DDN Business Insider | 3rd Plenary Session: How will local govts' growing autonomy on regulation affect real estate market?

Editor's note: The 20th CPC Central Committee's Third Plenary Session has officially passed the "Decision of the CPC Central Committee on Further Comprehensively Deepening Reform and Advancing Chinese-style Modernization". Its content has attracted widespread attention and discussion across various sectors over the past week. So, what policy signals does the "Decision" of the Third Plenary Session convey? After the session, how will the policies introduced by various ministries and departments impact the real economy and the capital market?

【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. The 20th CPC Central Committee's Third Plenary Session has officially passed the "Decision of the CPC Central Committee on Further Comprehensively Deepening Reform and Advancing Chinese-style Modernization". Its content has attracted widespread attention and discussion across various sectors over the past week. So, what policy signals does the "Decision" of the Third Plenary Session convey? After the session, how will the policies introduced by various ministries and departments impact the real economy and the capital market? We have invited Mr. Dong Yu, Executive Deputy Director of the China Development Planning Research Institute at Tsinghua University, and the well-known expert Mr. Li Daxiao to provide commentary and analysis on these related topics. Hello to both of you.

【Anchor】 First, I would like to ask Mr. Dong, we can see that this "Decision" is about 22,000 words long, which is about the same as the one from the 18th CPC Central Committee's Third Plenary Session a decade ago. In terms of content, it is divided into 15 parts, 60 clauses, and three major sections, and proposes more than 300 important reform measures. In your opinion, what kind of signal has this "Decision" conveyed overall,

【Dong】The 20th Central Committee's Third Plenary Session and the 18th Central Committee's Third Plenary Session share a common feature - they both launched comprehensive and cross-cutting reforms. The difference is that the 20th Session is built on the foundation laid by the 18th Session, essentially transitioning from one reform agenda to another. We already know about the 336 reforms that have been proposed, while the 20th Central Committee's Third Plenary Session introduced another set of over 300 reform initiatives. Although both reform agendas are relatively comprehensive, covering various domains, there are differences between the two.

The 18th Central Committee's Third Plenary Session marked the start of the comprehensive and cross-cutting reform drive. So over the past decade or more, a series of top-level designs and related reform plans have been introduced across different sectors. The new reform agenda is built upon this foundation, aiming to identify and address the key pain points and bottlenecks, and to push forward more targeted reforms in various domains.

When examining the words used in the reform measures, we may observe the new terms like "establish" and "construct". But at the same time, we can also see many words like "improve" and "optimize," which implies that the reforms will be built upon the existing reform plans and go further.

【Anchor】Good, Mr. Li, what signals do you think are being conveyed

【Li】A very important point of the Third Plenary Session is deepening reform to advance Chinese-style modernization. This session has put forward three grand goals:

by 2029, the 80th anniversary of the founding (of the country), to complete the reform tasks proposed in this decision

by 2035, to basically achieve modernization of the national governance system and governance capabilities

by the middle of this century, to fully build a strong socialist modernized country, to lay a solid foundation, thus basically realizing socialist modernization.

The proposal of these three-step grand goals is a major difference from the 18th Central Committee's Third Plenary Session. More importantly, we now have this grand goal in the three progressing steps, along with a clear set of supporting implementation guidelines and policies which have provided us with a clear direction.

【Anchor】Alright.  In terms of policy implementation, various state departments have introduced different policies over the past week, such as interest rate cuts and the issuance of special government bonds by the Ministry of Finance. Mr. Dong, what actual effects do you expect these measures to have?

【Dong】This plenary session specifically analyzed the current situation and tasks. Of course, previous plenary sessions also studied the challenges and tasks we faced. But this time the length devoted to these issues is relatively more extensive, which means that in addition to studying reform issues, the session also conducted in-depth research on the current economic situation and development. What does this imply? On one hand, it is necessary to acknowledge the problems the economy and society currently face, especially the difficulties and challenges in economic growth. But on the other hand, it is also essential  to combine reform efforts with short-term economic growth efforts. In other words, it seeks to use reforms as a way to overcome the current economic difficulties.

As you mentioned earlier, these various measures are in fact very important in this regard, they need to be aligned  with the goal of achieving around 5% economic growth for the entire year. This involves implementing financial measures that align with this situation. The plenary session communique specifically emphasized the unwavering determination to achieve the annual economic and social development targets. We already know these annual targets have been set at around 5% GDP growth. As of the half-year data release in July, the progress (to this target) is still on track. However, there are indeed some difficulties and challenges. Since the goal is to achieve the annual economic and social development targets with unwavering determination, it means that in the second half of the year,  the intensity of macro-control policy should not be reduced, but rather to be further strengthened.

【Anchor】Ok, how do you see the effectiveness of the relevant measures, Mr. Li?

【Li】Through various channels, monetary policy and fiscal policy have worked together, and in terms of actual effects, we can also see that the bond market has responded accordingly. We have also seen that many borrowers have actually benefited from the changes of the interest rates on loans. The actual effects will gradually become more apparent in the real economy and the capital markets.

【Anchor】Yes, that's right. Besides, regarding the  real estate sector, which has drawn a lot of attention, we see that the "Decision" has clearly stated that more autonomy will be given to local governments in terms of real estate market regulation. Mr. Dong, how do you think this will impact the formulation and implementation of real estate policies in different cities? And how will it affect the future direction of the market?

【Dong】Regarding the content of the housing system reform, there are indeed some measures as you mentioned.  The main measures are two "accelerations":accelerating the establishment of a housing system that combines both renting and purchasing, and accelerating the construction of a new model for real estate development. This is an overall requirement that is tied to the current structure of the real estate market, as well as the requirements of long-term developments. Of course, the document also includes some specific measures.  For example the one that has drawn a lot of attention is granting full autonomy to local city governments in regulating the real estate market. The word "full" means that on the basis of the previous framework, cities will be granted even greater autonomy. This will allow each city to implement targeted regulatory policies based on their own actual conditions.

