CICC's report indicates that in the second half of the mainland financial cycle, there is a prominent contradiction of insufficient demand. At the end of September this year, the National Development and Reform Commission (NDRC) issued multiple policies, and the Central Political Bureau meeting further released positive policy signals, with a positive market response. There is still room for loose monetary policy, but the need for fiscal reinforcement has significantly increased against the backdrop of private sector deleveraging.

The bank believes that while strictly regulating new debt, accelerating the replacement of local existing debt, and resolving corporate debt default issues are beneficial to reduce the burden on related entities and stimulate economic vitality. The Third Plenum of the 20th Communist Party of China Central Committee Decision emphasizes that "ensuring and improving people's livelihood in the course of development is a major mission of China's modernization". Against the background of traditional infrastructure space reduction, shifting fiscal expenditure focus from infrastructure investment to people's livelihood transformation helps improve fiscal quality and efficiency.

CICC points out that there is still considerable room for overall social welfare spending in China. Social welfare covers a wide range, mainly focusing on education, health, and social security. One scenario estimates that from 2025 to 2035, China could potentially add around 1.4 trillion yuan annually (based on 2023 prices) compared to the previous year, based on the three major social welfare aspects (education, health, social security) when reaching the level of moderately developed countries like the USA and South Korea. Another scenario suggests that based on the convergence line of over 20 economies, the estimated social welfare space in 2023 is about 4% of GDP.

The bank believes that social welfare expenditures in different areas have significantly different multiplier effects on economic growth. In the short term, the overall multiplier for the three major social welfare aspects may be around 0.7, but in the long term, the multiplier is greater than 1. Specifically, the multiplier for education is greater than 1, while health and social security multipliers are less than 1, possibly due to the former's more significant spending rigidity. In recent years, due to a relatively weak economy and lower consumption tendencies, achieving the same growth target may require larger social welfare expenditures than in previous years. For example, to increase actual economic growth by one percentage point, without considering other policies, it may be necessary to increase social welfare spending by a net amount of 1.3 trillion to 2 trillion RMB.