Source: Securities Times

Fiscal and MMF policies continue to strengthen, emphasizing the importance of striking a good balance next year.

In 2025, China will "implement a more proactive macro policy." According to the deployment of the Central Economic Work Conference, as two important pillars in the macroeconomic governance system, fiscal policy will be "more proactive" than in the past, maintaining the continuity of policy and demonstrating the determination to increase policy. Monetary policy will shift to "moderately loose," continuing to uphold a supportive monetary policy stance.

The fiscal deficit rate is one of the most important macro policy variables. In the new year, the increase in the fiscal deficit rate will bring about a greater fiscal leverage effect, further increasing government investment and grassroots support. Considering that the fiscal deficit rate reached 3.8% after incorporating the issuance of 1 trillion yuan in new government bonds in 2023, CITIC SEC's chief economist, Ming Ming, believes that the fiscal deficit rate in 2025 is expected to reach around 4.0%.

Special government bonds are seen as a "special measure at a special time," not counted in the fiscal deficit, ensuring the sustainability of finance. In the new year, increasing the issuance of ultra-long special government bonds will further support the 'dual重' and 'dual新' work, and will also inject capital into state-owned banks. Zhang Ming, deputy director of the Financial Research Institute of the Chinese Academy of Social Sciences and deputy director of the National Financial and Development Laboratory, believes that the central government is likely to issue an additional 2 trillion yuan to 3 trillion yuan in special government bonds for traditional infrastructure and people's livelihood areas.

Local government special bonds are an important lever for implementing proactive fiscal policy. In the new year, special bonds will continue to leverage government investment, with funding directed towards expanding fields, supporting the recovery of idle land, and supporting affordable housing projects. If the scale continues to increase based on the new 3.9 trillion yuan special bond quota in 2024, an additional 4 trillion yuan in special bonds next year may be expected.

The shift from "prudent" to "moderately loose" indicates the adjustment in monetary policy orientation, which reflects the adaptive transformation of macro-control thinking.

Loose monetary policy typically points to lowering interest rates, easing credit, and increasing the money supply. Moderately loose monetary policy still emphasizes the flexibility and prudence of the policy. Tian Lihui, director of the Financial Development Research Institute of Nankai University, told the Securities Times reporter that the aim of "moderate" is to balance economic growth and risk control.

"Precious policy tools should be used at critical stages," said Zhang Xu, chief fixed income Analyst at Everbright, to the Securities Times reporter, in phases with insufficient effective credit demand and weak market expectations, to boost market confidence; in the phase of accelerated government bond issuance, to support a more proactive fiscal policy to take effect, creating a good policy 'combination punch.'

Executing a good policy 'combination punch' requires not only utilizing the policy synergy and enhancing the policy effectiveness but also emphasizes preventing policy misalignment, avoiding the formation of a 'composite fallacy.' This year, the Central Economic Work Conference continued to demand, 'unifying economic policy and non-economic policy into the macro policy orientation consistency evaluation.' This means that departments need to further clarify the policy evaluation scope and improve the evaluation process in the new year, scientifically and accurately assessing the policy impacts, including non-economic policies.

Breaking the 'involution-style' competition with technological innovation.

Technological innovation is the core element of developing new quality productivity. This year's Central Economic Work Conference proposed leading the development of new quality productivity with technological innovation and building a modern industrial system. According to Zhu Keli, executive director of the China Information Association and founding director of the National Research New Economy Institute, this reflects the country’s firm determination to lead the development of new quality productivity through technological innovation.

Zhu Keli pointed out to reporters that technological innovation is the core driving force for promoting high-quality economic development. The country provides strong guarantees for technological innovation through increased R&D investment, optimizing the innovation environment, and strengthening intellectual property protection, continuously creating internationally competitive innovation hubs.

On December 12, Ministry of Commerce spokesperson He Yadong announced that the Ministry of Commerce will work with relevant departments to build demonstration zones for developing new quality productivity according to local conditions. Accelerating the cultivation of a group of strategic emerging industry clusters and world-class advanced manufacturing industry clusters, promoting industrial upgrading, greening, and digitalization, and supporting the layout of digital industries and future industries.

Reporters noted that compared to last year, this year's Central Economic Work Conference clearly deployed the implementation of the "AI+" action, indicating that AI will penetrate and integrate into more industries from a single field. Zhu Keli believes that for developing new quality productivity, "AI+" can not only generate new economic growth points but also promote the transformation and upgrading of traditional industries, injecting new vitality into high-quality economic development.

In his view, with the empowerment of AI, industries such as manufacturing, healthcare, financial services, and education are expected to benefit first. Through intelligent transformation, these industries will achieve significant improvements in production efficiency, effective cost reduction, and innovation in service models.

