Yang Delong is the chief economist of Qianhai Open Source and a director of the China Chief Economist Forum
China's economy will begin to recover in 2023, but the strength of the recovery is not large. Consumption is an important driver of growth, according to statistics, the contribution of consumption growth to GDP growth in 2023 will reach more than 80%, mainly because of the decline in investment growth and negative growth in exports. The contribution of consumption is relatively obvious, but due to the phenomenon of operating difficulties, layoffs, and salary cuts in some industries, the growth rate of household consumption is not fast. The property market has become an important risk point for China's economic development, because now the expectations for the property market are changing. With the negative growth of China's population and the aging of the population, this situation is becoming more and more obvious. The demand for real estate investment is declining, and many cities have implemented strict measures such as purchase restrictions and loan restrictions in recent years, which exclude part of the demand, which has also caused an oversupply of real estate, and the transaction volume is relatively sluggish, which will also affect the economic recovery in 2023.
Entering 2024, whether the risks of China's three major risk areas, the property market, local bonds and small and medium-sized financial institutions, can be effectively resolved? **What are the means of supporting the policy toolbox, and I will give you a detailed analysis below. First, let's look at the troika, consumption, investment and exports. In terms of consumption, there has actually been a certain recovery in 2023, but the strength is not large. Because some of the factors affecting consumption have not been completely reversed, such as the employment rate still needs to be improved, and the poor performance in 2023 will also affect the wallets of many investors, so the growth rate of consumption is low. In addition, the housing price has shrunk household balance sheets, which has also affected consumer confidence. In terms of boosting consumption, there may be more means in 2024. For example, by increasing investment and supporting the development of scientific and technological innovation enterprises to create more jobs. Most of the traditional industries have overcapacity, and it is difficult to expect good growth in the traditional industries. Therefore, in terms of stimulating investment, it is necessary to make up for the lack of private investment, which will create more jobs.
Technology is advancing, new industries are emerging, which will also create new jobs, traditional jobs are disappearing, but new jobs are being created, so we need to look at the issue of employment rate dynamically. Employment has increased, people's wages have increased, and this is when consumer confidence comes. Therefore, in terms of stimulating consumption, it is necessary to be able to create more jobs, and cooperate with the introduction of policies to promote economic recovery, so that consumption growth will be more confident. In addition to wage income, property income is also a very important part of residents' income. Especially for the middle class, most of the middle class is to buy a house or buy **, to invest in property income. Due to the shrinkage of the middle class due to housing prices and stock prices in 2023, many people obviously feel that consumer confidence is insufficient after the assets shrink, that is, they dare not spend money. Entering 2024, trying to stabilize the property market and pull ** will actually play a direct role in promoting the growth of consumption. House prices stabilized and rebounded, and stock prices showed recovery**. If there is a bull market in 2024**, it will undoubtedly be one of the best means to boost consumption.
In terms of investment, the burden of local bonds is now heavier, and the pressure on local bonds to pay interest is very great, and they have been trying to find ways to turn debts, and in 2024, they may further enlarge their moves to prevent the risk of local bonds bursting. After the risk of local debt can be solved to a certain extent, the local government will also have more funds to invest in infrastructure. In terms of stimulating investment, ** may make further efforts. In the fourth quarter of 2023**, a special treasury bond of 1 trillion yuan was issued for infrastructure construction such as earthquake prevention and disaster relief. It is also possible to continue to issue bonds in 2024, which is an important means to increase investment in traditional and new infrastructure through the issuance of government bonds. Investment can create jobs and have an immediate effect on economic stability. In terms of the property market, 2024 may be enlarged, and it is worth looking forward to the lifting of restrictions on real estate sales, including first-tier cities, as soon as possible, that is, the cancellation of purchase restrictions, loan restrictions and other measures, so that the real estate market transactions are more market-oriented, so that people who want to buy a house can buy a house in any city in China, releasing a wave of demand. Stabilize the property market first, and if the property market is stabilized, more than 50 upstream industries will also be stabilized. If the property market risk can be effectively resolved, the financial increase in credit support for real estate enterprises will play a greater role, that is, to prevent the rupture of the capital chain, which is also an important means. Real estate risks need to be mitigated, otherwise it will be difficult for our economic growth to improve. Because real estate is the pillar industry of the national economy, it cannot be allowed to become an industry that drags down economic growth. Therefore, in 2024, the property market may be enlarged, and when the property market is stable, the economy can be stable.
In terms of monetary policy, the Fed's monetary policy pivot in 2024 is already a certainty, and it is expected that interest rate cuts will begin in the second half of the year at the latest, and it may also be announced at the May interest rate meeting. Now the US benchmark interest rate has been mentioned at 525%~5.The high level of 5% has made the debt burden of American companies very heavy, and the debt burden of American residents is also heavy. In the long run, the risk of the US economy falling into a recession is greatly increased, and the Fed is under great pressure. Although after the details of the Federal Reserve's interest rate meeting decision were announced at the beginning of the year, everyone found that the Fed was still relatively hawkish and said that interest rates may be raised. However, we believe that the Fed is unlikely to raise rates again in 2024 and should cut rates as soon as possible. This also opens up space for China's monetary policy, which is likely to be looser, with low interest rates, easy liquidity, and easy credit, so that finance can support the development of the real economy more vigorously, thereby boosting economic growth. Our economy is gradually transforming, the proportion of traditional industries is decreasing, and the proportion of emerging industries is increasing. However, at the first economic work conference, it was proposed to establish first and then break, that is to say, we must first develop the new industry, and then reduce the traditional industry, otherwise it may be green and yellow, resulting in economic growth stall, and it is undoubtedly unsustainable to maintain a certain economic growth rate in the process of economic transformation.
Therefore, after the establishment of the first establishment and then the break, the monetary policy is expected to continue to maintain a low interest rate level in 2024. The low interest rate level is beneficial to both enterprises and individuals, and it also forms an effective support for the capital market, because the market is more bullish in a low interest rate environment. On the whole, China's debt ratio is not high, and the local debt ratio is relatively high, and there are still many means to stabilize the economy. There is still a lot of room for the issuance of treasury bonds to stimulate investment and consumption. In 2023, China's deficit rate will break through the red line of 3% for the first time and reach 38%, and it is possible that the red line of 3% will be broken again in 2024. Stimulating investment and consumption through the issuance of treasury bonds is an important means to boost economic growth, and it is also an important aspect of boosting investor confidence and stabilizing the property market. We believe that there are still many policy tools available in our toolbox, and we need to be confident in our economic growth in 2024.