DDN Business Insider | Stimulating growth: Experts analyze impact of 3rd Plenary Session's Resolution on the Mainland and HK economies

Editor's note: The third plenary session of the 20th CPC Central Committee was held in Beijing from July 15th to 18th. The session made systematic deployment for Further Deepening Reform Comprehensively. What impact will the third plenary session have on the future economic development of the Mainland and Hong Kong? Let's take a look.

【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The third plenary session of the 20th CPC Central Committee was held in Beijing from July 15th to 18th. The session made systematic deployment for Further Deepening Reform Comprehensively. What impact will the third plenary session have on the future economic development of the Mainland and Hong Kong? Regarding this topic, we have invited Duan Hongtao, the deputy director of the Business Network Development Center of The State-owned Assets Supervision and Administration Commission of the State Council (SASAC), Zhou Maohua, Financial Markets Macro Researcher of China Everbright Bank, and Tan Haojun, economic commentator and adjunct professor of the Zhongnan University of Economics and Law, to bring their comments and analysis.

We see that the third plenary session of the 20th CPC Central Committee has made comprehensive, forward-looking, systematic and strategic plans for further deepening reform, especially with a prominent focus on economic system reforms. First of all, Mr. Tan, what policy signals do you think this third plenary session has conveyed?

【Tan】First, in the construction of the market, the plenary session put forward higher requirements, which are to be flexible but also be in control, to achieve the optimization of resource allocation efficiency and maximization of benefits, to better activate the market, release the market vitality, and to build a fairer market environment. It's because only by following the requirements of building a "national unified market" that consumption can play a better role in stimulating economic growth. To achieve this objective, substantial progress and advancements in market development are necessary. At present, there are still some issues in the market that affect consumption and consumer confidence. Therefore, in accordance with the requirements of this plenary session, there will definitely be more significant efforts in the next step of market construction and the creation of a better market environment.

Second, to deepen the supply-side structural reform. The proposal to deepen the supply-side structural reform aimed at developing new quality productive forces and strengthening the integration of the real economy and the digital economy. As well as to enhance the efficiency of the supply-side structural reform, and to enhance the resilience and security of the industrial and supply chains.

Third, from the innovation perspective, we need to continue to strengthen the supporting role of talent and give full play to the role of the Strategy for Invigorating China Through Science and Education. By cultivating talent, attracting talent, improving talent levels, and effectively utilizing talent, we must continuously enhance our country's capacity for innovation-driven development.

Fourth, advancing reforms in some key areas, including fiscal and taxation system reforms, financial system reforms, and so on. This is very important for the next step. The Communique also proposed to deepen fiscal and taxation system reforms and financial system reforms. But as for the policy details, we need to wait for the actual decision for concrete details. For example, there might be reforms or adjustments in the taxation system and other areas, including reforms related to municipal and financial powers, etc.

The Communique of the third plenary session also set higher standards for opening up, proposing that we will "further expand the opening up of the country to the outside world, deepen the foreign trade structural reform, and further reform the management systems for inward and outward investment". This means more policies will be introduced to better promote the opening up of the country, and at the same time, to better venture abroad to places more suitable for our development.

【Anchor】What do you think about the relationship between these policy directions of the Third Plenary Session and Hong Kong?

【Tan】Hong Kong will also be subject to the decisions of the third plenary session of the 20th CPC Central Committee, which includes policies on economic reforms in the mainland and opening up to the outside world. The Hong Kong Special Economic Zone can develop its economy based on the new requirements, ideas, and goals proposed in the third plenary session. Since Hong Kong's development needs to be closely integrated with the mainland, Hong Kong's development needs to follow the requirements of the central government. Hong Kong can develop its economy and advance its economy according to the central government's decisions, and it can carry out its economic reform according to the central government's decisions. Although Hong Kong is a highly open city, its development has reached a point where it needs to adhere to the requirements of reforms to further advance. If Hong Kong's development continues to follow the original model, there will be some difficulties. Some of the existing contradictions and problems will indeed give rise to new problems if they are not taken forward through reform. Therefore, it is necessary to follow the decision of the third plenary session of the 20th CPC Central Committee, to push the reform of Hong Kong and the management system of Hong Kong's economic system. Only in this way will Hong Kong's development improve, and will Hong Kong be in a better position in the next round of development.

【Anchor】Alright. Last Monday, the National Bureau of Statistics of China released the "mid-year report" on China's economy, with domestic GDP growing by 5.0% year-on-year in the first half of the year and total retail sales of consumer goods growing by 3.7% year-on-year. What do you think about these data points Mr. Duan?

【Duan】The GDP is basically in line with the government's expectation, at around 5%, which is also the government's annual development target. The enhancement of industrial structure, the development of new quality productive forces, scientific and technological innovation, and the change in real estate policies all have certain impacts on GDP

However, encouragingly China's retail sales of consumer goods went up 3.7 percent. Although slightly lower than the GDP, it is still in line with the party's expectations. This can be interpreted as stable with slight growth but still differs from our broader expectation for consumption growth. Therefore, in the second half of the year, we may have to introduce some policies to stimulate consumption.

【Anchor】Mr. Zhou, what do you think of the problems reflected in the economic data of the first half of the year?

