Dong Zhongyun is a director of the China Chief Economist Forum and the chief economist of AVIC Securities
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Event:
The Political Bureau of the CPC Central Committee held a meeting on July 30 to analyze and study the current economic situation, make arrangements for economic work in the second half of the year, and deliberate on the "Several Provisions on Rectifying Formalism and Reducing the Burden on the Grassroots." Xi Jinping, General Secretary of the CPC Central Committee, presided over the meeting.
Comments:
(1) It is highly necessary and urgent to stabilize domestic demand
In view of the current economic situation, the meeting proposed: "The adverse effects of changes in the current external environment have increased, the effective domestic demand is insufficient, the economic operation has been differentiated, there are still many risks and hidden dangers in key areas, and there are pains in the conversion of new and old kinetic energy." "Similar to the tone of the Politburo meeting in April, external risks and insufficient effective internal demand are still worth paying attention to.
In terms of the external environment, the second half of the year focused on the impact of the United States election on the direction of Sino-US relations, after the current President Biden announced his withdrawal, Vice President Harris is likely to become the Democratic presidential candidate, some polls show that Harris is better than Biden, but most judges still believe that Trump is relatively more dominant. Judging from Trump's policy proposition, it is difficult to improve the situation of the Sino-US competitive game, or even further increase it, especially in the field of trade, Trump may adopt more aggressive tariff measures than in the previous term. Judging from the mainland's economic performance in the first half of the year, the export growth rate has been stable and rising, which is an important support item on the demand side. If Trump is elected, the mainland's foreign trade environment may deteriorate in the future, and from the recent United States job market data, the United States economy has also shown signs of cooling, increasing the uncertainty of the mainland's external demand in the second half of the year. Therefore, in the future, it is highly necessary and urgent for the mainland's exports to be difficult to support the economy alone, and to stabilize and boost domestic demand.
(2) The macro policy will be "more powerful", and the policy interest rate is expected to be further reduced, but the key is fiscal strength and the restoration of real estate confidence
The meeting continued to make it clear that it is necessary to "unswervingly complete the annual economic and social development goals and tasks", the mainland's GDP in the first half of the year was 5.0% year-on-year, which means that to complete the annual target, the second half of the year as a whole should achieve a growth of 5.0%, and considering that the GDP in the second quarter was only 4.7% year-on-year, the economic momentum has slowed down, so the relevant policies for stable growth need to be further strengthened.
In terms of reform, the just-concluded Third Plenary Session of the 20th Central Committee of the Communist Party of China made systematic arrangements for the reform in the next five years, and the Politburo meeting proposed that "we should take reform as the driving force to promote stable growth, adjust the structure, prevent risks, give full play to the traction role of economic system reform, and timely launch a number of reform measures that are ripe and felt", indicating that the government not only regards reform measures as a powerful means to promote sustained and healthy economic development in the medium and long term, but also an important starting point for stimulating economic vitality in the short term. It will help boost market expectations for the acceleration of reform measures in the second half of the year.
In terms of counter-cyclical adjustment, the meeting proposed that "macro policies should continue to be vigorous and more powerful", "accelerate the full implementation of the identified policy measures, reserve and launch a number of incremental policy measures as soon as possible", and released a clear and clear signal of increasing the policy of stabilizing growth.
In terms of fiscal policy, the meeting proposed that "it is necessary to speed up the issuance and use of special bonds, make good use of ultra-long-term special treasury bonds, support the construction of security capacity in major national strategies and key areas, and make greater efforts to promote large-scale equipment renewal and the trade-in of bulk durable consumer goods." "In the case of the acceleration of government bond financing, the direction of further fiscal efforts in the second half of the year is clear, and the meeting also clarified the focus of fiscal expenditure, on the one hand, the field of infrastructure, focusing on major national strategies and key areas of security capacity building. In the first half of the year, the cumulative growth rate of infrastructure investment, including electricity, rebounded from the cumulative growth rate of the previous five months, and it is expected that the growth rate of infrastructure will further rebound in the second half of the year with the strengthening of fiscal investment. On July 25, the National Development and Reform Commission and the Ministry of Finance jointly issued the "Several Measures to Support Large-scale Equipment Renewal and Consumer Goods Trade-in", proposing to make overall arrangements for about 300 billion yuan of ultra-long-term special treasury bond funds to support the "two new". It is expected that in the second half of the year, financial subsidies, interest discounts, tax incentives and other related supporting measures are expected to further accumulate, which is conducive to enterprise investment and household consumption.
