Source: Broker China

On April 30, the Political Bureau of the CPC Central Committee held a meeting. General Secretary Xi Jinping of the CPC Central Committee presided over the meeting.

The main contents of this conference covered three major aspects: First, it was decided to hold the 3rd Plenary Session of the 20th Central Committee of the Communist Party of China in Beijing in July this year. The main agenda is for the Political Bureau of the CPC Central Committee to report its work to the Central Committee, focusing on further comprehensive deepening reforms and advancing Chinese-style modernization. Second, the conference analyses and studies the current economic situation and economic work. Third, the conference reviewed “Opinions on Certain Policies and Measures to Continue to Further Promote the Integrated High-Quality Development of the Yangtze River Delta”.

According to convention, the Politburo meeting held at the end of April every year to re-evaluate the economic situation since the beginning of the year, the direction of economic work determined earlier, and deploy economic work for the first half of the year is viewed by the outside world as an important window for observing the next macroeconomic policy adjustments.

Previously, many opinions in the market anticipated that due to the good start of economic performance in the first quarter, the steady growth policy has recently been implemented at an accelerated pace. The overall tone of the Politburo meeting on economic work will not change significantly, and the policy tone of the Central Economic Work Conference and the government work report will still generally continue. However, judging from the judgments on the economic situation and policy orientations released at this conference, there are still quite a few highlights.

For example, while acknowledging the achievements made in economic work since the beginning of the year, the conference also emphasized that the current economic situation is facing difficulties such as “effective demand is still insufficient” and “business operation pressure is high,” and that to do a good job in the economy, we must “continue to take advantage of the momentum and avoid falling back and forth.” This article will focus on explaining the highlights of this conference from the perspective of macroeconomic policy, promoting domestic demand and stabilizing foreign trade, coordinating fiscal and monetary policies, influencing the capital market, stabilizing the real estate market, preventing and resolving local debt, stabilizing employment and increasing income, and promoting the integrated development of the Yangtze River Delta.

Highlight 1: Emphasize that economic work “avoids tight and loose back and forth”

The meeting decided to hold the 3rd Plenary Session of the 20th Central Committee of the Communist Party of China in Beijing in July this year. The main agenda is for the Political Bureau of the CPC Central Committee to report its work to the Central Committee, focusing on further comprehensively deepening reforms and advancing Chinese-style modernization.

Since the reform and opening up, successive Third Plenums of the Central Committee have usually focused on reform, putting forward important directions for economic development and economic system reform. Currently, there are many expectations and concerns from the market. The Third Plenary Session of the 20th Central Committee focuses on promoting economic system reform, and arranges the next medium- to long-term reform measures around keywords such as Chinese-style modernization, new productivity, upholding and improving the basic economic system, market-based land factor reform, and high-level opening-up.

In analyzing and studying the current economic situation, the conference pointed out that since this year, positive factors in economic operation have increased, and the economy has achieved a good start. It is also necessary to see that the economy continues to recover and is still facing many challenges. The Politburo meeting emphasized that China's economy has a stable foundation, many advantages, strong resilience, great potential, a good start and a positive recovery are the basic characteristics and trends of the current economic operation, and confidence in doing a good job in the economy should be strengthened.

Regarding the next economic work, the conference emphasized the need to earnestly implement the spirit of the Central Economic Work Conference and the National Two Conferences, persist in taking advantage of the momentum, avoid straining back and forth, and effectively consolidate and enhance the positive trend of economic recovery.

Analysts believe that the expression “avoid being tight and loose” sends a clear policy signal and is conducive to easing previous market concerns about the sustainability of macroeconomic policies.

Highlight 2: Grow patient capital and enhance capital market support for new quality productivity

The Politburo meeting related to the capital market involved expressions such as “growing patient capital” and “taking more measures to promote the healthy development of the capital market.” Chen Li, chief economist at Chuancai Securities, said that this points the direction for capital market reform and is in line with the “1+N” policy system currently being promoted by the capital market. With the implementation of measures relating to investor protection and the quality of listed companies, a safer, more standardized, transparent, open, dynamic, and resilient capital market will contribute more to building a strong financial country and promote the healthy development of the real economy with high-quality services.

The conference mentioned that it is necessary to develop new types of productivity according to local conditions. It is necessary to strengthen the layout of the country's strategic scientific and technological strength, cultivate and expand emerging industries, lay out and build future industries ahead of schedule, and use advanced technology to enable the transformation and upgrading of traditional industries. We must actively develop venture capital and expand patient capital.

