7.24 Seven key signals of the Politburo meeting

Author: Zhang Aoping Well-known economist and president of the Institute for the Future of Jingguan

The Political Bureau of the CPC Central Committee held a meeting on July 24 to analyze and study the current economic situation and make arrangements for economic work in the second half of the year. The quarterly Politburo meeting is the window for the central government to set the tone of quarterly economic operation, as well as adjust and guide macro policies, industrial policies, social policies, etc., and is the vane of quarterly economic work, which has a decisive impact on the economic trend of the next quarter.

In addition, the mid-year Politburo meeting held at the end of July plays a key role in carrying forward the whole year, and the tone often lasts until the end of the year.

At present, the external environment is complex and severe, the internal demand is insufficient, the operation of enterprises is difficult, and there are many hidden risks in key areas. From the data, GDP in the first quarter increased by 4.5% year-on-year, and in the second quarter it increased by 6.3%. In the second quarter, a large reason for the high year-on-year reading of the economy was the low base in the same period last year (GDP growth of 0.4% year-on-year in the second quarter of 2022).

In the next stage, the policy signals released by the Politburo meeting are particularly important for how to promote the sustained improvement of economic operation, the continuous enhancement of endogenous driving force and the continuous improvement of social expectations.

This Politburo meeting made a comprehensive response to the current general concerns of the market. Including: the general tone and main tasks of economic work in the next stage; Make good use of policy space to promote high-quality development; expanding domestic demand; Construction of modern industrial system; deepening reform and opening up; Prevent and mitigate risks in key areas; Strengthen the protection of people's livelihood.

First, the general tone of economic work in the next stage: seek progress while maintaining stability, expand domestic demand, boost confidence, and comprehensively deepen reform and opening up

In the part of judging the economic situation, first of all, we should fully affirm the achievements of economic work in the first half of the year, and talk about the achievements. The meeting held that "the national economy has continued to recover, the overall recovery is improving, high-quality development is solidly promoted, industrial upgrading is accumulated, food and energy security is effectively guaranteed, and the overall social situation remains stable, laying a good foundation for achieving the annual economic and social development goals."

Second, explain the current difficulties in economic operation thoroughly. The meeting held that "the current economic operation is facing new difficulties and challenges, mainly due to insufficient domestic demand, some enterprises operating difficulties, many hidden risks in key areas, and a complex and severe external environment." After the steady turn of epidemic prevention and control, economic recovery is a process of wave-like development and tortuous progress."

Finally, the general tone and general goal of doing a good job in the economic work in the second half of the year are:

"Adhere to the general tone of seeking progress while maintaining stability, complete, accurate and comprehensive implementation of the new development concept, and accelerate the construction of a new development pattern";

"Comprehensively deepening reform and opening up";

"Increase the intensity of macro-policy regulation and control, focus on expanding domestic demand, boosting confidence, preventing risks, and continuously promote the continuous improvement of economic operation, the continuous enhancement of endogenous momentum, the continuous improvement of social expectations, and the continuous resolution of hidden risks, so as to promote the effective improvement of quality and reasonable growth of the economy."

The author believes that from the perspective of the general tone and general goal of economic work in the second half of the year, first of all, the importance of expanding domestic demand and improving confidence is highlighted.

In the first quarter, the economy was in a post-epidemic recovery period, and in the second quarter, after the steady turn of epidemic prevention and control, internal and external demand began to contract synchronously, and the economy fell month-on-month. Insufficient demand, weak expectations of private investment and private enterprises are the keys restricting economic stability and upward growth.

Therefore, compared with the general tone of economic work in the next stage of the first quarter Politburo meeting, the new emphasis on "increasing macro-policy regulation and control, focusing on expanding domestic demand, boosting confidence, and preventing risks" is prominent.

The general tone and goals of the first quarter Politburo meeting for the next stage of economic work are:

1. "Adhere to the general tone of seeking progress while maintaining stability, implement the new development concept completely, accurately and comprehensively, and accelerate the construction of a new development pattern";

2. "Comprehensively deepen reform and opening up, combine the effectiveness of policies with the vitality of business entities, and form a strong driving force for high-quality development";

3. "Make overall plans to promote the continuous improvement of economic operation, the continuous enhancement of endogenous momentum, the continuous improvement of social expectations, and the continuous resolution of hidden risks, so as to take advantage of the momentum and promote the effective improvement of quality and reasonable growth of the economy".