【Zhou】According to the major macro-indicators of the domestic economy in the first half of the year, the economy has been running steadily, with the supply and demand relationship improving, and the quality of economic development steadily rising. However, the data also reflect that domestic effective demand is insufficient. There are structural imbalances in the economy and the price index remains low. Enterprises in some industries are still facing a lot of operational difficulties and challenges.

From the data, there is a lack of dynamism among microeconomic entities. Domestic data shows that the retail sales of consumer goods are below trend levels, prices remain low, and real estate investment continues to decline. In the first half of the year, fixed asset investment grew by 0.1% year-on-year, maintaining a low level of operation. The PMI index remains low, reflecting a lack of activity among domestic microeconomic entities. Domestic effective demand is insufficient. Enterprises are facing insufficient demand, so they lower prices to reduce inventory, and experience pressure on profitability, which inevitably affects the willingness to expand investment and has a negative impact on employment and income.

【Anchor】To solve these problems, Mr. Zhou, what complementary measures do you think will need to be introduced?

【Zhou】The recovery of the domestic economy still requires the support of macroeconomic policies. In the short term, domestic macroeconomic policies are inclined toward stimulating effective demand and enhancing consumption and investment momentum. Considering the economic performance in the first half of the year and the introduced policies, it is crucial to implement the existing policy measures in a coherent way. The previously introduced measures such as tax cuts and fee reductions, equipment upgrades, consumer goods replacement, special government bond issuance, policies to stabilize the real estate market, and financial support policies—all these policy measures still need to fully release their effects

What's more, it is necessary to further enhance the implementation of these policies. This includes adjusting and optimizing fiscal and financial support measures based on the difficulties and needs faced by the domestic real economy, the pace of recovery of the real estate and other industries, and the needs of new economic and industrial development. Currently, China is experiencing a low-price environment and the Feds is gradually entering a rate-cutting cycle. There is plenty of space for deploying conventional policy tools.

Thirdly, it is crucial to actively support the high-quality development of foreign trade, as foreign trade plays an important role in stabilizing our country's economy. In the face of the complex global trade environment, the country needs to continue to increase support for the foreign trade sector, consolidate our foreign trade advantages, support and encourage the development of new foreign trade models, and promote the high-quality development of foreign trade enterprises.

【Anchor】Ok. Mr. Duan just mentioned that consumption-stimulating policies will be introduced in the second half of the year, which is something the market has been anticipating for some time. However, given the current issues of insufficient demand, will there be economic stimulus measures that exceed expectations?

【Duan】It is unnecessary to stimulate the economy to exceed expectations because the stimuli are unsustainable. First, the "national unified market" emphasized the importance of internal market equality. There are issues of tax evasion, and counterfeiting, which all have negative impacts on our good brands or the sale of consumer goods. We have been talking about supply-side structural reform for a while. In fact, I think the next step is to study demand-side reform, including tax reform, and retail and channels reforms. We should introduce some barrier-lowering policies like the "national unified market" or make some foundational deep adjustments. More importantly, provides job opportunities. Rather than stimulate the economy, we should offer more job opportunities. If people have money in their hands, it will naturally boost consumption. The key issue with measures exceeding expectations is that we actually need to focus on consolidating our foundation and strengthening our core. For example, we can provide more public positions, social positions, or market-oriented positions to college students to help them realize financial independence. This, I believe, should be a priority for the central leadership.

【Anchor】Yes. After releasing the first half year's economic data, the IMF also updated its World Economic Outlook report, estimating that China's economy will grow by 5% in 2024. Chief Economist Mr. Gourinchas said that China and other emerging market economies in Asia remain the main engines of the global economy. What do you think about this?

【Duan】In fact, these emerging economies in Asia, including Southeast Asia, China, maintain relative political stability. Secondly, they are not caught in the cycle of inflation. At present, inflation is very high in some developed countries. So they've adopted an ultra-high interest rate policy to curb inflation. But this is not happening in China and some of the emerging Asian economies. The reason is that there is political stability, and second, there are no obvious inflationary consequences. So the 5% growth in China's economy is genuine and not generated by inflation or price increases. You can understand it as reflecting very high-quality development. Thus China, along with some emerging economies in Asia, remains the main driver of global economic growth, and its future development potential continues to be strong.

【Anchor】Alright. Considering the economic operation in the first half of the year and the signals conveyed by the third plenary session, what do you think about the trend of the Mainland's economy in the second half of the year?

【Duan】I'd say it's a steady rise, but it's unlikely to be too fast. Because we are still in the midst of a significant transformation. We hope to see some increase in prices, and that the CPI can go up a bit. But at the same time, we face certain bottlenecks in development. For example, we need to stabilize the real estate sector, including ensuring timely deliveries of pre-sold homes, completing government buybacks, and improving the public's housing conditions. This includes urban renewal and old facilities renovation. I think these should be the economic focus in the second half of the year. Therefore, we have to consider both the stock and the incremental elements. To sum up, the Mainland's economic trend in the second half of the year

【Anchor】Alright. The second half of the year might be a steady rise. What do you think about this, Mr. Zhou?

【Zhou】We remain optimistic about achieving our economic targets for consumption recovery in the second half of the year. The optimism is primarily due to the continued efforts of domestic macro policies, the ongoing smooth operation of internal circulation, and the expected further enhancement of consumption and investment momentum. Together with the resilience of foreign trade, the foundation for economic and price recovery will be further strengthened. At the same time, the 5% economic growth in the first half of the year has laid the foundation for the realization of the full-year economic goals.

【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.