoting reforms, grasp the timing and effectiveness well, and not deviate from reality and rush for results. It is not counterintuitive to stabilize expectations before stabilizing growth and employment. The operation and policy effects of modern economy are more and more susceptible to the influence of propagation and guidance. There is also a time lag from the introduction of the policy to the landing, during which the publicity work is particularly important, a deep understanding of the original intention of the policy can achieve twice the result with half the effort, otherwise it may be "deviated" to achieve the expected effect, and even affect the credibility of the government. Therefore, the meeting pointed out that, on the whole, the favorable conditions facing China's development are stronger than the unfavorable factors, and it is necessary to enhance confidence and confidence. It is necessary to strengthen economic propaganda and guidance, and sing the bright theory of China's economy. Of course, actions speak louder than words. When the meeting summarized the understanding of the five laws of doing a good job in economic work in the new era, "we must adhere to high-quality development as the last word in the new era, and promote the economy to achieve effective qualitative improvement and reasonable quantitative growth" and "we must take the promotion of Chinese-style modernization as the biggest politics, focusing on the central work of economic construction and the primary task of high-quality development" occupy the first and last two "musts". The overall requirements of the meeting for next year's economic work are ultimately based on consolidating and enhancing the positive trend of economic recovery. Only by "stabilizing" economic development within a reasonable range, consolidating the upward trend, and fully guaranteeing employment and people's livelihood can we create a stable development environment for "progress". Macroeconomic policy space is a major favorable condition for China's economic development. The meeting called for strengthening the counter-cyclical and cross-cyclical adjustment of macroeconomic policies, continuing to implement a proactive fiscal policy and a prudent monetary policy, and strengthening the innovation and coordination of policy tools. Among them, "the scale of social financing and the amount of money match the expected target of economic growth and the level" is a new term of prudent monetary policy, which is different from the past "the scale of social financing and the amount of money match economic growth". In November, M2 and social finance stocks increased by 10% and 9% year-on-year, respectively4%, significantly higher than the real GDP growth rate of 5 in the first three quarters2%, but it did not exacerbate the upward inflation;The year-on-year growth rate of M1 fell to 13%, which is lower for ten consecutive months, indicating that the currency is not active enough. China lacks inflation expectation data, and it is difficult to gauge whether real interest rates are too tight. However, expectation formation is an adaptive process, and long-term weak inflation may entrench expectations, which will pose a challenge to monetary policy. If the economy continues to pick up but inflationary pressures are subsequent, monetary policy can have more flexibility to reduce the risk of misjudging whether the economy is "overheating" or "underrecovering". At the same time, it also helps to reinforce the expectation that prudent monetary policy will not fluctuate dramatically. At present, there are still some views that the weak expectations are due to the fact that the stimulus is not strong enough, and if there is too much water, it will overflow, and "* throwing money" can solve the problem. This is a continuation of the 2008 financial crisis's "stimulus first, reform secondary" response thinking. However, at present, China's economic operation is still trapped in the "three-phase superimposed impact" and continues to deepen. In the first half of the 90s of the last century, the scale of Japan's stimulus was not small, the discount rate was reduced by 550 basis points in 1991 and 1995, and the deficit rate in 1991 and 1996 increased by 335 percentage points, indeed briefly achieved the economic succession of 1995 and 1996**. However, this did not improve Japan's structural economic and bank debt problems, focusing only on balance sheet issues and ignoring technological innovation, which caused Japan to miss out on the Internet technology revolution and eventually "fall behind". On the contrary, inflation fears triggered by strong stimulus and a deteriorating debt outlook led to an abrupt tightening of policy in 1997, which further damaged Japanese social confidence. It can be seen that strong stimulation treats the symptoms but not the root cause. The meeting proposed to plan major measures to further deepen reform in an all-round way, and continue to inject strong impetus into promoting high-quality development and accelerating Chinese-style modernization. By deepening the reform of state-owned enterprises, promoting the development and growth of the private economy, increasing efforts to attract foreign investment, and continuously optimizing the business environment, the enthusiasm and creativity of business entities will be continuously stimulated. It is necessary to promote industrial innovation with scientific and technological innovation, especially to use disruptive technologies and cutting-edge technologies to give birth to new industries, new models, and new kinetic energy, and develop new quality productive forces. Scientific and technological innovation is an important field to deeply understand and grasp the relationship between "stability" and "progress". If the supply-side structural bright spots can be further diffused, driving the increase of employment in related industries, and cultivating and expanding new consumption, coupled with continuing to tap potential demand, then the improvement of social expectations is expected to accelerate. Efforts should be made to expand domestic demand, stimulate consumption with potential, and expand investment with benefits, so as to form a virtuous circle in which consumption and investment promote each other. With the "progress" of the smooth economic cycle, we will help the "stability" of the overall development situation. In addition, it is necessary to coordinate the relationship between risk resolution and stable development, comprehensively strengthen supervision, adhere to the system concept, continue to effectively prevent and resolve risks in key areas such as real estate, local debt, and small and medium-sized financial institutions, and resolutely adhere to the bottom line of no systemic risks. Implementing them may be more important than increasing policiesOne point of deployment, nine points of implementation. The meeting further strengthened the guidance for doing a good job in the current economic work. The meeting pointed out that it is necessary to earnestly enhance the sense of responsibility and mission for doing a good job in economic work, seize all favorable opportunities, make use of all favorable conditions, and get a good grasp of doing things when they see them, and do as much as they canAnd spent a large space emphasizing the four "grasp the implementation", that is, to be out-and-out, vigorous and resolute, truth-seeking and pragmatic, and dare to do good to "grasp the implementation". The meeting also stressed that to comprehensively implement the overall requirements of next year's economic work, it is necessary to pay attention to grasping and handling well the four sets of relationships: speed and quality, macro data and micro feelings, economic development and improvement of people's livelihood, and development and securityTo accurately grasp the policy orientation of next year's economic work, it is necessary to strengthen coordination and linkage in policy implementation, amplify the combination effect, lay a good amount of advance and leave redundancy in policy reserves, and pay attention to effectiveness and enhance the sense of gain in the evaluation of policy effectsIt is necessary to pay attention to the ways and means of advancing the work, grasp the main contradictions, break through bottlenecks and constraints, and pay attention to forward-looking layout. It is worth mentioning that this meeting reaffirmed the need to strengthen the consistency of macroeconomic policy orientation. In fact, as early as March 21 last year, the executive meeting proposed to carry out a policy orientation consistency assessment to prevent and correct the introduction of policies that are not conducive to market expectations. This repetition of the old story is not a simple repetition, but a clear need to include non-economic policies in the assessment of the consistency of macro policy orientations, strengthen policy coordination, and ensure that efforts are made in the same direction and form a joint force. Because some non-economic policies will also have a large spillover effect on the economy and finance, which in turn will affect market expectations. This article is edited by Lan Yinfan
Editor丨Wang Han.
Proofreading丨Lan Yinfan.
Preliminary trial丨Xu Lanying.
Final Review丨Zhang Wei
Previous Review
review of past articles -
Summary of the 2023 Fiscal Debt Situation and 2024 Outlook Macroeconomics
The Central Finance Office explained in detail the ** Economic Work Conference: the social financing scale index is more closely related to economic growth;The new quality productivity is marked by the improvement of total factor productivity as the core macroeconomy