Second, the meeting continued to emphasize "comprehensively deepening reform and opening up". The author believes that this year will be a "big year of structural reform." The first meeting of the 20th Central Committee for Deep Reform held on April 21 emphasized that "this year is the first year to fully implement the spirit of the 20th CPC National Congress, as well as the 45th anniversary of reform and opening up and the 10th anniversary of the Third Plenary Session of the 18th CPC Central Committee." To achieve the goals and tasks of the new era and new journey, we must take the comprehensive deepening of reform as the fundamental driving force for promoting Chinese-style modernization."

In the second half of the year, more policies will focus on the supply-side adjustment structure to promote high-quality economic development, and enterprise development will coexist with opportunities and challenges.

Finally, the six major economic tasks in the next stage, except for a new work deployment, basically continued the six major economic work priorities of the first quarter Politburo meeting, but the ranking was adjusted. The six major work arrangements of this meeting are:

It is necessary to make good use of policy space, find the right direction of development, and solidly promote high-quality economic development (new in the first place);

It is necessary to actively expand domestic demand (the Politburo meeting ranked second in the first quarter);

It is necessary to vigorously promote the construction of a modern industrial system (the first quarter of the Politburo meeting ranked first);

It is necessary to continue to deepen reform and opening up, and adhere to the "two unwavering" (the first quarter Politburo meeting ranked third and fourth);

It is necessary to effectively prevent and resolve risks in key areas (the Politburo meeting ranked fifth in the first quarter);

It is necessary to strengthen the protection of people's livelihood (the Politburo meeting ranked sixth in the first quarter).

Second, high-quality development: strengthen counter-cyclical adjustment; maintaining exchange rate stability; Active capital markets

At this meeting, the new work deployment of "making good use of policy space, identifying the direction of efforts, and solidly promoting high-quality economic development" was added, ranking first among the six major economic work.

In the macro policy section, it is pointed out that "it is necessary to implement macro-control accurately and effectively, and strengthen counter-cyclical adjustment and policy reserves." It is necessary to continue to implement a proactive fiscal policy and a prudent monetary policy, continue, optimize, improve and implement the tax and fee reduction policy, give play to the role of aggregate and structural monetary policy tools, and vigorously support scientific and technological innovation, the real economy and the development of small and medium-sized enterprises."

The author believes that "strengthening countercyclical adjustment and policy reserves" means that macro-fiscal and monetary policy will be more active in expanding effective demand, and the focus of policy operation will shift from wide money (increasing base currency) to wide credit (entities using money). The total tools for RRR and interest rate cuts are still in the policy toolbox, and the structural policies focus on scientific and technological innovation, the real economy and micro, small and medium-sized enterprises.

In the section on stabilizing the exchange rate, it is pointed out that "it is necessary to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level". The author believes that the short-term exchange rate policy "bottom" of 7.3 is relatively clear.

In addition, the meeting rarely mentioned the capital market, pointing out that "it is necessary to activate the capital market and boost investor confidence". The author believes that the capital market is connected to the asset end (excellent enterprises in the industry) on one end and the capital end (investors) at the other end, and the active capital market is conducive to the overall recovery of market confidence, and is also an important part of promoting high-quality economic development and opening up science and technology and industry. Although it is still uncertain about the short-term direction of the market until market confidence is fully restored, as a long-term investor, now is the best time.

3. Expand domestic demand: accelerate the issuance and use of local government special bonds (infrastructure expansion); Formulation of policies and measures to promote private investment (promotion of private enterprises)

The meeting emphasized that "we should actively expand domestic demand, give play to the basic role of consumption in driving economic growth, expand consumption by increasing household income, drive effective supply through terminal demand, and organically combine the implementation of the strategy of expanding domestic demand with deepening supply-side structural reform."

In terms of consumption, it is pointed out that "it is necessary to boost mass consumption such as automobiles, electronic products, and home furnishing, and promote the consumption of services such as sports and leisure, cultural tourism, etc." Different from the first quarter Politburo meeting, "promoting the consumption of cultural tourism and other services", adding consumption of automobiles, electronic products, household bulk consumption and sports and leisure services, the above direction will be the focus of promoting consumption in the second half of the year.

In terms of investment, he pointed out, "It is necessary to give better play to the driving role of government investment and accelerate the issuance and use of local government special bonds." It is necessary to formulate and introduce policies and measures to promote private investment", different from the first quarter Politburo meeting, "we must give full play to the guiding role of government investment and policy incentives, and effectively promote and stimulate private investment", adding a new point to accelerate the issuance and use of local government special bonds, and formulate and introduce policies and measures to promote private investment.

