President Xi Jinping delivered a speech summarizing the economic work in 2021 at China's annual Central Economic Work Conference (henceforth "Conference"), which was held in Beijing from December 8 to December 10. In the speech, he discussed the current economic situation and the allocation of economic work for the coming year. Meanwhile, Premier Li Keqiang has made specific plans for next year's economic work.
This year's Conference has attracted special attention. One important reason is that China is in a rather complicated situation, in that its external environment has become more complex and uncertain, while structural problems in its domestic economy have worsened and new risk factors have emerged. In this context, the market's perplexity and concerns about China's economy for the coming year are growing. How then, does the country's central government perceive China's economic situation? What is its focus on economic work next year? What will its policy tone be? What are the major changes in the economic policy? The market, therefore, is eager to find what are all these policy directions and answers from the Conference.
Based on long-term tracking of the international and domestic economic situation and the content of the official announcement of the conference, ANBOUND's research team has analyzed some important issues. Therein as an independent think tank, its findings will provide the market with a guide on the Chinese policy trends.
1. Regarding the current situation, the Chinese central government pointed out that the country is facing a "triple pressure" situation. The impact of the COVID-19 pandemic has also caused the external environment to become more complicated and uncertain. China, therefore, is facing the triple pressure of demand contraction, supply shock, and weakening expectations in its economic development. It appears that the Chinese central government perceives that the economic situation of the country next year will be more complex and severe than previously estimated, while demand, supply, and expectations will be weakened across the board. The Conference emphasized that regardless of the changes in the international situation, China must continue strengthening its economic foundation. China's economic policy framework for 2022 will focus on seven aspects, namely macro, micro, structural, science and technology, reform and opening, regional, and social policies.
2. The Conference emphasized that next year's economic work will focus on stabilizing the macroeconomic market, maintaining economic operations within a reasonable range, and maintaining overall social stability. In fact. This objective has been mentioned in previous years as well, though more emphasis is given to it after the 18th CPC National Congress. That said, under the new context, stability is the topmost priority of next year's economic work for China. The Chinese central government has in fact, clearly stated that "all regions and departments must shoulder the responsibility of stabilizing the macroeconomy, and all parties must actively introduce policies that are conducive to economic stability, and policy efforts should be appropriately advanced". Therefore, it is safe to say that economic stability is a political task for China next year. Various departments and localities must find ways to actively introduce policies that are conducive to economic stability, and cautiously introduce policies to ensure that economic stability is maintained in the year of the 20th CPC National Congress.
3. In terms of macroeconomic policies, the tone of the proactive fiscal policy and the prudent monetary policy remains unchanged, but more efforts will be given in their implementation. The central government has not adjusted the tone of fiscal and monetary policies. Monetary policy must be flexible and appropriate to maintain reasonable and sufficient liquidity. Noticeably, the policy of tax and fee reduction will continue to be implemented, and the authority will "strengthen support for small, medium and micro enterprises, individual industrial and commercial households, manufacturing, risk mitigation, etc., and appropriately advance infrastructure investment". It is worth noting that risk mitigation is included in the scope of fiscal policy support, but at the same time, it vows to "curb the new hidden debt of local governments". The central government also emphasized that fiscal and monetary policies must be coordinated and that "cross-cyclical and counter-cyclical macro-control policies must be organically integrated", which is consistent with ANBUOUND's previous policy recommendations. On the whole, the macroeconomic policy support for the economy will be strengthened.
4. The policy that "houses are for living, not for speculating" remains unchanged. The official draft of the Sixth Plenary Session of the 19th Central Committee did not mention this part, which had triggered the market's impression that this might mean the loosening of real estate regulations. The Conference has explicitly mentioned this, and in addition it will "strengthen anticipatory guidance, explore new development models, insist on measures that focus on house rental and purchase simultaneously, accelerate the development of the long-term rental housing market, and promote affordable housing," Altogether, it will support the commercial housing market to better meet the reasonable housing needs of buyers, and to implement policies to promote benign circle and healthy development of the real estate industry. It can be seen that the central government has not adjusted the overall policy tone of real estate regulation, but emphasized on promoting "benign circle and healthy development of the real estate industry". Han Wenxiu, executive deputy director of the Office of the Central Committee for Financial and Economic Affairs, explained after the Conference that, "the real estate industry is large in its scale, and possesses a long chain and a wide range of implications. It accounts a very high share in the national economy, which has an important systemic impact on economic and financial stability and risk prevention". This emphasizes that the real estate industry has a systemic impact in China, and its future development and risk prevention must be error-free.