In terms of monetary policy, the meeting emphasized that "it is necessary to comprehensively use a variety of monetary policy tools, increase financial support for the real economy, and promote the steady and moderate decline of comprehensive social financing costs". Compared with the statement put forward by the Politburo meeting in April that "it is necessary to flexibly use policy tools such as interest rates and reserve ratios to increase support for the real economy and reduce comprehensive social financing costs", the overall tone remains unchanged, but the "interest rate and deposit reserves" tool is no longer explicitly mentioned, which may reduce the market's expectations for further interest rate cuts and RRR cuts to a certain extent. In this regard, we believe that the central bank's interest rate cut operation in June has clearly indicated that monetary policy supports stable growth and a "self-oriented" attitude, and interest rate cuts and RRR cuts will continue to exist as policy reserves in the second half of the year, especially if the United States can start cutting interest rates as scheduled in September, which will help further open up the domestic easing space, but whether it will be implemented depends on the subsequent economic operation. Overall, it is expected that the policy rate will be further lowered in the second half of the year, but for the effect of stabilizing growth, the interest rate level is not the core factor, and the more critical is the fiscal strength and the recovery of confidence in the real estate sector.
(3) The importance of boosting consumption has increased, and the service industry is expected to usher in incremental favorable policies
The meeting emphasized that "to focus on boosting consumption to expand domestic demand, the focus of economic policy should be more to benefit the people's livelihood and promote consumption, to increase residents' income through multiple channels, to enhance the consumption ability and willingness of low- and middle-income groups, and to take service consumption as an important starting point for consumption expansion and upgrading, and support consumption in cultural tourism, elderly care, childcare, housekeeping, etc." ”
Compared with the content of the Politburo meeting in April, this meeting listed boosting consumption as a key task and ranked highly, making it clear that the policy focus in the second half of the year will shift to promotional expenses. Judging from the consumption performance in the first half of the year, the monthly year-on-year growth rate of total retail sales of consumer goods showed a downward trend, and the weak consumption reflected the lack of consumption ability and willingness caused by the slowdown in the income growth of the residential sector and the weak expectations. The meeting clearly mentioned the need to increase residents' income and improve their willingness to consume, and in addition to the policy has been introduced to support consumer goods to trade in consumer goods to promote commodity consumption, the meeting emphasized that service consumption as an important starting point, cultural tourism, pension, childcare, housekeeping and other service industries are expected to usher in incremental favorable policies, especially for the elderly, childcare and long-term population policies are highly related, worthy of attention.
(4) For the development of emerging industries and future industries, release certain policy "correction" signals
In terms of developing new quality productivity and cultivating new economic momentum, the meeting pointed out that it is necessary to cultivate and expand emerging industries and future industries, vigorously promote high-level scientific and technological self-reliance and self-reliance, strengthen key core technology research, promote the transformation and upgrading of traditional industries, and strongly and effectively support the development of gazelle enterprises and unicorn enterprises.
It is worth noting that the meeting also emphasized that "it is necessary to strengthen industry self-discipline, prevent "involution" vicious competition, strengthen the market survival of the fittest mechanism, and smooth the exit channels of backward and inefficient production capacity. This releases the policy "correction" signal that related industries should compete in an orderly manner, not blindly expand, and avoid waste of resources, which may have a certain "cooling" impact on some related industrial investment in the short term, but in the long run, it is conducive to the healthy development of the industry and is in line with the goal of high-quality development in the mainland.
(5) Pay attention to the follow-up policy deployment of the acquisition of stock commercial housing for affordable housing, and the capital market emphasizes risk prevention and improvement of internal stability
In terms of preventing and resolving risks in key areas, real estate is still the focus of the meeting. Compared with the "overall study and digestion of stock real estate and optimization of incremental housing policy measures" proposed by the Politburo meeting in April, this meeting further clarified that "adhere to the combination of digestion of stock and optimization of increment" as the main line of policy to promote the steady and healthy development of the real estate market, and in terms of digesting stock of real estate, it was clearly proposed to "actively support the acquisition of stock commercial housing for affordable housing", the advantage of this measure is that the government is the intermediate channel, and at the same time realize real estate destocking and improve people's livelihood. However, it needs to be implemented on a larger scale to have obvious results, so the difficulty lies in how to ensure the ability and willingness of local financial funds. In addition, an important factor restricting the improvement of real estate consumption is the credit risk of the real estate sector, and the policy of "guaranteed delivery" needs to be further strengthened to improve the confidence of the residential sector in buying first-hand houses.
