DDN Business Insider | Seeking progress while maintaining stability: Central government sets direction for future economic development
Editor's note: The highly anticipated annual Central Economic Work Conference was held from Wednesday to Thursday last week in Beijing. The conference identified nine key tasks for the upcoming year, including effectively preventing and mitigating risks in key areas and continuously pushing to stabilize the real estate market; It also emphasized the importance of doing a good job in economic work for the next year to stabilize the real estate and stock markets. The conference called for a focus on steady progress and promoting stability through advancement; implementing more proactive fiscal policies to increase the fiscal deficit ratio; implementing moderately loose monetary policies, making timely reserve requirement ratio cuts and interest rate cuts, and maintaining the RMB exchange rate basically stable at a reasonable equilibrium level. Since the Central Political Bureau meeting was held last Monday, the market began to anticipate next year's easing policies. What will happen?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang.
The highly anticipated annual Central Economic Work Conference was held from Wednesday to Thursday last week in Beijing. The conference identified nine key tasks for the upcoming year, including effectively preventing and mitigating risks in key areas and continuously pushing to stabilize the real estate market; It also emphasized the importance of doing a good job in economic work for the next year to stabilize the real estate and stock markets. The conference called for a focus on steady progress and promoting stability through advancement; implementing more proactive fiscal policies to increase the fiscal deficit ratio; implementing moderately loose monetary policies, making timely reserve requirement ratio cuts and interest rate cuts, and maintaining the RMB exchange rate basically stable at a reasonable equilibrium level.
Since the Central Political Bureau meeting was held last Monday, the market began to anticipate next year's easing policies. To discuss this topic, we have invited Guo Hanbing, a postdoctoral researcher at the Institute of Finance, Chinese Academy of Social Sciences, and Tan Haojun, financial commentator and part-time professor at Zhongnan University of Economics and Law for their take on the issues. Welcome!
【Anchor】First, I would like to ask both guests what particular points of interest you see in this year's Central Economic Work Conference communiqué?
This year's communiquéfrom the Central Economic Work Conference has several key highlights. The overall approach emphasizes seeking progress while maintaining stability and promoting stability through advancement. This means achieving a smooth transition between old and new development models through both proactive and innovative strategies. In terms of macro policies, improving the effectiveness of fiscal policies is crucial, including continuing to focus on investments in key areas such as technological innovation and new infrastructure, and implementing tax cuts and fee reductions to support business development. The accompanying monetary policies also need to be both flexible and precise. In key areas of work, technological innovation leading industry is a top priority. New technologies will spur the development of new industries and models, such as artificial intelligence and low-altitude economy, with a focus on enhancing economic quality. Regarding expanding domestic demand, there is an emphasis on improving residents' consumption capacity and willingness, proposing government investment to stabilize private investments, which will lay an emphasis on optimizing the supply side. In terms of risk prevention, real estate risks remain a significant concern, along with local debt and the risks of small and medium financial institutions. In the future, debt reduction will continue to be a very important issue for local economies.
【Anchor】Yes, as we mentioned at the beginning, the market's expectations for next year's policies have already begun since the Central Political Bureau meeting last Monday. On that day, the Hang Seng stock index rose by more than 500 points at the end of the day. However, we have also noticed that the stock market's rise seems to lack longevity, as both Hong Kong and A-shares experienced pullbacks after early rising on Tuesday. Mr.Tan, what are your thoughts on this?
Some people believe that the heavyweight policies did not generate the expected significant effects, and the stock market did not experience the sustained enthusiasm that investors hoped for. I think this viewpoint is misguided. The policies proposed at this meeting, although many are being introduced for the first time, have already been communicated to the market through various channels and have provided some support to it. Therefore, we cannot expect a one-time explosive reaction as in the past; rather, it has led to sustained stability in the stock market.
【Anchor】Yes, some analyses suggest that China is about to enter a new round of unexpectedly large easing measures or a large scale of "flood-like"vpolicies. Comparing this to the previous monetary policies of "moderately loose" that led to a four trillion-yuan economic stimulus, Ms. Guo, what new features do you anticipate in this round of loosening policy cycle? What kind of innovative measures can we expect?
