2023 priorities: Stabilizing growth and expectations, deepening reform
According to the conference, the foundation of the economic recovery in China is not yet solid, and is challenged by pressures of demand contraction, supply shocks and weakening expectations. Externally, the global environment is still turbulent, with the impact on China's economy deepening. Based on such an economic situation, the meeting made arrangements for next year's overall economic and social development, which as we see, can be summarized as follows: stabilizing growth and expectations, and deepening reform.
Growth, jobs and prices
The meeting called for making economic stability a top priority and pursuing steady progress, while ensuring economic stability for next year. This is necessary and within expectations. As the economy is still challenged by various downward pressures, only by doing a good job in stabilizing growth, employment and prices will it be possible to promote the overall improvement of economic performance.
Speaking of fiscal support for the economy, the meeting said proactive fiscal policy and prudent monetary policy will continue to be implemented next year. Meanwhile, efforts will be made to intensify macroeconomic controls and coordinate various policies to form synergy for high-quality development.
It was underlined at the meeting that proactive fiscal policy should be stepped up to boost its effectiveness, with a better mix of tools made available including fiscal deficits, special-purpose bonds and interest subsidies. While high-quality development should be effectively supported, fiscal sustainability must be ensured and local government debt risks should be kept under control.
Prudent monetary policy should be targeted and effective, with reasonable and sufficient liquidity to be maintained and stronger support from financial institutions for micro and small businesses, technology innovation and green development.
It should be noted that monetary policy was urged to be first "targeted", meaning that the overall structural effect of next year's policy tool combo should and will be made clear in advance and well evaluated, with focus, as we see, on small and medium-sized enterprises, innovation and green development. By saying that the policy should be "effective", the meeting may have possibly meant that the easing may still last into next year to support the economy.
The meeting stressed effectively forestalling and defusing major economic and financial risks, promoting steady development of the property market, ensuring timely deliveries of pre-sold homes and meeting the reasonable financing demand of the sector.
It was said at the meeting that efforts need to be made to effectively prevent and defuse risks of high-quality and industry-leading developers and improve debt-to-asset ratios of the real estate sector. People's basic housing needs and the need for improved housing conditions should be met, while a long-term rental housing market is to be explored. Sticking to the principle that "housing is for living in, not for speculation", the country is seeking to promote a smooth transition of the real estate industry to new development models.
It can be seen that regulators, with the support of various policies, are speeding up moves to tackle risks in the real estate market, and the property sector is expected to see a reversal of difficulties in the future. It is also foreseeable that the whole industry will gradually transform to a new development model, which is likely to be quite different from the traditional model of high-debt, high-leverage and high-turnover.
The current downturn and continued contraction in the real estate market are actually downside surprises. Although there have been rules put forward to this end, there are still uncertainties about whether real estate can really get out of the quagmire next year. The rise of financial and local debt risks, in particular, should be closely monitored. That real estate investment fails to achieve positive growth may be the biggest "gray rhino" next year, which will further drag down the rebound of fixed asset investment and the upward potential of GDP growth.
In terms of domestic demand, the meeting said the country will focus on boosting domestic demand next year by prioritizing the recovery and expansion of consumption, increasing urban and rural personal incomes through multiple channels and encouraging more private capital to participate in the construction of key national projects.
Theoretically, domestic demand includes investment demand and consumption demand. The investment demand is intermediate demand after all, and consumption is actual demand reflecting vitality of economic operations. Compared with investment, the nation as we see needs to place more focus on boosting consumption, especially at a time of coordinating COVID-19 prevention alongside economic and social development. It's indeed necessary for the government to give full play to the role of consumption in stabilizing growth.
When it comes to the foreign capital, the meeting said the country will make greater efforts to attract and utilize foreign capital, widen market access, promote the opening up of modern services industries, and grant foreign-funded enterprises national treatment. China will actively seek to join the high-standard economic and trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement, the meeting said. Such words have also reaffirmed the country's resolution to deepening high-level opening-up.
Social policies should ensure people's livelihoods, put promoting the employment of young people — especially college graduates — in a more prominent position, and strive to mitigate the impact of structural price rises on some of those in difficulty in a timely and effective manner. The meeting also stressed better coordinating pandemic prevention and control measures with economic and social development, urging efforts to optimize contagion responses based on time and situation, and focus on the elderly and those with underlying diseases.
We can see that amid the impact brought by the COVID-19 pandemic, the employment of young people is a major concern that urgently needs to be tackled, and the meeting noticed that and prioritized the work in promoting overall livelihoods.
Also, such words, as we see, are part of moves to stabilize expectations. It is rare in recent years to emphasize the significance of expectations like this, thus indicating the urgency of the issue. Indeed, the COVID-19 pandemic in three years, apart from damaging people's health and welfare, has also been casting a shadow over China's socioeconomic development, with symptoms shown including enterprises' fear of investing, residents' spending timidity, and weakening confidence and expectations among economic entities.
Reform urgent and necessary
The role of reform was thus highlighted at the meeting to secure growth next year. Reform and opening-up should be given full play and the steps of reform must be accelerated. Deepening reform is the basic way for China to achieve stable growth.
According to the meeting, stronger coordination should also be achieved between qualitative and quantitative growth, between supply-side structural reform and domestic demand expansion, as well as between economic policies and other policies.
The meeting urged efforts to deepen the reform of State-owned enterprises while improving their core competitiveness, requiring that legal and institutional arrangements must be made to ensure equal treatment of private enterprises and SOEs. Law-based protections will be provided to property rights of private enterprises and to the interests of entrepreneurs, the meeting said.
The private economy is an important part of China's economy, and the multiple pressures and economic downturn are all related to the difficulties encountered by the private sector. That the meeting reiterating the nation's efforts in the private sector once again will play a key role in boosting confidence and stabilizing expectations. In such a case, in the future, more attention will be paid to the role of private investment.
And when it comes to the industrial sector, the meeting stressed that industrial policies should be optimized to facilitate the transformation and upgrading of traditional industries and cultivate and grow strategic emerging industries, as well as shore up weak links in industrial chains and forge new competitive advantages in the country's pursuit of carbon peaking and neutrality goals.
According to the meeting, China will accelerate the building of a modern industrial system. Efforts will be made to identify the weak links in key and core technologies as well as components and parts in the country's major manufacturing industrial chains, and pull together resources to tackle problems so that the industrial system is independent, controllable, safe and reliable.
We can see that the meeting has emphasized "the transformation and upgrading of traditional industries", indicating the key role that the sector will play in the progress of achieving Chinese style of modernization. Stresses on tackling the "weak links in industrial chains "possibly mean that the pandemic and global woes have brought bigger challenges to the resilience of China's industrial sector, reflecting that the nation will ramp up more efforts to tackle weak links in industrial chains.
The views don't necessarily reflect those of UDF-Space.