The author believes that the main reasons behind this are:

First of all, the "formulation and introduction of policies and measures to promote private investment" is due to the current pressure of private enterprises in the private sector to invest, produce and operate, and the expectations are insufficient. In June, the PMI of large, medium and small enterprises was 50.3%, 48.9% and 46.4% respectively, and large enterprises increased by 0.3 percentage points from the previous month, which was in the expansion range, but small and medium-sized enterprises were in the contraction range.

In domestic demand, consumption is a function of income, income is a function of employment, and employment is a function of enterprise investment and development, especially the investment and development of private enterprises. The investment expectations of private enterprises are insufficient, and the consumption expectations of residents are difficult to improve.

Secondly, "accelerating the issuance and use of local government special bonds" is because the public sector did not achieve infrastructure investment in the first half of the year to maintain domestic demand growth, and infrastructure investment will gradually develop in the second half of the year. From January to April to January to June, the year-on-year growth rate of infrastructure investment was: 8.5%, 7.5% and 7.2%. The main reason is that local financial resources are subject to the impact of stable debt, and after maintaining the "three guarantees" (ensuring basic livelihood, ensuring wages, and ensuring operation), especially the increase in stable employment, they squeeze out the use of fiscal funds for infrastructure investment.

Looking ahead, actively expanding domestic demand has become the top priority in the next stage of economic work. At present, the problem of endogenous recovery that restricts the economy due to insufficient aggregate demand will gradually ease with the specific implementation of relevant policies for subsequent expansion of domestic demand. Entrepreneurs and investors need to stay ahead of the economic cycle curve and seize long-term certainty.

4. Promote the construction of a modern industrial system: the digital economy is deeply integrated with advanced manufacturing and modern service industries

In the section of "Promoting the Construction of a Modern Industrial System", the conference has three major focuses:

"Accelerate the cultivation and expansion of strategic emerging industries and create more pillar industries";

"It is necessary to promote the deep integration of the digital economy with advanced manufacturing and modern service industries, and promote the safe development of artificial intelligence";

"It is necessary to promote the standardized, healthy and sustainable development of platform enterprises."

The author believes that unlike the first quarter Politburo meeting, "to promote the deep integration of the digital economy with advanced manufacturing and modern service industries", and again mention "promoting the safe development of artificial intelligence", which will be the key work of the next stage of building a modern industrial system.

In addition, on May 5, the first meeting of the 20th Central Finance and Economic Commission emphasized in the part of "accelerating the construction of a modern industrial system supported by the real economy" that "we must grasp the wave of new scientific and technological revolution such as artificial intelligence" and "promote industrial intelligence, greening and integration, and build a modern industrial system with integrity, advanced and safety", clarifying the development direction of the future modern industrial system.

He also emphasized the five major insistences: "We must adhere to the real economy as the priority and prevent the transformation from real to virtual; Adhere to seeking progress in a stable and gradual manner, and cannot be greedy for the ocean; Adhere to the integration and development of three industries to avoid separation and opposition; Persist in promoting the transformation and upgrading of traditional industries, and cannot simply withdraw as a 'low-end industry'; adhere to open cooperation, and cannot build cars behind closed doors."

The author believes that in the construction of modern industrial system, the safe development of artificial intelligence has become the focus of intelligence, and the deep integration of digital economy with manufacturing and service industries is a concrete manifestation of integration, which contains long-term business opportunities.

Fifth, deepen reform and opening up, adhere to the "two unwavering": encourage enterprises to dare to enter, dare to invest, dare to take risks, and actively create markets

In the section of "Continuing to Deepen Reform and Opening Up and Adhering to the 'Two Unwavering'", the meeting had four major focuses:

"It is necessary to resolutely rectify arbitrary fees, fines, and apportionments, and solve the problem of government arrears to enterprises";

"It is necessary to establish and improve the regular communication and exchange mechanism with enterprises, encourage enterprises to dare to enter, dare to invest, dare to take risks, and actively create markets";

"It is necessary to support conditional pilot free trade zones and free trade ports to align with international high-standard economic and trade rules, and promote reform and opening up as a pilot project";

"It is necessary to carefully hold the third Belt and Road Forum for International Cooperation."

