Source: Wind

The Central Economic Work Conference is expected to be held in mid-December 2024 to analyze the current economic situation and set the economic work goals for 2025. Several institutions and experts believe that the conference's tone on next year's macro policies will continue to be positive, and subsequent new round of policy deployments will significantly boost market confidence.

The GDP growth target is around 5%.

The Ren Zeping team stated that the upcoming Central Economic Work Conference is expected to continue the expansionary overall tone since September and initiate a new round of economic stimulus policies. The focus for next year's work will be on expanding domestic demand, developing new productive forces, boosting the private economy, and preventing risks.

It is expected to maintain the overall tone of "seeking progress while ensuring stability," but with an emphasis on "progress," with the GDP growth target set at around 5%. Since the 18th National Congress, all Central Economic Work Conferences have adhered to the overall tone of "seeking progress while ensuring stability." Since the large-scale economic stimulus policies were introduced on September 24, the Chinese government stated at the World Bank conference in October that "China is confident in achieving the annual economic growth target of around 5%." The economic work in 2025 is also expected to continue the overall tone of "seeking progress while ensuring stability," with the GDP growth target maintained at around 5%.

According to the research reports from Citic Sec, although it is customary for the Central Economic Work Conference not to announce specific targets for economic growth and deficit rates, they believe that this year's conference will still maintain a proactive tone for increasing counter-cyclical adjustments. It is expected that the economic growth target for next year will remain around 5%, and correspondingly, the deficit rate is expected to rise to 4%; special government bond quotas may amount to 3 trillion yuan, with 1 trillion yuan used to supplement commercial banks' capital, and 2 trillion yuan possibly used for major national projects and consumer subsidies; finally, the new special bond scale may exceed 4 trillion yuan.

The deficit rate is expected to increase.

Although the Central Economic Work Conference will not announce next year's deficit rate, analysts expect that under the overall tone of proactive macro policy, fiscal policy may gain momentum and be more forceful.

Recently, Wang Yiming, Vice Chairman of the China Center for International Economic Exchanges, suggested at the China Macro Economic Forum (CMF) that in 2025, strong macro policies should be adopted to expand domestic demand. In the face of insufficient domestic demand and economic pressures, it is necessary to implement more robust macro policies through more proactive fiscal policies and more supportive mmf policies to expand domestic demand and stabilize growth.

Wang Yiming stated that to achieve an economic growth rate of around 5% next year, it is necessary to moderately increase the deficit ratio, considering that the actual deficit ratio in 2023 has risen to 3.8%. It needs to be evaluated whether the deficit ratio in 2025 can be slightly higher than 3.8%, to boost confidence and improve expectations through clear policies.

The team led by Ren Zeping indicated that next year's economic growth target requires the support of active fiscal policies. The deficit ratio targets for 2023 and 2024 are both set at 3%, but the actual narrow-caliber deficit ratio for 2023 has already reached 4.59%. The expected target for the deficit ratio should not become a constraint on economic stimulus policies; increasing the deficit ratio by one percentage point would actually result in an increase of 1.3 trillion in fiscal deficits. Compared to the measures taken in recent years, such as 1 trillion yuan in special government bonds annually, the absolute scale of change is not large, but it helps to break the rigid impression of the 3% deficit ratio and enhance the flexibility of fiscal policies.

In addition to expecting an increase in the volume of fiscal policies, there is also an expectation for further quality improvement: First, to expand the issuance and usage scope of various special bonds and medium- to long-term special government bonds, reducing constraints, and more importantly, assessing whether these funds can stimulate higher investment multipliers; Second, to optimize the fiscal expenditure structure, increasing spending on specific groups, ensuring local governments maintain basic living standards, wages, and operations while helping vulnerable groups, such as the needy, orphans, elderly people living alone, students, and unemployed individuals, to withstand risks; Third, to implement structural tax reductions and fee cuts that favor enterprises in technology innovation and manufacturing.

Luo Zhiheng, Chief Economist of Guangdong Kai Securities, suggested increasing the deficit ratio to above 3.5% or even 4.0% in 2025, sending a strong signal for stable growth, achieving threefold effects of expanding total demand, stabilizing expectations, and alleviating local financial pressures.

Qin Tai, Chief Macro Analyst at Huajin Securities, further stated that only by significantly increasing the deficit ratio to over 4% can there be a possibility of conveying the intention to promote and stimulate the upgrade and expansion of durable consumer goods demand in the market, thus effectively continuing to enhance the production confidence of advanced manufacturing enterprises and solidifying the sustainability of domestic circulation on the demand side.

In addition, Soochow Securities predicts that next year's fiscal policy will shift from a pro-cyclical stance in 2024 to a counter-cyclical expansion, with an expected increase in new funds reaching 2%-2.5% of GDP. Besides the quantity, the use of active fiscal measures is equally important. For government departments, 'two new' (equipment updates and replacement of old consumer goods) subsidies need to be expanded and strengthened, while public expenditure also needs to gradually shift from investment to more efficient consumption. For the household sector, breaking the two negative feedback loops of 'low prices' and 'high debt' to stimulate private demand requires macro policies to focus more on service consumption and real estate.

Real estate policy remains a key focus.

Since the end of September, measures to stabilize the real estate market have been introduced in succession, and signs of market stabilization are gradually appearing. Analysts indicate that implementing existing stock policies will be a key focus of the Central Economic Work Conference.