It is worth mentioning that this year's Central Economic Work Conference pointed out the need to comprehensively rectify "involutionary" competition and standardize the behavior of local governments and enterprises. Song Zhiping, president of the China Listed Companies Association and chief expert of the China Enterprise Reform and Development Research Association, previously pointed out that there has been a phenomenon of market involution in some industries in China, where competition among enterprises has intensified, leading to frequent price wars, which not only severely affects the profit levels of enterprises but also impacts the stock prices of listed companies.

Zhu Keli believes that during the comprehensive rectification of involutionary competition, market regulation should be further strengthened to combat unfair competitive practices and guide enterprises towards differentiated and specialized development paths. It is necessary to improve relevant policy systems to provide innovation support and guide industrial upgrades for enterprises.

At the same time, "enterprises should focus on enhancing independent innovation capabilities, increasing R&D investment, expanding new market spaces, and avoiding falling into low-level homogenized competition," Zhu Keli said. Through the joint efforts of the government and enterprises, it is hoped that the market will form a more virtuous competitive landscape, promoting high-quality economic development.

Stimulating consumption will be a top priority in economic work.

In the nine key tasks for next year's economic work, "vigorously stimulating consumption and improving investment efficiency, comprehensively expanding domestic demand" ranks first. Among them, "consumption" has been placed in a more important position. The Central Economic Work Conference pointed out the need to focus on key links to accomplish next year's economic work priorities, especially addressing prominent issues of insufficient demand and focusing on boosting domestic demand, particularly household consumption.

Zhao Bo, a long-term associate professor at Peking University's National Development Research Institute, pointed out that since the Third Plenary Session of the 11th Central Committee of the Communist Party, the proportion of household consumption in GDP in China experienced a brief rise and a continuous decline, rebounding around 2009, and currently maintains a level of around 40%.

Professor Zhou Qingjie from the School of Economics of Beijing Technology and Business University stated in the article "Emphasizing the Key Role of Household Consumption in Expanding Domestic Demand" that according to the internationally accepted national economic accounting system, household consumption is one of the "four pillars" alongside domestic private investment, government purchases and public investment, and net exports in GDP. From an international comparison, the proportion of household consumption in China's GDP is relatively low. Therefore, in the process of building a new development pattern in China, the effective practice of the domestic demand strategy relies more on household sectors to exert force from the "inside," allowing residents to have money to consume, confidence to consume, and the freedom to consume.

In July this year, several measures were introduced to support large-scale equipment updates and the replacement of old consumer goods (also known as "Two New"). Among these, the 300 billion yuan ultra-long-term special government bonds are seen as a key driving force for the implementation of the "Two New" policy. From the effect seen, this initiative is also accelerating the release of consumer potential. Data from the Ministry of Commerce shows that the national sales of home appliance replacements surpassed 100 billion yuan in just 79 days; it took only 40 days to reach from 100 billion yuan to 200 billion yuan. As of December 9 at 24:00, the total number of autos replaced has also exceeded 5 million, with over 2.44 million scrapped and updated, and over 2.59 million replaced.

In the specific deployment, the Central Economic Work Conference determined to "implement a special action to boost consumption, increase income and reduce burdens for middle and low-income groups, and enhance consumption capacity, willingness, and levels. Properly increase the basic pension for retirees, raise the basic pension for urban and rural residents, and increase the financial subsidy standards for urban and rural residents' medical insurance."

A relevant official from the National Development and Reform Commission has previously stated multiple times that consumption is a function of income, and promoting consumption must involve increasing urban and rural residents' income through multiple channels. The series of measures deployed by the Central Economic Work Conference are indeed important aspects that are widely called for by academia and industry. Zhang Bin, deputy director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, has emphasized multiple times that the essence of insufficient demand lies in the formation of a negative cycle between "expenditure - income - crediting." Therefore, boosting residents' consumption confidence from the income side is a crucial measure.

At the same time, the conference also determined to "strengthen and expand the implementation of the 'Two New' policy" next year, which is also an important highlight of next year's incremental policy. During the preliminary implementation of the old-for-new policy for consumer goods, places such as Shenzhen and Shanghai have explored expanding the scope of financial subsidies from eight major categories of household appliances to 3C products, arranging for local financial resources to support such incremental measures.

Regarding investment, the meeting reiterated the need to "improve investment efficiency." Cai Yang from the National Development and Reform Commission's Investment Research Institute and Hao Xiaojing from the Chinese Academy of Fiscal Sciences pointed out that "efficiency" mainly has three characteristics: globality, long-term nature, and adaptability. In their compilation of the "investment indicator system for expanding effective investment," the four primary indicators for quantifying investment efficiency include comprehensive economic benefits, adapting to demographic changes, accelerating the formation of new productive forces, and consolidating national strategic security. Cai Yang and Hao Xiaojing believe that the government should create a favorable macro environment, institutional environment, and market environment, and timely adjust the direction and intensity of macroeconomic regulation, comprehensively use various policies to guide the allocation of social resources, and strive to achieve a series of expected indicators.

