Xi Jinping wants to reverse the economic decline. Is there any solution at the upcoming Central Economic Work Conference?

The Central Economic Work Conference is China’s highest-level annual economic conference.

Chinese leader Xi Jinping presided over a meeting of the Political Bureau of the CPC Central Committee on December 8, focusing on discussing economic work in 2024, which means that the Central Economic Work Conference is about to be held.

As usual, China holds the Central Economic Work Conference in early or mid-December every year to systematically deploy economic policies and economic work tasks for the next year.

Since China became the world’s second largest economy and globalization has continued to deepen, China’s annual economic conference has been one of the most watched by the outside world.

However, this year’s Central Economic Work Conference attracted more attention because:

  • China’s economic downturn has spread across the world, and the world is eagerly watching what stimulus measures Beijing will introduce to revive the economy.
  • The Third Plenary Session of the 20th Central Committee of the Communist Party of China, which originally allowed the outside world to sense the direction of China’s macroeconomic policies, seems to be unusually missing this year. (The Politburo meeting on December 8 still did not announce the time for the Third Plenary Session of the CPC Central Committee)

Here’s what you need to know about the economic conference.

What is the Central Economic Work Conference?

  • China’s highest-level annual economic meeting determines the current economic situation, deploys economic work tasks for the next year, and sets the tone for economic policies in the coming year.
  • It was presided over by the General Secretary of the Communist Party of China and the Premier of the State Council delivered an important speech. Officials from central and provincial party and government agencies attended the meeting.
  • It is held in early to mid-December every year, and rarely in late December. Lasts 2-4 days.
  • Held within 2-9 days after the Politburo meeting in December, the Politburo meeting is therefore regarded as the “tone-setting meeting” of the Central Economic Work Conference.
  • The Central Economic Work Conference is a closed-door meeting. After the conclusion, Xinhua News Agency usually publishes a meeting communiqué.

Highlights from this year’s conference

The Chinese economy is facing multiple challenges: a real estate crisis of historic scale, a shadow banking crisis, local government debt risks, an accelerated withdrawal of foreign capital, historically low consumer confidence, historically high youth unemployment, slowing global growth, and geopolitics with the West. Nervous, etc.

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These factors have plunged China’s economy into a quagmire, and the speed and intensity of economic recovery after the COVID-19 epidemic have been slower than outside expectations. The Chinese government has launched a series of stimulus measures, but so far it has not reversed the trend and the rebound has been weak.

  • In recent months, the People’s Bank of China has implemented modest interest rate cuts and distributed more cash to support economic growth.
  • In October, it announced that it would issue an additional 1 trillion yuan in government bonds before the end of the year to support local governments.
  • As a result, China’s budget deficit will increase from the original 3% to 3.8% of gross domestic product (GDP) in 2023 – this is the first time in more than 10 years that Beijing has revised its budget outside of the “Two Sessions”.
  • In September, it was announced that it would lower the minimum down payment ratio requirements for first and second homes, and lower the interest rates on existing housing loans.
  • In September, it was announced to increase the special additional deduction standards for personal income tax on infant care, children’s education, and elderly care, to reduce the burden of supporting “one elder and one child”, etc.

Many economic experts believe that China’s stimulus measures are far from enough. Some experts even believe that China has yet to introduce any real stimulus measures.

“(These measures at present) are only temporary measures,” Yao Wei, chief Asia economic analyst at Societe Generale, told CNBC .

“Even this additional $1 trillion in debt issuance, if you compare that number to the loss of land sales revenue caused by real estate fluctuations, it’s simply not enough,” she said.

As in previous years, this year’s Central Economic Work Conference will clarify China’s fiscal, monetary and various industrial policies for 2024.

