The Chinese government recently convened its Central Economic Work Conference (中央经济工作会议), sending critical signals as to the direction of economic policymaking in the near future.
The conference was convened from 11 – 12 December in Beijing, for the purpose of “comprehensively summarizing economic work in 2023, deeply analyzing current economic conditions, and systemically making arrangements for economic work in 2024.”
State-owned media and economic observers in China have since been heavily preoccupied with the analysis and interpretation of the statements made by the Conference.
Here is a list of 10 of the main signals sent by China’s 2023 Central Economic Work Conference as interpreted by domestic observers.
1. Tech innovation the main mission in 2024
The Conference called for “using technological innovation to guide the development of a modernised industrial system,” as well as “using tech innovation to drive industrial innovation.”
Tian Xuan (田轩), deputy-head of the Graduate School of the People’s Bank of China (PBOC), that that the conference has elevated tech innovation to “premiere position in the economic work plan for next year.”
“At present, China is still at the key juncture of shifting between new and old [growth] drivers,” Tian said.
“Against this background, making full use of the guidance and support role of tech enterprises and invigourating tech innovation in its support of Chinese modernisation has become one of the most urgent reform missions.”
2. Combatting risk and gradually transitioning to new development models
The Conference called for “using progress to drive stability, and standing up first before making breakthroughs” (以进促稳、先立后破)
Domestic observers have focused heavily on this phrasing, stating that it indicates Beijing will gradually shift to new development models in various sectors of the economy to deal with prevailing risk issues.
The Conference has also called for “continuing to effectively dissolve risk in key areas.”
“[China] must coordinate the dissolution of risk including real estate risk, local government debt risk and risk in relation to small-and-medium sized financial institutions,” the Conference said.
“It must firmly strike against illegal financial activities, and firmly guard the bottom line against the onset of systemic risk.”
Li Peijia (李佩珈), senior researcher with Bank of China, said active resolution of real estate-related risk will remain a key goal.
“Risk in China’s real estate sector has recently increased, and overall we can say that this is because things ‘burst’ too quickly, before a new model of development had been established,” Li said.
“The phrase ‘stand first before breaking’ indicates that in future the rhythm and intensity of risk disposal will focus more on macro-economic balancing.
“During the process of establishing new real estate development models, there will also be more focus on guiding the real estate market to a ‘soft landing.'”
Wen Bin (温彬), chief economist from China Minsheng Bank, said the phrase “stand before making breakthroughs” refers to effectively making a transition between new and old economic development models, in order to avoid problems in the past created by “blindly pursuing rapid development” or a “one size fits all” approach to problems.
Wen believes this emphasis on smooth transition to be particularly applicable to the energy sector, as well as China’s real estate development models.
“I expect that prior to new mechanisms officially being put in place, the original models will still function for quite some time.”
According to Wen, the phrase “using progress to drive stability” reaffirms Beijing’s intention to use growth targets and development to resolve stability issues.
For this reason, he expects a GDP growth target of around 5% for next year, which will find support in more active fiscal policies to prop up market confidence.
Zeng Gang (曾刚), chair of the Shanghai Institution for Finance & Development (SIFD), notes that the Conference’s mention of “firmly striking against illegal financial activity” points to further pressure on unlicensed operators in the financial sector.
“In the past, the strength of regulation of these types of licensed financial institutions was insufficient, which in fact led to the formation of considerable financial risk,” Zeng said.
“Looking forward to 2024 risk resolution work, striking against illegal financial activities could become a key point worth paying attention to.”
3. Active fiscal policy and expansion of local government debt
The Conference stated that “active fiscal policy must moderately strengthen, and increase in quality and effectiveness.”
“We must make effective use of room for fiscal policy, raise the efficiency of capital and the effectiveness of policy, and optimise the fiscal expenditure structure.”
Wang Qing (王青), chief analyst at Golden Credit Rating, said that this could mean that the target fiscal deficit ratio as well as the scope of new local government special bonds issuance could both see moderate gains in 2024.
“This is to mainly ensure that infrastructure investment growth continues to remain at comparatively high levels, stabilising the macro-economy, and offsetting the impact on local government finances of the weak real estate sector,” Wang said.
4. Tax cuts to support manufacturing and tech sectors
The Conference called for “effective implementation of policies for structured tax and fee reductions, and focused support of tech innovation and manufacturing sector development.”
Luo Zhiheng (罗志恒), chief economist at Yuekai Securities, said that future tax cuts will focus more on “efficiency and effectiveness,” as well as targeted support for these preferred sectors.