Prioritize stability and continuously promote the housing market's stabilization.

For the housing market next year, the Central Economic Work Conference again emphasized "stabilizing the real estate market," continuing the tone set by the Central Political Bureau meeting on December 9 regarding real estate in 2025, fully indicating that stabilizing the real estate market is crucial for maintaining stable economic growth next year.

This year's Central Economic Work Conference's statements regarding real estate are similar to those in the 2022 and 2023 meetings, falling under the section of "effectively preventing and mitigating risks in key areas." The meeting explicitly proposed to "continue to forcefully promote the stabilization of the real estate market, intensify the implementation of urban village and dilapidated housing renovations, and fully release the potential for rigid and improved housing demand. Reasonably control the supply of new real estate land, activate existing land and commercial properties, and promote the handling of existing commodity housing. Promote the establishment of a new model for real estate development and orderly set up related foundational systems."

It is worth noting that on September 26 of this year, the Central Political Bureau meeting proposed for the first time to "promote the stabilization of the real estate market", and the recent Central Economic Work Conference added the expression of "continuously pushing forward" on this basis.

"This indicates that the central government's determination to stabilize the real estate market is firm and that sufficient policy tools have been prepared," said Yin Zhongli, adviser to the State Council and director of the Real Estate Finance Research Center at the Chinese Academy of Social Sciences, to the Securities Times reporter.

Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Provincial Urban Planning Institute, also believes that the repeated emphasis on "stopping the decline and stabilizing" indicates that the foundation for this stabilization still needs to be further solidified, and the expression "continuously pushing forward" means that next steps will continue to introduce incremental policies and implement existing policies to create a policy overlay effect.

Regarding possible policy directions for next year, Ming Ming, chief economist at CITIC SEC, believes that under the requirement to "stabilize the housing market", subsequent support policies for real estate in the financial and fiscal domains are expected to further intensify, such as further reducing mortgage and provident fund loan interest rates, increasing the scale of reserves, and optimizing financing conditions for real estate enterprises.

In addition, regarding the meeting's proposal to "intensify the implementation of urban village and dilapidated house renovation", Chen Wenjing, policy research director at the China Index Academy, believes that under the goal of "stabilizing the housing market", intensifying the implementation of urban village and dilapidated house renovation has already become one of the key measures. Previously, the Ministry of Housing and Urban-Rural Development had clarified the addition of 1 million urban villages and dilapidated house renovations. The continued emphasis on "intensifying implementation" indicates that the scale of urban village and dilapidated house renovations is expected to continue to increase, and the overall effort may be intensified. It is anticipated that various places will combine monetary resettlement with housing voucher policies and acquire existing commodities as resettlement housing in conjunction with urban village renovations, increasing subsidies and rewards for the use of housing vouchers to enhance residents' willingness to use them. This will help accelerate the pace of urban village renovation and is expected to have a tangible pulling effect on new home sales by 2025.

Deepening Capital Markets Reform to Strengthen the Foundation for Coordinated Development of Investment and Financing.

The Central Economic Work Conference's direct statements regarding capital markets include two aspects: first, "stabilizing the stock market", and second, "deepening comprehensive reforms of the capital market for investment and financing, clearing the bottlenecks for medium to long-term funds entering the market, and enhancing the inclusiveness and adaptability of the capital market system."

The stock market plays a unique and critical role in financial operation, affecting everything from promoting innovative capital formation, assisting in industry transformation and upgrading, improving social wealth management, to stabilizing societal psychological expectations. Li Qiuxue, chief strategy analyst at China International Capital Corporation's research department, states that stabilizing the stock market not only helps to directly enhance the wealth effect among residents but also boosts demand, especially in terms of consumer capacity and willingness; on the other hand, it improves the financing environment for listed companies, aiding economic transformation and upgrading, which not only boosts investor confidence in China but also enhances global investors' confidence in the Chinese market.

To stabilize the stock market, it is necessary not only to enhance the inherent stability of Capital Markets through incremental policies but also to better integrate investment and financing through comprehensive reforms. Wu Qing, the chairman of the China Securities Regulatory Commission, previously proposed three requirements for coordinated development of investment and financing at the Financial Street Forum: first, achieving an overall balance in quantity; second, achieving continuous improvement in quality; and third, establishing effective checks and balances on rights and responsibilities.