China will enter a new monetary easing policy cycle; however, it will not be a flood-like style. Compared to the historical period of the four trillion yuan initiative in 2008, the current economic landscape and development demands are entirely different. We can describe the current economic environment with several key pillars: innovation-driven, structural optimization, precisely controlled, green transformation, and domestic demand-led. In the innovation-driven leg, the focus is now on new productive forces that rely on technological innovation rather than large-scale investments as in the past. Structural optimization emphasizes on upgrading and adjusting the current industrial structure, rather than broadly stimulating and supporting traditional industries.
Precise control is also a highlight, focusing on precise efforts in key regions, sectors, and specific entities, distinguishing it from the relatively loose monetary stimulus of the past. Green transformation is also a new demand, focusing on sustainability, ecological friendliness and economic growth, which is entirely different from investments in high-energy consumption and high-growth sectors of the past. The domestic demand can indicate that we are more focused on tapping into the domestic consumption potential and investment returns while reducing excessive reliance on external markets. Thus, this round of easing will differ completely from that of 2008.
【Anchor】Yes, 2025 is also a crucial year for wrapping up the "14th Five-Year Plan" and starting the "15th Five-Year Plan." From the perspective of the transition between the two plans, Ms. Guo, what medium- and long-term deployments should we pay attention to?
During this transitional period, there are three dimensions worth focusing on. The first is breakthroughs in innovation. The foundation laid during the "14th Five-Year Plan" for innovation must lead to significant breakthroughs in key areas during the "15th Five-Year Plan," further perfecting the overall innovation system. For instance, the preliminary achievements in cutting-edge technologies such as 5G, biopharmaceuticals, and intelligent manufacturing developed during the "14th Five-Year Plan", which will drive these fields toward large-scale commercialization and deep technological iterations in the "15th Five-Year Plan." In terms of domestic demand, the trends of green consumption and smart consumption that emerged during the "14th Five-Year Plan" will also give birth to more new business types and models in the "15th Five-Year Plan." The third dimension is regional collaboration and balanced development. For example, the innovation resources and industrial advantages accumulated in the eastern region during the "14th Five-Year Plan" should drive the development of the central and western regions through industrial transfer and technology sharing in the "15th Five-Year Plan." Meanwhile, the rich resources and labor advantages in the central and western regions will continue to support the industrial expansion of the eastern regions during the "15th Five-Year Plan."
【Anchor】Yes, the Political Bureau meeting emphasized the need to achieve high-quality completion of the goals and tasks set out in the "14th Five-Year Plan,"to lay a solid foundation for a good start to the "15th Five-Year Plan," and made a series of deployments. From a medium- and long-term perspective, Mr. Tan, which deployments do you think deserve special attention?
The conclusion of the national economic development plan marks the beginning of planning for the next phase. The "14th Five-Year Plan" has generally been realized. with many aspects exceeding the planned targets, which naturally raises new demands for the formulation of the "15th Five-Year Plan" and clarifies new goals. The basic principle is that areas that performed well will receive further raised quality standards and targets in the new five-year plan, while areas that did not perform as well will focus on improvement measures and targets, and to strive for not lagging in the new Five-Year Plan". Amongst them, how to develop new productive forces in the economic aspect will be the top priority, combining changes in the international economic environment, particularly the need for domestic circulation, to propose more targeted measures and methods. There will also be more new goals and requirements to further enhance innovation capabilities and competitiveness to adapt to changing economic conditions.
【Anchor】With the expectation of a new round of unexpectedly expansive easing policies in China, market participants, particularly small and medium-sized enterprises, are increasingly concerned about whether the financing environment can further stabilize and improve. This is crucial for fundamentally addressing the discrepancy between macroeconomic data and micro-level perceptions that has persisted for some time. Regarding the reasons for this discrepancy, Yuan Haixia, Executive Director of China Chengxin International, stated in an interview with DDN that it primarily arises from the fact that the Chinese economy is still undergoing deep cyclical adjustments, with long-term and short-term issues intertwined.
She emphasized that consumption, as one of the main drivers of economic growth, has seen a significant decline in its contribution rate, and the momentum for consumption growth continues to weaken, exacerbated by trends of consumption downgrading and sinking. At the same time, although production, especially in high-tech manufacturing and equipment manufacturing, has performed strongly, improvements in external demand and rapid export growth have not been able to fully offset the weakness in domestic demand. Furthermore, she added that deflationary pressures still persist, with low price levels suppressing corporate profits, while the financial sector reflects weak domestic demand and insufficient financing needs due to a cold microeconomic environment.