Background: Fiscal Policy & Monetary Policy

  • The two most important tools for government intervention in the economy.
  • Fiscal policy: Government policies to influence the economy through spending and taxation. It usually consists of tax policy, fiscal expenditure policy and budget policy.
    • Expansionary fiscal policy: also known as active fiscal policy or loose fiscal policy, that is, increasing total social demand by increasing government spending. Often used during periods of economic depression and weak domestic demand.
    • Tightening fiscal policy: reducing total social demand by reducing government spending, often used in periods of inflation caused by economic overheating.
  • Monetary policy: A central bank’s policy to influence the economy by regulating the money supply and interest rates.
    • Expansionary monetary policy: also known as active monetary policy or loose monetary policy, which increases the money supply and lowers interest rates. It is usually used in periods of economic depression and deflation.
    • Tightening monetary policy: cutting the money supply and raising interest rates, often used when the economy is overheating and inflation occurs.

Wind direction: Politburo meeting discusses economic work in 2024

The Political Bureau meeting of the CPC Central Committee on December 8 was the “tone-setting meeting” for this year’s Central Economic Work Conference. The 24-member Politburo said at the meeting that China will “continue to implement proactive fiscal policies and prudent monetary policies” next year.

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“The proactive fiscal policy must be appropriately intensified and improve its quality and efficiency. The prudent monetary policy must be flexible, appropriate, precise and effective,” said a communiqué of the Politburo meeting published by China’s state-run Xinhua News Agency .

The overall tone of the meeting was consistent with previous speculation that China would set more aggressive economic growth targets and economic stimulus measures next year.

“The wording of the meeting places more emphasis on development, which means that risk prevention is secondary and economic growth is more important, which is a positive signal for the economy,” Bloomberg said in its report on the Politburo meeting on Friday .

Compared with the earlier statement, what changes have been made——

Monetary policy removes word “powerful”

  • April Politburo meeting : “Prudent monetary policy is precise and powerful.”
  • December Politburo meeting: “Prudent monetary policy must be flexible, appropriate, precise and effective.”

Fiscal policy adds the word “moderate”

  • April meeting of the Political Bureau of the Central Committee: “The proactive fiscal policy must be intensified to improve its effectiveness.”
  • December Politburo meeting: “The proactive fiscal policy must be moderately strengthened and improve quality and efficiency.”

Some economists believe that the removal of the word “strong” from the monetary policy language implies that Beijing will adopt a more cautious attitude towards comprehensive stimulus measures and rely more on targeted and localized stimulus tools. Xing Zhaopeng, senior China strategist at ANZ Bank , told Bloomberg that China’s interest rate cuts and bank deposit reserve ratio cuts next year may be smaller than in 2023.

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Economists predict 2024 , let’s see what signal the meeting releases

GDP growth rate

Still maintained at 5%, institutions such as Goldman Sachs, JPMorgan Chase & Co, Standard Chartered, and the Vice President of the International Monetary Fund (IMF), former Deputy Governor of the People’s Bank of China Governor Zhu Minjun predicted so, Bloomberg reported . However, considering that China will have a low economic base in 2022 due to factors such as strict zero-elimination measures, achieving a growth rate of 5% next year on the basis of 2023 is actually a higher goal.

The fiscal deficit to GDP ratio

Further increased from 3.8% to 4%, JP Morgan predicts this. Because China is expected to continue to issue more bonds next year to support the economy and expand domestic demand.

Monetary policy

Relatively loose. “The People’s Bank of China is likely to need to maintain relatively loose monetary and liquidity conditions to adapt to the relatively loose fiscal policy environment,” Bloomberg reported, citing a briefing from Louis Lu, chief economist at Oxford Economics.

Specific measures taken by the People’s Bank of China 

May include lowering the deposit reserve ratio and policy interest rates. Lowering the reserve requirement ratio will allow financial institutions to have more funds to purchase government bonds. The People’s Bank of China may also once again launch mortgage supplementary loans, in which the central bank provides large loans with preferential interest rates and longer maturities to commercial banks in the form of mortgages. The People’s Bank of China has opened up mortgage supplementary loans many times in the past to support financial institutions in providing funds for large projects such as real estate.

Real estate policy

To prevent the housing market from collapsing, Beijing may support further relaxing home purchase conditions, further funding social affordable rental housing projects, and renovating and building inland cities, among other things. When Xi Jinping inspected Shanghai at the end of November, he visited the New Era Urban Builders Manager’s House in Minhang District to learn about the construction of affordable rental housing. This was seen by the outside world as a signal that the central government would release more support for such projects.

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