by SIG
Chinese version
The key event last week was that the Politburo of the Central Committee of the Communist Party of China held a meeting on September 26 to conclude the current economy and make the plan the next steps for the economic development. The meeting was chaired by General Secretary Xi Jinping.
P1
The timing of this Politburo meeting is highly unusual. For the first time in history, a Politburo meeting was convened at the end of September to analyze the current economy and the party's work. The Politburo meetings in April and July had discussed a range of issues as per routine, but did not particularly highlight economic concerns or issue strong economic stimulus signals before or after the meetings.
Moreover, according to the Chinese Communist Party's usual practice, the Third Plenary Session held in July is the main meeting that sets the tone for the economic agenda in the coming period. Yet, just two months later, the Politburo hastily convened a special economic meeting, indicating that the Party's decision-makers have already perceived the severity of the economic problems, or the voices from inside and outside the party's institution have resonated and finally reached the decision-makers.
Furthermore, a subtle but potentially significant change is the absence of the usual section on "preventing and resolving major risks in key areas." This has been a fixed paragraph in the Politburo's meeting communiqués on economic issues, typically covering areas such as real estate, local governmental debt, and/or financial institutions. However, this time, this fixed paragraph did not appear in the meeting communiqué. This does not mean the Politburo believes all risks have been completely eliminated. Rather, it is more likely that the Politburo has found that the economic and financial risks have spread to almost all important economic sectors, making it unnecessary to single out specific areas for emphasis. The Politburo now needs to address systemic problems and macroeconomic issues across the board, rather than focusing on any particular sub-sector.。
P2
The overall tone of the Politburo meeting is unusually pessimistic, which can be seen from the following two points:
1, Compared to the July Plenary Session and Politburo meeting, the requirement for completing the annual economic and social development goals has shifted from "firmly" to "striving to" complete them. This change in rhetoric indicates that the Politburo is aware that the macroeconomic targets for this year are unlikely to be achieved on schedule, and the current difficulties have exceeded previous expectations.
2, Therefore, the decision-makers have promised an extraordinary degree of policy space: "Focusing on key tasks, taking proactive measures, effectively implementing existing policies, and introducing additional policies vigorously, further improving the targeted and effective implementation of policy measures."
The macroeconomic policy commitments of extraordinary intensity include:
Fiscal policy: Issuing and using long-term special government bonds and local government special bonds well, and better leveraging the role of government investment.
Monetary policy: Lowering the reserve requirement ratio and implementing decisive interest rate cuts. This has already elicited a response in the A-share market, sparking this year's rebound rally.
P3
Regarding specific sub-sectors, the real estate industry, which was previously included in the "prevention and resolution of major risks in key areas" section, has now been placed in the counter-cyclical adjustment paragraph. This suggests that the decision-makers have positioned the current real estate crisis as a cyclical issue. On the one hand, this acknowledges the systemic and widespread nature of the real estate problem (no longer just a local issue in Henan Province), and also indicates the intention to use real estate industry adjustments to help reverse the overall macroeconomic downturn.
The specific measures include: 1) strictly controlling the increment, optimizing the inventory, and improving the quality of commodity housing construction; 2) adjusting housing purchase restrictions and lowering the interest rates on existing home loans. However, the real estate sector is closely linked to local government debt and local finance, so resolving these issues will not be straightforward.
The meeting expressed a more friendly stance towards the private sector, which is a recurring theme. For the enterprise sector, the Politburo meeting proposed helping companies overcome difficulties, further regulating law enforcement and regulatory practices affecting enterprises, and creating a favorable environment for the development of the non-public sector economy. At the same time, efforts will be made to further optimize a world-class business environment that is market-oriented, law-based, and internationalized. This is not the first time the decision-makers have made such statements, so the implementation details remain to be observed.
For the household sector, there are two main policy focuses: 1) Promoting income growth for low- and middle-income groups, as this would help stabilize the consumption situation; 2) Strengthening support for fertility policies, developing elderly care and childcare industries, and quickly improving the policy system for supporting childbirth. Achieving effective income growth for low- and middle-income groups may require greater fiscal stimulus, but the feasibility of this remains uncertain given the tight fiscal conditions in many local governments.
P4
In summary, the Politburo meeting on September 26th indicates that the decision-makers have recognized the difficulties facing the Chinese economy. It also signals that they will consolidate the fiscal and monetary policy stimulus measures recently introduced, which can to some extent improve social expectations and boost public confidence.
After the interest rate cuts and reserve requirement ratio reductions, the room for further monetary policy easing is limited. Therefore, the focus will now be on what additional fiscal policy measures will be introduced, as well as the implementation details for specific sectors like real estate.
However, given the current policy space and fiscal revenue-expenditure situation, the chances of the private-sector friendly measures proposed in this meeting being fully implemented may not be very optimistic. This is directly related to consumer data and the overall economic recovery.
Risks alert: Geopolitical tensions, low policy implementation efficiency, a global recession, and unexpected monetary policy shifts in major economies.
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