Currently, supporting the development of science and technology drives key institutional innovation, and supports the gradual formation of a regulatory system and capital market ecology for scientific and technological innovation. On the financing side, the new “National Nine Rules” and “Sixteen Measures to Serve High-Level Development of Technology Enterprises in the Capital Market”, which were recently released, propose comprehensive support measures from listing financing, mergers and acquisitions, bond issuance, private equity investment, etc., to enhance inclusiveness to new industries, new business formats, and new technologies, and promote the development of new quality productivity.

On the investment side, especially in terms of “growing patient capital,” the supervisory authorities are focusing on developing equity funds and working with relevant departments to improve the institutional environment for medium- to long-term capital participation in equity investment, and have achieved phased results.

“Overall, however, the total amount of medium- to long-term capital in the capital market is still insufficient, the supporting mechanisms are not perfect enough, and the policy environment for 'long money and long investment' has not been fully formed.” Yang Delong, chief economist of Qianhai Open Source Fund, said that public funds, as representatives of equity investment in the asset management industry, do not account for a high share of equity products and lack market leadership; there is still plenty of room for optimization of insurance funds, pension stock investments, and the institutional environment in terms of performance evaluation, investment and operation.

A Chinese brokerage reporter learned that the Securities Regulatory Commission, together with relevant authorities, is studying and formulating specific work measures to accelerate the formation of joint efforts to guide various medium- and long-term funds to increase the scale of equity investment, enhance their influence in promoting the healthy and stable development of the capital market, and form healthy interaction between medium- and long-term investment and the capital market.

The conference also proposed taking more measures to promote the healthy development of the capital market. Yang Delong pointed out that the capital market has entered a critical period of comprehensive and deepening reforms. Whether it is the issuance of new shares, delisting reforms, or improving the quality of listed companies, industry institutions must focus on promoting the healthy development of the capital market. Listed companies need to operate in compliance, enhance public awareness of companies and return to investors, and industry institutions need to continuously improve the quality of practice, play a greater role in promoting the formation of innovative capital, support the development of new quality productivity, etc., and promote the high-quality development of the capital market.

Highlight 3: Clarifying that expanding domestic demand is the primary starting point

In the “horse-drawn carriage” of consumption, investment, and exports, which drive economic growth, the first two point to domestic demand, while exports correspond to foreign demand. Looking at domestic demand, the Politburo meeting of the Central Committee placed the primary arrangement of “actively expanding domestic demand” on “implementing large-scale equipment upgrades and consumer goods trade-in action plans.”

“(This policy) can not only promote consumption, drive investment, and effectively enhance economic vitality, but also increase advanced production capacity, promote energy saving and carbon reduction, reduce safety hazards, and achieve high-quality development.” Zhao Chenxin, deputy director of the National Development and Reform Commission, said earlier.

At present, the action plan has formed a “1+N” policy system at the policy level. “1” refers to the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” publicly issued by the State Council on March 13; “N” is a specific implementation plan in various fields. According to estimates by relevant agencies, China's annual demand for equipment investment and renewal in key areas such as industry and agriculture is more than 5 trillion yuan, and the demand for replacing automobiles and household appliances is also at the level of more than trillion yuan.

In the process of implementing various plans, how to arrange financial security has always been the focus and hot topic of market attention. Zhao Chenxin has made it clear before that central investment, central financial resources, etc. will definitely have financial support for large-scale equipment upgrades and consumer goods trade-in, and the support will be strong.

Take the newly released automobile trade-in subsidy standard as an example. Overall, there is a subsidy of 10,000 yuan for end-of-life fuel vehicles and new energy vehicles and the purchase of new energy passenger vehicles; a subsidy of 7,000 yuan for scrapped passenger cars with fuel emission standards of 3 or below and the purchase of fuel passenger cars with a displacement of 2.0 liters or less.

Cui Dongshu, Secretary General of the Passenger Transport Federation, believes that this subsidy standard has some appeal. It is estimated that the total number of scrapped cars should reach the scale of nearly 10 million, which will increase the consumption of new cars by one million in the car market, and also increase annual consumption by more than 100 billion yuan.

In terms of investment, the conference once again placed a growth perspective on “new urbanization.”

“We have made a preliminary estimate. Every 1 percentage point increase in the urbanization rate can drive new investment demand of about trillion dollars, in addition to consumer demand of more than 200 billion dollars.” Zheng Zhajie, director of the National Development and Reform Commission, said at an economic-themed press conference held during the two national conferences this year.

Sheng Laiyun, deputy director of the National Bureau of Statistics, also said a few days ago that the current urbanization in China has not been completed — the urbanization rate for the resident population in 2023 was 66.2%, but according to the registered population, the urbanization rate is less than 50%, and 180 million migrant workers have not been fully urbanized in the city.