5. The authority will comprehensively implement the reform of the registration system for stock issuance. The Conference proposed that the reform and opening-up policy should promote the development momentum in its reform of the market-oriented allocation of factors, where it will "implement the registration system for stock issuance". From the perspective of the market, this is a clear demand for the reform and development of the capital market in 2022. Before this, China had piloted the registration system on the Science and Technology Innovation Board and the Growth Enterprise Market, and the market is currently operating smoothly and the reform is in line with expectations. The next step will be to advance the registration system reform of the Shanghai and Shenzhen Stock Exchange based on the experience in the registration system reform of the Science and Technology Innovation Board, ChiNext and Beijing Stock Exchange. If this step is achieved, the systemic marketization of China's issuance market will be realized. However, the reform of the comprehensive registration system has a wide range of effects. In its implementation, emphasis will be given on system security, overall coordination, and gradual progress. At the same time, it must be accompanied by reforms such as a "zero-tolerance" in the securities law enforcement judicial system mechanism for securities violations, and the establishment of a normalized delisting mechanism.
6. The Conference clearly stated that to achieve the goal of common prosperity, resource allocations must be conducted through reasonable institutional arrangements. The central government has clearly emphasized that it will not sacrifice the rich for the poor. It should also be noted that the realization of common prosperity is a "long-term historical process", and it should not rush to achieve this goal.
7. The Conference pointed out that there will inevitably be various forms of capital in the socialist market economy, and it is necessary to promote the positive role of capital as a production factor, while effectively controlling its negative role. It is, therefore, necessary to strengthen effective supervision of capital in accordance with the law and prevent the disorderly growth of capital. It is also indispensable to support and guide the standardized and healthy development of capital. Noticeably, the central government clearly emphasized the need to effectively supervise capital. In fact, it links the role and influence of capital with the socialist market economy system. China needs capital to play a role, but there will be restrictions and regulations in terms of fields, directions, degrees, and influences. Systemic changes caused by capital investment, such as capital investment in education and training leading to changes in the education system and capital investment in the internet field leading to monopoly, will all be restricted.
8. In response to the marked deterioration of domestic market risk events this year, the Conference emphasized that the Chinese authority will follow the principles of stabilizing the overall situation, and coordinate in its planning with policy implementation based on conditions in its risk management. It stated that there will be an improvement of the establishment of the financial rule of law, consolidation of the responsibilities of local governments, financial supervision, as well as the consolidation of the main responsibility of industry leaders to implement "self-rescue" for enterprises. In the context of the Chinese economy facing numerous structural problems and systemic risks, risk management must be conducted based on a targeted approach to prevent triggering other risks.
9. There is the need to rationally understand and grasp the country's target of carbon peak and carbon neutrality to avoid risks caused by inappropriate short-term measures. The Conference proposed that while achieving carbon peak and carbon neutrality is a target that "must be unswervingly promoted", it is necessary to adhere to the principles of overall national planning. It is worth noting that the central government's policy requirements for energy utilization and carbon emission reduction tend to be pragmatic, highlighting "stability" and "gradual progress". (1) The gradual withdrawal of traditional energy should be established on the basis of safe and reliable replacement of new energy. The basic national conditions of coal as the mainstay should be established, while clean and efficient use of coal should be promoted, and likewise, the optimal combination of coal and new energy should be advanced. (2) Scientific assessment, new renewable energy and raw material energy use are not included in the total energy consumption control; thus, conditions are created to realize the transition from the controlling of energy consumption to the controlling of total carbon emissions and intensity as soon as possible.
10. The Conference proposed that leading economic work must respect objective reality and the needs of the masses, and must have systematic thinking and scientific planning. Economic and social development is a systematic project that must take into account all aspects of politics and economics, reality and history, material and culture, development and people's livelihoods, resources and ecology, as well as domestic and international factors. Han Wenxiu explained that to achieve high-quality development, China should not follow the old way. Instead, it should persist in seeking progress while maintaining stability and avoid rushing for achievement. As economic and social development is a complex and interrelated system, it is critical to avoid the fallacy of fragmenting the policies, which can have negative consequences. It's also important to avoid making the error of simplifying the entire task, which makes it more difficult for the grassroots to bear. As a result, economic laws would have to be followed and the success or failure of programs with real-world consequences would have to be tested.
Final analysis conclusion:
In the face of the complex and severe development situation both within China and internationally, and with the increasingly prominent structural problems and various risks in the country itself, the stability of China's economic development next year will face pressure. For this reason, while focusing on solving current problems, economic policies must be systematic, long-term, and scientific, with development issues under multiple constraints handled carefully, and achieve a balance between stable growth and risk prevention.