Li Yujia, chief researcher at the Guangdong Provincial Housing Policy Research Center, believes that under the boost of earlier policies, signs of stabilization in real estate have already emerged, but further consolidation is needed, especially as the cumulative scale of various real estate indicators continues to decline. Therefore, the Central Economic Work Conference may propose further promoting or solidifying the stabilization of real estate.

In response to policies, Li Yujia expects that the conference will emphasize effective implementation of existing stock policies. "As the space for incremental policy shrinks, the focus will be on implementing stock policies, especially the effective landing of 1 million urban village renovation monetization placements, issuing special bonds, and providing special loans to support the recovery and acquisition of existing land and housing resources," he said.

Zhang Bo, director of the 58 Anjuke Research Institute, stated that due to the high correlation between real estate and the economy, and the fact that improvement in the economic aspect cannot be separated from the recovery of the real estate market, it is expected that the Central Economic Work Conference will increase its focus on real estate. In the short term, it is anticipated that work will still revolve around financing for real estate companies, ensuring delivery of buildings, and storage, to resolutely uphold the bottom line against systemic risks.

The "trade-in" program for consumer goods is expected to expand.

The market generally believes that boosting domestic demand, especially consumer demand, will play a more important role in stabilizing growth.

Wang Qing, chief macro analyst at Dongfang Jincheng International Credit Evaluation Co., Ltd., stated that given the increasing variables in the external trade environment by 2025, external demand's driving force for economic growth is weakening. The Central Economic Work Conference is likely to emphasize better utilization of consumption's foundational role in economic growth next year. From a policy perspective, next year's fiscal policy will further increase support for the trade-in program for durable consumer goods while stabilizing and expanding traditional consumption, focusing on boosting big-ticket consumer items such as new energy vehicles and electronic products, integrating consumption promotion with benefits for people's livelihoods. Additionally, policies will require continuous cultivation and expansion of new types of consumption such as digital and green consumption, with a focus on supporting growth points in service consumption like cultural, entertainment, and tourism.

"Income is the source of consumption; it is expected that the conference will propose deepening income distribution system reform requirements to increase urban and rural residents' income through multiple channels, especially to expand the middle-income group scale and enhance residents' consumption capacity," Wang Qing said.

Citic sec stated in the research report that the support for consumption through ultra-long special government bonds is expected to increase this year to a level of 100 billion to -150 billion yuan, possibly reaching 200 billion to -300 billion yuan, and may include consumer electronics within the scope of policy support. Additionally, policies targeting service consumption are also worth looking forward to.

Senior analyst Xu Tianchen from the Economist Intelligence Unit stated that the subsidy scope for the trade-in policy is expected to expand to more categories and scenarios, such as non-durable commodities like outfits and sports items, as well as offline services like dining and tourism. He also pointed out that in the second half of this year, the trade-in subsidies for home appliances and autos will significantly promote consumption, and similar policies may be introduced next year. In terms of form, purchase subsidies and consumption vouchers are both possible options.

The localization of the debt roadmap has been clarified.

The Ren Zeping team stated that on November 8, the Ministry of Finance announced a debt elimination plan worth 10 trillion yuan, allocating a total of 4 trillion yuan from newly issued special local government bonds to supplement the financial capacity of government funds, increasing the local government’s special debt limit by 6 trillion yuan to resolve hidden debts, and clarifying that 2 trillion yuan of hidden debts from shantytown renovations will be repaid upon maturity. The total amount of hidden debt that localities need to digest before 2028 has been significantly reduced from 14.3 trillion yuan to 2.3 trillion yuan, with the average annual amount reduced from 2.86 trillion yuan to 460 billion yuan, potentially saving around 600 billion yuan in interest payments over five years, greatly alleviating the debt relief pressure on local governments.

However, since debt elimination will be carried out over five years rather than all at once, local governments are still under significant fiscal pressure. The key next year is to implement these measures, with expectations for the central government to accelerate the issuance of replacement debt quotas and for local governments to issue debt quickly, enabling them to increase support for investment, consumption, technological innovation, and other areas, thereby promoting economic recovery and structural upgrading. Alleviating the fiscal pressure on local governments is conducive to removing restrictive policies, improving the business environment, and boosting confidence in the private economy.

Luo Zhiheng stated that the "10 trillion+" debt elimination plan has effectively alleviated local governments' liquidity risks, achieved the transformation of hidden debts into explicit debts, extended the debt cycle, and reduced costs. More importantly, it allows local governments to free up more financial capacity and energy to develop the economy and improve people's livelihoods. However, debt elimination is far from over, and the next phase should focus on building a long-term debt management mechanism and deepening fiscal and tax reform to fundamentally prevent and resolve local debt risks.

"This requires promoting fiscal and tax reforms to centralize authority and expenditure responsibilities, establish debt and capital budgets, and create a long-term mechanism to fundamentally prevent the re-emergence of hidden debts. Attention can be paid to whether the Central Economic Work Conference mentions any related issues in this regard," said Luo Zhiheng.

Wang Qing also stated that the conference is expected to not only demand effective implementation of the debt elimination plan and proper coordination of local debt risk resolution and stable development, but also to strongly curb the generation of new hidden debts, improve local government debt management, and accelerate the establishment of a debt system that is compatible with high-quality development in china.

Editor/Jeffy