The author believes that, first of all, "rectifying arbitrary fees, fines, and apportionments, and solving the problem of government arrears to enterprises" and "establishing and improving a regular communication and exchange mechanism with enterprises" and other related work arrangements are specifically expressed in the "Opinions of the CPC Central Committee and the State Council on Promoting the Development and Growth of the Private Economy" issued on July 19, such as:

In the section on continuously optimizing the environment for the development of the private economy, it is pointed out that "information on untrustworthiness such as breach of contract by organs and public institutions, arrears of accounts, and refusal to perform judicial judgments will be included in the national credit information sharing platform";

In the part of increasing support for private economic policies, it is pointed out that "improve the normalization prevention and clean-up mechanism of arrears." Strictly implement the Regulations on Guaranteeing the Payment of Funds by Small and Medium-sized Enterprises, improve the long-term mechanism for preventing and resolving arrears of small and medium-sized enterprises, and increase the accountability and punishment of responsible persons in accordance with laws and regulations."

and "support government departments at all levels to invite outstanding entrepreneurs to carry out consultations, and give full play to the role of entrepreneurs in the formulation and evaluation of enterprise-related policies, planning, standards and other aspects".

The above will be the focus of work in the next stage of various departments and localities to effectively optimize the development environment of private enterprises.

Secondly, with regard to opening up, the meeting once again stressed that "we must support conditional pilot free trade zones and free trade ports to dock with international high-standard economic and trade rules, and promote reform and opening up as a pilot project."

On June 1, the State Council issued Several Measures for Promoting Institutional Opening to International High Standards in Pilot Free Trade Zones and Free Trade Ports with Conditions, which has put forward 33 specific measures and pointed out that "accelerating the construction of Hainan Free Trade Port". Foreign trade enterprises can focus on the above documents.

6. Prevent and resolve risks: real estate, local government debt, finance

In the section on "Effective Prevention and Mitigation of Risks in Key Areas", the conference had three main focuses:

The first is real estate risks, the meeting pointed out, "to adapt to the new situation of major changes in the supply and demand relationship of the mainland real estate market, adjust and optimize real estate policies in a timely manner, make good use of the policy toolbox according to the city, better meet the rigid and improved housing needs of residents, and promote the stable and healthy development of the real estate market." It is necessary to increase the construction and supply of affordable housing, actively promote the transformation of urban villages and the construction of "dual-use" public infrastructure, and revitalize and transform all kinds of idle real estate."

The author believes that unlike the first quarter Politburo meeting, first of all, real estate risk ranks first, indicating importance. Secondly, the expression "housing is not speculation" was deleted and replaced with "adapting to the new situation of major changes in the supply and demand relationship in the mainland real estate market", indicating that "imbalance between supply and demand" has become the most concerned issue of management in the real estate market. Finally, "actively promoting the transformation of urban villages and the construction of 'dual-use' public infrastructure" will still be the focus of the follow-up work of stabilizing real estate, but it should not be overly interpreted as a new round of "monetization of shed reform".

The second is local government debt risk, "it is necessary to effectively prevent and resolve local debt risks, and formulate and implement a package of debt plans", different from the first quarter Politburo meeting, deleted the expression "strictly control new hidden debts", and clearly pointed out that "formulate and implement a package of debt plans", the author has pointed out above, the current local financial resources are subject to stable debt. With the implementation of the specific plan to resolve local debts in the later stage, market participants are expected to be stabilized, and public sector infrastructure investment will also start to stabilize the economy.

The third is financial risk, "we must strengthen financial supervision and steadily promote the reform of high-risk small and medium-sized financial institutions."

7. Strengthen people's livelihood protection: Raise the stability of employment to a strategic height and consider it comprehensively

In the section of "Strengthening People's Livelihood Security", the meeting had three major focuses:

First, employment and income, "raise stable employment to a strategic height and consider comprehensively, firmly consolidate the bottom line of the "three guarantees" at the grassroots level, and expand the middle-income group";

The second is rural revitalization, "we must strengthen the protection and quality improvement of cultivated land, consolidate and expand the achievements in poverty alleviation, and comprehensively promote rural revitalization";

The third is safety and supply, "we must resolutely prevent the occurrence of serious and extraordinarily serious safety accidents and ensure the supply of energy and electricity in peak summer."

Among them, for the first time, it was proposed to "raise the stability of employment to a strategic height and consider it comprehensively", which is enough to show the importance that the management attaches to ensuring employment. It is expected that the follow-up policies and measures related to ensuring employment will also accelerate the implementation.

Looking ahead, the economy will achieve endogenous recovery, and reform will be further deepened. Only by thinking about tomorrow's pattern from the perspective of the day after tomorrow and making today's decisions with tomorrow's pattern can we face the future and do the future!