In terms of local debt risks, we continue to emphasize the need to improve and implement local debt packages and create conditions to accelerate the resolution of debt risks of local financing platforms. As the current steady growth largely depends on the government's efforts to increase leverage to drive domestic demand, and the risk of local government debt restricts fiscal expansion to a certain extent, the term "creating conditions to accelerate resolution" reflects the great importance that the central government attaches to solving the problem of local debt constraints, and it is expected that the transfer payment from the central government to the local government may be further increased, and the relevant measures of fiscal and taxation reform to expand local revenue capacity are also expected to accelerate the implementation.
In addition, this meeting proposed that "it is necessary to coordinate risk prevention, strengthen supervision, promote development, boost investor confidence, and enhance the internal stability of the capital market", and did not explicitly mention the reform of small and medium-sized financial institutions, but emphasized the risk prevention of the capital market, and risk prevention and strong supervision are ranked before promoting development, continuing the "New National Nine Articles" in the "strong supervision, risk prevention, and high-quality development as the main line", which fully reflects the priority of the current policy in the capital market-related work. In the future, in addition to using strong supervision to enhance the internal stability of the capital market, the equalization fund is a long-term mechanism to stabilize the A-share market, and the follow-up promotion is worth paying attention to.
(6) The meeting emphasized that boosting investor confidence, risk appetite is expected to improve, and domestic demand and independent and controllable policies are expected to continue to increase
From the perspective of the impact on the A-share market, the meeting once again emphasized the expression of unswervingly completing the annual economic and social development goals and tasks, which can alleviate the market's concerns about the current economic and foreign demand pressure, and the current cautious market sentiment is expected to change. At the same time, the meeting emphasized to boost investor confidence, enhance the internal stability of the capital market, and the subsequent market risk appetite may usher in improvement.
In terms of industry, the meeting listed the three plenums of the Third Plenary Session to boost domestic demand and promote high-level scientific and technological self-reliance and self-reliance as the top two tasks in the second half of the year, and relevant support policies are expected to continue to increase. After the Third Plenary Session of the CPC Central Committee, the policy of boosting domestic demand was rapidly implemented. On the one hand, monetary policy has taken precedence, and interest rates such as 7-day reverse repo operation, 1-year LPR, 5-year LPR and 1-year MLF have been lowered successively. On the other hand, the central government has made efforts to boost domestic demand. The "Several Measures on Supporting Large-scale Equipment Renewal and Consumer Goods Trade-in" was released on July 25, and about 300 billion yuan of ultra-long-term special treasury bond funds were arranged to support large-scale equipment renewal and consumer goods trade-in. On July 26, at the press conference on the theme of "promoting high-quality development", relevant leaders pointed out that in the next five years, central enterprises are expected to arrange a total investment of more than 3 trillion yuan in large-scale equipment renovation and transformation. The meeting will boost domestic demand as the primary task of specific economic work in the second half of the year, and follow-up policies are expected to continue to exert force. This meeting emphasized that service consumption is an important starting point for consumption expansion and upgrading, and supports consumption in cultural tourism, elderly care, childcare, housekeeping, etc. Combined with the recently released policies to boost domestic demand, it is recommended to pay attention to investment opportunities in related consumer industries such as cultural tourism, pension, home appliances, and automobiles.
This meeting continued to emphasize the promotion of high-level scientific and technological self-reliance and self-reliance, which is not only a phased deployment of the reform tasks of the Third Plenary Session in the future and the medium term, but also an effective response to the increase in adverse effects brought about by changes in the external environment. The 2024 United States election is gradually heating up, and both parties in the United States may maintain appropriate restrictions on Chinese technology. Therefore, it is necessary for China to build an independent and controllable industrial and supply chain and promote high-level scientific and technological self-reliance and self-reliance. Looking back on the Sino-US trade friction during Trump's first term, the Party Central Committee's emphasis on autonomy and controllability has increased significantly, and General Secretary Xi Jinping has emphasized the importance of autonomy and controllability in key core technologies and key information in public speeches or statements on many occasions. Under the guidance of the Third Plenary Session of the CPC Central Committee and the Politburo meeting, independent and controllable policies are expected to continue to be introduced, and it is recommended to pay attention to the investment opportunities brought by the relevant policies of the above industries.
Risk warning: the steady growth policy is less than expected, the overseas economy is weaker than expected, and the recovery rate of domestic demand is slow