When it comes to China's real estate market and real estate reform, the issue of real estate is not a minor one. It has very broad macro-level implications. When looking at the real estate issue, we cannot just focus on this one paragraph, but need to consider it within the broader context of the other economic system reforms discussed at the Third Plenum.

It's particularly important that among the six major reforms in the economic sphere, we can see one key reform is the system and mechanism for urban-rural integration. This urban-rural integration system and mechanism is very closely and directly related to the real estate sector.

【Anchor】Alright, how do you see this, Mr. Li?

【Li】We have introduced policies that give cities more autonomous power in real estate regulation。 These policies are more relaxed and  more diversified. They are also more reasonable and better adapted to the actual conditions of each city. These policies will have an impact and will be able to help stabilize the real estate market accordingly. We've also seen that the actual effects of real estate regulation in some cities are gradually becoming evident as the intensity of regulation in each city is gradually increasing. As the policy effects take shape based on the actual conditions of each city, the overall direction of real estate policies in the future will continue to focus on stabilizing the market.

【Anchor】Yes.  Additionally, for some time now, there has been ongoing discussion about the "temperature difference" between the macroeconomic data of the mainland and the micro-level reality. Mr. Dong, how do you expect this issue to improve after the Third Plenary Session?

【Dong】After China's economy emerges from the pandemic, it requires a recovery process, a process that cannot be completed in a very short time. Particularly like consumption, it needs to gradually recover. In this process, it will affect issues like income and etc.. So objectively speaking, this kind of "temperature difference" does exist. We also know that a lot of macroeconomic policies have been introduced since last year. But these policies also need a certain period of time to observe their actual effects. Some policies may have an immediate effect, but for most, we need to wait a while to see their impact on the economy. For example, the long-term special government bond policies introduced this year are like this We still need further observation on their short-term effects.

At the same time, we also need to see that this "temperature difference" is objectively combined with the expectations on the micro-level. Now there is indeed a problem of unstable expectations.

The Plenum also emphasized the fundamental role of the market economy system. This fundamental system will also play a certain guiding role in long-term expectations.

Particularly, we need to see that the emphasis of the property rights system this time has a major change from the past. In the past, the emphasis was on the legal and equal protection of the  property rights of various forms of ownership. Now, two words have been added - "long-term ".

"Long-term" implies that asset owners can have perseverance. With perseverance, they will be able to continue to invest consistently.

【Anchor】Okay, Mr. Li, what kind of improvements do you expect after the Third Plenary Session?

【Li】The overall macroeconomic data and the actual public experience do have a difference.We have indeed seen improvements in our export data and the data for large-scale enterprises. However, there is a distinct difference compared to the data of small and medium-sized enterprises. This difference explains  the discrepancy between public experience  and the data. More importantly, we are still in the process of economic recovery, and economic recovery always takes a process. There is a transmission process needed for these experiences to align with the data..

I expect that after the Third Plenum, as a series of policies to stimulate the economy are implemented, like the fiscal and monetary policies, the gap between public experience and the data will gradually narrow.

【Anchor】OK. In addition to the Third Plenum, recent external factors such as the U.S. election have also had a certain impact on the economic outlook in mainland China. Mr. Dong, how do you assess the influence of these external factors? And how do you think China should respond to these uncertain factors?

【Dong】If we carefully examine the signals released by the Third Plenum, one of the key messages is that we must firmly do our own thing. Regardless of the changes in the external environment, we need to develop our new productive forces and accelerate the pace of industrial transformation and upgrades. Only by pursuing high-quality development can China's products maintain a competitive edge in the global market. This requires us to cultivate the internal strength of the Chinese economy.

At the same time, the Third Plenum also emphasized a very important aspect which is to continuously improve the institutional mechanisms for high-level opening-up. Opening-up is a distinctive feature of Chinese-style modernization.  That is to say that in advancing our own Chinese-style modernization, we need to showcase to the world what is within, that one of the characteristics of our modernization is openness. This means that we need to open the windows and integrate with global development.

So if we take a look at this, a very important content is to expand institutional opening-up.  In recent years, "institutional opening-up"  has been a high-frequency and important term in the central government's economic work. This time, there is a clear statement to proactively align with international high-standard trade and economic rules. It also specifies some areas in more detail than before, such as property rights protection, industrial subsidies, environmental standards, labor protection, government procurement, e-commerce, and finance. So, what is the purpose of focusing on these areas? The goal is to achieve compatibility and mutual recognition of rules , regulations, management and standards.This means proactively reforming and improving our own rules and regulations to align with internationally accepted economic and trade rules, which is a very deliberate action on our part.

So what does this signal? This signals that during the future reform process, China is willing to take the initiative to make the rules of our economic and trade system compatible with the international system. This will enable China's trade and investment to integrate with the international market better.

【Anchor】Okay. Mr. Li, how do you assess the impact that the external environment has on mainland China?

【Li】The external factor of the (US) election could have an impact on China's economy and the external environment indeed. However, it is ultimately an external environment that we need to face and respond to objectively. For example, the changes in tariffs, and the policy changes from the United States.

We also need to recognize the optimistic aspects. For example, the actual scope of use of the RMB is also constantly and quietly increasing. Many countries are also settling in RMB and our trade with many regions is still constantly expanding. China remains the world's largest country in terms of trade of goods. We can consider responding to risks in a certain single region by developing closer multilateral economic and trade relations through other channels. This is one of the ways we can think about addressing these challenges.

【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.