5. Chinese monetary policy to focus more on inflation
The Conference called for “maintaining rationally ample liquidity” and ensuring that “total social financing and the money supply match economic growth and price level targets.”
While “maintaining rationally ample liquidity” and keeping growth in credit and the money supply on par with economic growth has long been part of China’s monetary policy boilerplate, specific mention of price levels by the 2023 Conference marks a departure from precedent.
“This indicates that monetary policy targets have started to focus more on prices,” said Zeng Gang.
Given the ailing state of price levels in China in 2023, Zeng expects China to follow the lead of other central banks by focusing more on price targets.
“This new phrasing means that China will include price targets as one of its monetary price targets,” Zeng said.
“One of the focal points for monetary policy next year will be how to reasonably increase CPI and PPI, and drive expansion of the economy.”
6. Greater coordination of monetary, fiscal and industrial policy
The Conference highlighted the need to “strengthen the consistency of macro-policy orientations,” as well as to “strengthen the coordination of fiscal, monetary, employment, industrial, regional, tech and environmental policy.”
“In recent years, fiscal policy and monetary policy have seen ongoing coordination,” said Luo Zhiheng.
“Monetary policy has coordinated with fiscal policies for debt issuance and debt resolution, and monetary and financial policy have supported the prevention of real estate risk…we expect this to continue next year.”
In addition to greater macro-policy coordination, the Conference called for stronger guidance of economic communications and guidance of public opinion.
“This will be of benefit to avoiding misunderstandings and stabilising the formation of expectations.”
7. Encouraging the development of venture and equity investment
The Conference called for further development of both venture investment and equity investment in China.
Tian Xuan said that a focal point for policy in 2024 will be using venture and equity investment to channel more capital towards support of tech innovations.
“When it comes to capital as a factor of production, because venture investment and equity investment possess a higher tolerance for failure, they can fundamentally deal with the lengthy lifecycles, high failure rates and greater risk of tech innovation,” Tian said.
Tian expects greater cultivation and support of venture capital markets, as well as further reforms to the basic infrastructure of China’s capital markets.
“[China] will accelerate] the establishment of multi-tier capital markets, and increase the share of direct financing when supplying capital to Chinese tech entrepreneurship.”
8. Expansion of both consumption and investment
The Conference called for “spurring potential consumption, expanding effective investment, and forming a positive mutually reinforcing cycle between consumption and investment.”
“[China] will improve financing and investment mechanisms, implement new mechanisms for coordination between government and private capital, and support private capital to participate in areas such as new infrastructure development.”
In addition to stabilising and expanding “traditional consumption”, the Conference also called for driving consumption of clean energy vehicles and electronic goods.
9. China determined to grow private economy
The Conference called for “expediting the development and strengthening of private enterprise,” with the implementation of a “raft of measures on market entry, access to factors of production, fair law enforcement and protection of rights.”
“The Conference not only expressed its determination to support the development of the private economy, it has also sent key signals that it will use firm measures to encourage, support and guide its development,” said Wei Qijia (魏琪嘉), chair of the Industrial Research Office of the State Information Centre.
Wei further points out that strengthening institutional measures such as China’s legal system will play a key role in efforts to support the private economy.
“The rule of law is an intrinsic necessity of market economies, and is a fundamental guarantee of healthy operation,” Wei said.
“Lawful and equal protection of the rights and interests and ownership rights of different economic entities has major significance for the creation of a unified, open, competitive and orderly modern market system.”
10.Economic opening and the creation of “Invest in China” as a brand
The Conference called for “expanding high-level external opening…and accelerating the cultivation of new drivers of external trade.
This will include “consolidating the fundamental state of external trade and investment, and expanding trade in intermediate goods, trade in services, digital trade and cross-border e-commerce exports.”
Wen Bin notes the significance of the Conference’s call for the creation of an “Invest in China” national brand.
“This clearly indicates that irrespective of how external conditions are, China will always uphold high-level external opening, employ opening to spur reform and development, and make better use of both internal and external markets and resources.”
The Five “Necessities” for China’s economic policy work in 2024
The Beijing Daily outlines a set of slogans that summarize the key themes of the 2023 Central Economic Work Conference in the form of the “Five Necessities.”
They include:
- The necessity of upholding high-quality development as the hard logic of a new era.
- The necessity of upholding coordinated efforts for deepening supply-side structural reforms and vigorously expanding effective demand.
- The necessity of relying upon reform and opening to strengthen endogenous drivers of development.
- The necessity of upholding the postiive reciprocal relationship between high-quality development and high-level security.
- The necessity of making the advancement of Chinese-style modernization the most important political theme.
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