【Anchor】So, Ms. Guo, do you believe that the new round of significant easing policies will resolve this discrepancy issue?
While easing policies can alleviate the discrepancy between macro data and micro perceptions, they are not a direct solution. The root of this discrepancy lies in deeper structural issues within the economy and the distribution mechanism, which require continuous reforms, such as optimizing the business environment and improving the income distribution system, to truly achieve coordinated development between macro and micro levels. This is also reflected in the emphasis of this Central Economic Work Conference on the importance of precision and coordination in policy implementation. A multi-faceted approach is needed to promote overall healthy and stable economic development and to address this discrepancy issue.
【Anchor】From the perspective of the international environment, with Trump taking office, it is expected that the U.S. will also enter a more accommodative policy cycle. Mr. Tan, after both China and the U.S. enter a period of easing, will both sides be able to withstand the corresponding inflationary pressures?
After Trump takes office, not only will there be a new round of trade wars, but also a new wave of monetary expansion. The key lies in whether the U.S. has the conditions and basis for such monetary expansion. It's important to note that monetary expansion and trade protectionism are contradictory; if monetary expansion occurs, it will inevitably lead to currency depreciation, and trade protectionism will also drive prices up. So, does the U.S. have the capacity to bear such inflation? More importantly, monetary expansion, trade protectionism, and tariffs will all affect the hegemony of the dollar, which Trump will definitely not relinquish. Given the conflict between monetary policies and dollar hegemony, whether Trump will resist monetary expansion while supporting trade protectionism and restoring tariffs is also a question. Meanwhile, China's moderately loose monetary policies can adapt to changes, despite shifts in U.S. policy. Therefore, Trump's second attempt at this may be much more challenging than his first, especially with the economic mess left by the Biden administration complicating his situation.
【Anchor】Both China and the U.S. are entering into a period of easing simultaneously. Ms. Guo, what impact do you think this will have on the future world economy?
The simultaneous entry of China and the U.S. into a period of easing will significantly impact the global economic landscape. In the short term, global economic growth is expected to receive a strong boost, significantly expanding trade volumes, and capital will also accelerate its turnover globally. However, this also brings numerous challenges, as global financial markets may experience certain turbulence, particularly in emerging markets. Frequent inflows and outflows of capital will increase profit volatility, leading to market instability. In terms of trade dynamics, any adjustments in the trade relationship between China and the U.S. could reshape global supply chains, potentially prompting other countries to swiftly revise their trade strategies in pursuit of new development opportunities and spaces.
【Anchor】Additionally, we see that the competition between China and the U.S. has already begun. The U.S. recently placed 140 Chinese companies on its entity list for export control, which is equivalent to sieging on a full industry chain of China's semiconductor industry. Mr. Tan, how do you think China will safeguard its development interests?
In response to the U.S. trade protection policies, China has already taken strong measures. For instance, it has stopped exporting various products closely related to semiconductors to the U.S. and has clearly indicated that companies utilizing raw materials provided by China to produce such products also cannot export them to the U.S. Particularly for the U.S., it will be very difficult to find alternative suppliers without significantly increasing costs. Additionally, four major industry associations have clearly informed Chinese companies about the security risks of using chips produced by American companies, which means: firstly, the domestic substitution rate is already quite high, and domestic-produced chips should be preferred; secondly, it's possible to seek for alternative suppliers instead of relying solely on American companies. Lastly, the anti-monopoly investigation against Nvidia shows that China also has a means of counterattack, and it should not assume that only the U.S. can target Chinese companies.
【Anchor】Yes, aside from challenges, Mr. Tan, do you anticipate any cooperation opportunities arising after Trump takes office?
In the trade war between China and the U.S., there are no winners, only losers. The U.S. cannot win, and China cannot lose. If the U.S. insists on fighting, China has already clarified its readiness and still has many backup strategies. If Trump wants to avoid serious issues and prevent economic decline during his new term, he must strengthen cooperation with China to achieve a win-win situation, otherwise, he will not perform better than Biden in terms of the economy.
【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.
Anchor: Laura Cheung | Edited: Kelly Yang, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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