In terms of expanding opening-up, the conference pointed out that it is necessary to actively expand trade in intermediates, trade in services, digital trade, and cross-border e-commerce exports, support private enterprises to expand overseas markets, and step up efforts to attract and utilize foreign investment. These include not only the new growth points of foreign trade that have been mentioned many times at the policy level recently: trade in intermediates, trade in services, digital trade, and cross-border e-commerce exports, but also the current main force in foreign trade development: private enterprises.

Lu Daliang, press spokesman of the General Administration of Customs and director of the Department of Statistical Analysis, believes that in the first quarter of this year, private enterprises continued to consolidate their position as the main players in foreign trade — in terms of the number of business entities, almost 9 are private enterprises; judging from the growth rate, the export and import growth rates of private enterprises were 4.8 and 7.8 percentage points faster than the overall import and export volume, respectively, and the share of imports and exports in China's total import and export value increased to 54.3%.

Lu Daliang pointed out that the next step is to focus on sending policies and solving problems in areas such as market access, factor acquisition, fair law enforcement, and protection of rights and interests to stimulate the endogenous motivation and innovation vitality of foreign trade enterprises, including private enterprises.

Highlight 4: Name ultra-long-term special treasury bonds for early settlement, and carry out rate downgrades and interest rate cuts in due course

The Politburo meeting of the Central Committee proposed that the macroeconomic policies that have already been determined should be “advanced” and named ultra-long-term special treasury bonds, special bonds, interest rates, and deposit reserve ratios. The conference also emphasized that ultra-long-term special treasury bonds should be “issued early.”

According to Wind data, a total of 577.36 billion yuan of new special bonds were issued in the first quarter, which means that the amount of new special bonds and ultra-long-term special treasury bonds to be issued during the year is still about 4.3 trillion yuan, and the amount of funds available for government investment during the year is quite sufficient. As proposed at this conference, the macroeconomic policies that have already been determined will be “stepped forward”, and in particular, ultra-long-term special treasury bonds should be “issued early.”

Luo Zhiheng, chief economist of Guangdong Development Securities and director of the Research Institute, said in an interview with reporters that ordinary treasury bonds advanced in the first quarter, leaving some room for the subsequent issuance of ultra-long-term special treasury bonds. He believes that ultra-long-term special treasury bonds are likely to be issued centrally in the second quarter and put into use one after another in the third quarter, creating a physical workload.

Judging from the previous issuance of special treasury bonds to fight the epidemic, during the centralized issuance of special treasury bonds, the progress of issuing special bonds and treasury bonds will slow down accordingly. If ultra-long-term special treasury bonds are issued in the second quarter, experts believe that considering the time lag in reaching local governments under the new special bond limit and “making way” for the issuance of ultra-long-term special treasury bonds, it is expected that the pace of issuing new special treasury bonds will gradually accelerate and peak in the third quarter.

While calling for speeding up the pace of government bond issuance, the conference also proposed “flexible use of policy tools such as interest rates and deposit reserve ratios.” Market institutions generally believe that if ultra-long-term special treasury bonds are publicly issued and additional special bonds are added to speed up issuance and use, the capital aspect may be impacted by the centralized issuance of government bonds in the short term. In order to guarantee the smooth issuance of government bonds, it will be necessary for the People's Bank of China to increase open market investment or downgrade in due course.

“Whether it's policy interest rates or market interest rates, whether it's deposit interest rates or loan interest rates, there is room and possibility for the next step to decline.” Dong Ximiao, chief researcher at CMB, told reporters that it is necessary to continue to push for an asymmetric decline in LPR (loan market quoted interest rate) for a term of 5 years or more, further reduce residents' housing consumption burden and stimulate medium- to long-term financing needs of enterprises and institutions.

Currently, policy interest rate cuts are hampered by factors such as pressure on the RMB exchange rate and low net interest spreads of commercial banks. Deputy Governor Xuan Changneng of the People's Bank of China once pointed out that the decline in deposit costs and the shift in monetary policies of major economies are conducive to broadening the autonomy of interest rate policy operations. Experts believe that a new round of deposit interest rate cuts needs to be carried out before policy interest rate cuts are implemented.

Wang Qing, chief macro analyst at Dongfang Jincheng, told reporters that policy interest rate cuts will help improve social expectations, promote a moderate recovery in price levels, and push down the loan market quoted interest rate (LPR). MLF (Medium-Term Lending Facility) interest rates are expected to be lowered in the middle of the year.