In terms of quantity balance, in recent times, Capital Markets have made significant efforts in investment-side reforms, not only accelerating the implementation of guidance on long-term funds entering the market but also vigorously developing equity public funds, implementing targeted policies to overcome bottlenecks and pain points for long-term funds entering the market, and constructing a policy system to support 'long money for long-term investment.' Additionally, there has been active promotion of the implementation of Stock Buyback and incremental re-lending policy tools to introduce incremental funds into the A-share market.

According to reporters, the current China Securities Regulatory Commission is formulating an implementation plan to further comprehensively deepen Capital Markets reform, enhance the systemic mechanism for promoting high-quality development of listed companies, and increasing the inherent stability of the market.

Li Xiao, deputy director of the Capital Market Supervision and Reform Research Center at Central University of Finance and Economics, believes that comprehensive reform of investment and financing may lay a solid foundation for coordinated development. It is recommended to enhance the transparency of information disclosure, improve market efficiency, optimize financing tools, and diversify financing methods. At the same time, bolster investor education and protection to increase market participation, and improve the regulatory system to prevent financial risks.

The Central Economic Work Conference also mentioned strengthening the construction of national strategic technological power, perfecting a multi-level financial service system, expanding patient capital, and increasing efforts to attract social capital to participate in venture investment, while gradually nurturing innovative enterprises.

It is reported that the China Securities Regulatory Commission will further improve systems such as Stock-based Incentive, focus on cultivating and expanding patient capital, comprehensively leverage various tools such as stocks, Bonds, and futures, refine 'raising, investing, managing, and exiting' support policies for venture investment and Private Equity, and guide better early, small, long-term, and hard Technology investments to support the development of quality innovative enterprises, providing support for the transformation and upgrading of China’s economy and long-term development.

Strongly support the high-quality development of various operating entities.

The Central Economic Work Conference has made plans to support the high-quality development of various operating entities, including deeply promoting the new round of State-owned Enterprise Reform, issuing laws to promote the private economy, carrying out special actions to regulate corporate law enforcement, and implementing employment support plans for small and micro enterprises.

Hu Chi, a researcher at the State-owned Assets Supervision and Administration Commission, told Securities Times reporters that next year marks the concluding year of the new round of State-owned Enterprise Reform, and completing the reform tasks at a high level will be reflected in the positive progress made by state assets and enterprises in strengthening Technology innovation, establishing an industrial system, serving National Security, and deepening institutional reforms.

"According to the plan, state-owned enterprises must universally implement the end-level adjustment and unfit exit system, and the Board of Directors construction of central enterprise groups and their secondary subsidiaries must make significant substantial progress; these are rigid tasks that need to be completed next year," Hu Chi said.

Next year, the proportion of revenue from central enterprises in strategic emerging industries should reach 35%. Zhou Lisha, director of the China Modern State-owned Enterprise Research Institute at Tsinghua University, believes that in promoting the construction of listing platforms and continuing to inject assets to improve quality and efficiency further, central enterprises may take more proactive and in-depth measures next year.

The rule of law is the best business environment. The first **** specifically aimed at the development of the private economy in China—the "Promotion Law for the Private Economy of the People's Republic of China"—has ended its public consultation phase. Analysts believe that the introduction of the private economy promotion law will further optimize the development environment for the private economy and ensure that various economic organizations can participate fairly in market competition.

In regulating law enforcement and supervision behaviors related to enterprises, Zheng Bei, deputy director of the National Development and Reform Commission, recently stated that administrative law enforcement will increasingly adopt inclusive and cautious regulatory and flexible enforcement methods, aiming to avoid or reduce the impact on the normal production and operation activities of operating entities. Efforts will be made to standardize cross-regional administrative law enforcement actions and establish a sound assistance system for cross-regional law enforcement to prevent selective enforcement and profit-driven enforcement.

Tian Xuan, dean of Tsinghua University's National Financial Research Institute, pointed out to reporters that with the introduction of a series of laws and regulations aimed at creating a rule-of-law business environment, barriers such as regional restrictions, administrative interventions, and market protections will gradually be broken down. The construction of a unified national market is accelerating, and the fundamental systems for market access, fair competition, and property rights protection are continuously improving, which will facilitate the flow of factor resources, enhance the standardization and transparency of market transactions, and further improve market efficiency.

Small and micro enterprises are the main force for job absorption. "As the development environment for the private economy continues to improve, the operational risks for small and micro enterprises are constantly decreasing, creating a relatively stable internal operating foundation for relevant entities to absorb employment," said Zhang Yuejia, president of Zhilian Recruitment Group. In the future, with more supportive policies for enterprises, small and micro enterprises will have more resources and energy to invest in production operations and talent recruitment, effectively enhancing their capacity and willingness to absorb employment.

Editor/Rocky