Policy set to achieve stable growth
Conference lays out 2024 agenda as economists expect financial risk control law, urge more targeted measures
China is expected to leverage a slew of policy tools to stabilize and promote economic growth in 2024, including measures to expand domestic consumption and mitigate risks in the real estate sector, in local government debts, and in small and medium-sized financial institutions, according to the annual Central Economic Work Conference.
While delivering an important speech at the two-day, tone-setting meeting, which concluded on Dec 12, Xi Jinping, general secretary of the Communist Party of China Central Committee, reviewed the country’s economic work in 2023, analyzed the current economic situation, and arranged next year’s economic work.
Against a backdrop of increasing economic headwinds, the meeting sent a clear message about the Chinese central leadership’s intention to facilitate an enabling policy environment that can support the stabilization of the Chinese economy.
It was noted at the meeting that China’s economy has achieved recovery, with solid progress made in highquality development in 2023, but the nation still has to overcome some difficulties and challenges to further bolster the recovery.
Overall, favorable conditions outweigh unfavorable factors in China’s development, and the fundamental trend of economic recovery with a long-term positive outlook has not changed, a statement released after the conference said, urging stronger confidence.
The meeting’s participants demanded that economic stability be made a top priority and steady progress be pursued while ensuring economic stability for the next year.
Countercyclical and cross-cyclical adjustment of macroeconomic policies will be strengthened, and a proactive fiscal policy and prudent monetary policy will continue to be implemented, the statement said. Efforts will also be made to intensify the innovation of policy tools and coordinate various policies to form synergy for high-quality development.
The proactive fiscal policy should be appropriately intensified and improved in quality and efficiency, the statement said.
It was stressed at the meeting that the prudent monetary policy should be flexible, appropriate, targeted, and effective, while ensuring reasonable and sufficient liquidity. The scale of social financing and money supply should be in line with expected economic growth and price levels.
Monetary policy tools should be used to guide financial institutions to increase support for technological innovation, green transformation, inclusive small and micro enterprises, and the digital economy, the statement said.
The meeting’s participants underlined the need to enhance the consistency of macroeconomic policy and strengthen the coordination of fiscal, monetary, employment, industrial, scientific, technological, and environmental protection policies.
Key priorities for next year’s economic agenda include promoting the construction of a modern industrial system through technological innovation, expanding domestic consumption, deepening reforms in key areas, promoting high-level opening-up, and
preventing and defusing major risks.
It is necessary to implement a highquality development action plan for key industrial chains in the manufacturing industry to improve the resilience and security of industrial and supply chains, according to the meeting.
The meeting’s participants also called for vigorously promoting a new type of industrialization, developing the digital economy, accelerating the development of artificial intelligence, fostering strategic emerging industries, and blazing trails for future industries.
It was stressed at the meeting that efforts should be made to stimulate potential consumption, expand effective investment, and form a virtuous cycle between consumption and investment.
The meeting’s participants underlined the need to promote large-scale equipment renewal and trade-in programs for consumer goods, leverage the multiplier effect of government investment, implement new mechanisms for government and social capital cooperation, and encourage social capital to participate in the construction of new types of infrastructure.
A series of measures should be implemented to accelerate the construction of a unified national market and effectively reduce overall logistics costs, they said, adding that a new round of fiscal and tax system reform
should be outlined, and financial system reform should be implemented.
In terms of expanding high-level opening-up, the meeting’s participants said that efforts should be made to cultivate new growth drivers of foreign trade, consolidate the fundamentals of foreign trade and foreign investment, use high-standard international economic and trade rules as a benchmark, and improve the business environment. The Belt and Road Initiative will be further promoted, they said.
Experts said China is likely to adopt a significant law in 2024 that will provide a predictable framework and enriched funding support for financial risk resolution, underscoring the country’s steadfast commitment to forestalling systemic financial risks.
One of the priorities of the law would be to launch the financial stability guarantee fund, which experts said could be worth at least hundreds of billions of yuan and function as the last resort for addressing any major financial risks.
They added that a draft version of the law may be submitted to China’s top legislature for a second review as early as this month as the country places a growing emphasis on financial risk management amid a real estate market downturn and local government debt issues.
The experts commented after a meeting of the Political Bureau of
the Communist Party of China Central Committee on Dec 8 called for continuing to effectively prevent and defuse risks in key areas and resolutely guard against the occurrence of systemic risks.
Liu Junhai, director of the Renmin University of China’s Business Law Center, said that adopting the law on financial stability would be crucial for China to achieve such goals as it will provide a top-level design that harmonizes the efforts of various stakeholders in managing financial risks, preventing any disjointed or contradictory actions.
The People’s Bank of China (PBOC), the country’s central bank, said in a report in November that it will facilitate the launch of the law on financial stability as soon as possible.
Xing Huiqiang, a professor at the Law School of the Central University of Finance and Economics, said the law is very likely to be adopted in 2024, providing a rules-based, predictable framework of financial risk resolution that will improve the efficiency of risk disposal compared with the current case-by-case method.
Ming Ming, chief economist of CITIC Securities, said he expects the National People’s Congress Standing Committee to conduct the second review of the draft law this month if there are no exceptional circumstances.
The draft has proposed the establishment of a fund to guarantee financial stability, to be used when such stability is seriously endangered. The PBOC said recently that the fund has established a basic, preliminary framework and has accumulated a certain amount of capital.
Meanwhile, China’s consumer prices dropped for the second consecutive month in November, indicating the still-weak demand and backing the case for further policy support including a likely reduction in the reserve requirement ratio for banks, economists said on Dec 10.
Despite challenges and headwinds, they expressed optimism over the potential for a growth rebound next year given some recent signs of stabilization, expecting to see more measures rolled out to strengthen domestic demand, spur consumption, help deliver presold homes, and help local governments get on the right track on financial issues.
The Dec 8 meeting emphasized the need to consolidate and enhance the momentum of economic recovery and strive to promote overall improvement in economic operations to achieve both qualitative and quantitative growth. Further efforts will be made to expand domestic demand to form a virtuous cycle of mutual promotion between consumption and investment.
Data released by the National Bureau of Statistics (NBS) on Dec 8 offered the latest official snapshot of the pressures facing the economy, as the country’s consumer price index — a main gauge of inflation — dropped by 0.5 percent year-on-year in November after a 0.2 percent dip in October.
The growth in core CPI, which excludes volatile food and energy prices and is deemed a better gauge of the supply-demand relationship in the economy, came in at 0.6 percent year-on-year in November, the same as in October.
Xiong Yuan, chief economist at Guosheng Securities, said the drop in consumer prices indicates the stillweak internal driving force, insufficient demand, and low confidence, leaving open the possibilities of further interest rate cuts and a reduction in the reserve requirement ratio as early as this month.
Citing the negative CPI growth and the steps mapped out at the key meeting, Wen Bin, chief economist at China Minsheng Bank, said that expanding domestic demand will be among the key priorities to bolster the economy, and consumption will play a fundamental role in driving economic growth.
The NBS data showed that China’s producer price index, which gauges factory-gate prices, dropped by 3 percent from a year ago in November, following a 2.6 percent fall in October.
Ding Yue, deputy general manager at Zolix, a Beijing-based supplier of optical instruments, said industrial companies still face pressures amid lackluster demand, and further steps are expected in order to boost market confidence and support growth of the real economy.
Considering the lackluster demand for industrial products, Zhou Maohua, an analyst at China Everbright Bank, said that more steps are needed to boost domestic demand and spur consumption.