Highlight 5: Promoting “both debt pressure and steady development” in high-risk debt provinces and cities

Regarding local government debt risk mitigation, the Politburo meeting of the Central Committee emphasized the implementation of local government debt risk mitigation plans, and put forward requirements for “both debt pressure and steady development” for high-risk debt provinces, cities, and counties.

In 2023, many places will formulate more sub-plans in line with the actual situation in the region on the basis of a package debt conversion plan. After 2024, various regions will continue to emphasize that they will promote the “1+N” debt conversion plan of their provinces and cities. Among them, 12 key provinces with financial debt have paid more attention to mitigating hidden stock debt risks in this year's local budget reports. Market institutions generally estimate that the theoretical scale of issuance of special refinancing bonds this year is limited, or that they will be concentrated in key provinces for risk mitigation in high-risk markets. Furthermore, the People's Bank of China has also proposed many times that it can provide emergency liquidity support to regions with relatively heavy debt burdens.

Although key provinces with chemical debt have been required to strictly control the construction of new government investment projects, judging from investment activities since this year, key chemical debt provinces are actively promoting industrial transformation. Zhao Wei, chief economist at Guojin Securities, pointed out in the research report that as the debt structure is optimized and the pressure to pay interest is eased, localized debt will be used as an opportunity to force development transformation and promote a high-quality process.

Highlight 6: Coordinate research on real estate policy measures to absorb stock

The political bureau meeting of the Central Committee's statement on real estate continues to be placed within the framework of preventing and mitigating risks in key areas, which means that risk prevention is still an important task in the current real estate sector.

It is worth noting that in the description of real estate, the new reference is that it is necessary to combine the new changes in the relationship between supply and demand in the real estate market and the people's new expectations for high-quality housing, and the policies and measures to absorb existing real estate and optimize incremental housing in an integrated manner.

In response, Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Urban Planning Institute, believes that the overall study of policies and measures to absorb existing housing and optimize incremental housing is mainly to remove inventory from second-hand housing and eliminate new housing to achieve a virtuous cycle. He believes that the current stock is already the main player in the market, because the volume of second-hand housing listings and transactions is larger than that of new homes, and the removal cycle is far longer than that of new homes, hot cities are generally over 3 years. Furthermore, second-hand housing prices have dropped more than new homes, causing new homes to follow the pricing and price cuts, which in turn causes developers not to acquire land or start construction because it is difficult to sell new homes. Therefore, the top priority is to “drain the flood” of massive second-hand housing inventory and link second-hand housing inventory removal with new home sales, which is the key to stabilizing the market and stabilizing the volume of the industry.

Li Yujia suggested that the next step is to combine the financing of allotted guaranteed housing with the removal of second-hand housing. The central government will refinance central enterprises and local state-owned enterprises by issuing special bonds and forming funds, etc., to buy existing second-hand properties in the market, and then distribute them at lower prices to those who just need and guaranteed housing, so as to achieve a closed loop of capital.

Zhang Hongwei, founder of Jingjian Consulting, also believes that in order to further eliminate existing market inventory, especially in the suburbs and suburbs, more policy support is needed, such as lower mortgage interest rates, lower down payment ratios, and higher reserve amounts. More Tier 1 and 2 cities have introduced “trade-in” policies, which can provide more second-hand replacement groups with tax concessions or exemptions.

“In the early stages, there have been many useful explorations on the digestion of existing real estate stocks in some regions. Further expansion at the national level in the future will help to form positive support for the real estate market.” Yang Chang, chief analyst of the policy team at the Zhongtai Securities Research Institute, said.

Looking forward to the future, the China Index Research Institute believes that in the short term, it is expected that policies such as purchase restrictions and loan restrictions in core cities will be further optimized and adjusted. At the same time, “housing guarantee” efforts are expected to continue to protect the legitimate rights and interests of buyers, ease residents' concerns about the delivery of off-plan housing, and stabilize market expectations. In addition, specific policies to absorb existing real estate in an integrated manner and optimize incremental housing are expected to be gradually implemented, including the repurchase of second-hand properties as guaranteed housing on government platforms, the repurchase of unsold new homes from housing enterprises as guaranteed housing, and revitalizing inefficient non-residential properties to guaranteed housing may all be important directions. Furthermore, in terms of optimizing incremental housing, it is expected that the supply of high-quality land and high-quality housing is expected to increase to meet people's new expectations for high-quality housing. As macroeconomic policies work together and policies on both sides of real estate supply and demand continue to be followed up, market sentiment is expected to improve marginally in the second quarter. In particular, market activity in core cities may gradually recover, and at the same time, the impact of the high base in the middle of the year will gradually weaken. It is expected that the year-on-year decline in overall real estate sales will narrow.

Highlight 7: Form a virtuous cycle of high-quality development and employment expansion and quality improvement

According to data recently released by the Ministry of Human Resources and Social Security, a total of 3.03 million new urban jobs were added from January to March 2024, an increase of 60,000 over the previous year. Employment started well and remained generally stable. Chen Yongjia, deputy director of the Employment Promotion Department of the Ministry of Human Resources and Social Affairs, pointed out that although employment has started well, total employment pressure and structural contradictions are still prominent, and some workers still have many difficulties.

In terms of safeguarding and improving people's livelihood, the Politburo meeting of the Central Committee emphasized the need to focus on priority employment orientation and promote income growth for low- and middle-income groups. Li Zhiming, a professor at the Department of Social and Ecological Civilization at the Communist Party School of the Communist Party of China (National School of Administration), pointed out that implementing detailed employment priority policies should promote the formation of a virtuous cycle of high-quality development, employment expansion, quality improvement, mutual promotion and progress. Promote high-quality employment in the manufacturing industry, expand employment in the service industry, expand agricultural employment space, support the continuous and steady development of micro, small and medium-sized enterprises and individual businesses to increase employment, and promote employment and entrepreneurship in the digital economy.

Wang Yang, a researcher at the Social Development Research Institute of the China Academy of Macroeconomic Research, also said that by strengthening policy measures to promote youth employment, college graduates will be encouraged to work at the urban and rural grassroots level and micro, small and medium-sized enterprises through policies such as fiscal, financial, social security, training, job subsidies, and student loan compensation. Coordinate the employment of groups such as veterans, migrant workers, and needy people. Improve the employment guarantee system to drive entrepreneurship.

At the same time, “it is necessary to speed up the construction and reform of the modern vocational education system, construct a development pattern with deep integration of obstetrics and education, focus on provinces, cities, industries and industries, improve the effectiveness, support and compatibility of vocational education, and cultivate highly qualified skilled talents with sufficient quantity, reasonable structure, and excellent quality.” Wang Yang pointed out.

Highlight 8: The integrated construction of the Yangtze River Delta will enter a new stage

The three provinces and one city in the Yangtze River Delta (Jiangsu, Zhejiang, Anhui, and Shanghai) are one of the most densely populated regions in China, creating nearly a quarter of the country's total economy with less than 4% of the country's land area. In 2018, the development of regional integration in the Yangtze River Delta was upgraded to a national strategy. The conference reviewed “Opinions on Certain Policies and Measures to Continue to Further Promote the Integrated High-Quality Development of the Yangtze River Delta”, marking that the integrated construction of the Yangtze River Delta will enter a new stage.

The conference pointed out that it is necessary to deeply understand the strategic intentions of the Party Central Committee, push for greater breakthroughs in the integrated development of the Yangtze River Delta, and make better use of pioneering path exploration, leading demonstrations, and radiation-driven roles. Specifically, the conference emphasized the need to always keep abreast of the two key development tasks of integration and high quality, speed up breakthroughs in key core technologies, speed up the improvement of institutional mechanisms, and take the lead in connecting with international high-standard economic and trade rules.

According to Liu Qing, director of the Yangtze River Delta National Technological Innovation Center, the construction of institutional mechanisms provides important support for the construction of an innovation system. He divided the integrated development of the Yangtze River Delta into three stages. In the 3.0 era, he hopes to use the National Technological Innovation Center as a carrier to promote the flow of innovative elements on a wider scale.

The meeting pointed out that the Central Regional Coordination and Development Leading Group should strengthen coordination, the relevant departments should increase their support, Shanghai should play a better driving role, and the three provinces of Jiangsu, Zhejiang, and Anhui should promote their strengths.

As a leader in the development of the Yangtze River Delta integrated region, Gong Zheng, deputy secretary of the Shanghai Municipal Committee and mayor, recently stated at a press conference held by the Information Office of the State Council that Shanghai will play a leading and driving role, promote mutual establishment of bases and collaborative development of national laboratories in the Yangtze River Delta region, and deepen the layout of the Yangtze River Delta National Technology Innovation Center system. Strengthen mutual learning and mutual learning from experience in the Pilot Free Trade Zone, and promote the establishment of a regional “Belt and Road” comprehensive service platform in the Yangtze River Delta. Prepare and implement a new round of three-year action plans, promote the preparation of a territorial spatial plan for the Shanghai metropolitan area, and gradually promote the integration of public service systems, policy coordination, and standard convergence.

Editor/jayden