Chinese policymakers are ambitious, down-to-earth when setting economic priorities for 2023
Chinese policymakers have lately made clear-cut decisions on policy priorities and signaled where the Chinese economy will be heading and how.
Foreseeing an independent upward trajectory for the world's second largest economy in 2023, Chinese policymakers have lately made clear-cut decisions on policy priorities and signaled where the Chinese economy will be heading and how.
Here are some key takeaways of the annual Central Economic Work Conference that concluded Friday based on a readout of the meeting and official elaboration from the office of the Central Committee for Financial and Economic Affairs.
OUTSHINING OTHERS
China's central authority has made an overall judgment that next year's world economic growth is likely to decline significantly, but the Chinese economy is expected to pick up on the whole, forming an independent upward trajectory.
Three key factors have fuelled their confidence. First, the optimization of epidemic prevention and control measures will have a significant positive impact on economic recovery. It is expected that in the first half of next year, especially in the second quarter, the order of production and life will be restored at a faster pace and the economic vitality will be released at a faster pace. Second, existing policy support and new stimuli in the pipeline are expected to give the recovery a forceful boost. The third augment is the base effect. This year's economic growth is lower than expected, which results in a relatively low economic base. As long as the economy returns to normal growth next year, the base effect will provide some support to the economic data.
As for the policy toolkit, fiscal, monetary, industrial, technological and social policies will continue to be implemented. To secure a reasonable growth with higher quality, the central authority has made special requirement at the meeting, demanding better coordination on multiple fronts to well tackle complicated problems and seek the best possible solutions under multiple constraints. A pioneering spirit has been encouraged.
EPIDEMIC RESPONSE
Among all tasks, optimizing epidemic response based on time and situation is one of the tough challenges. To deal with the real but temporary challenge, three things have been taken as essential: First, ensuring people's access to medical services and medicines, and preventing a massive shortage of medical resources. Second, ensuring stable industrial operation and preventing disruptions to the key links in the industrial and supply chains. Third, ensuring that the supply of medicines and important commodities for people's livelihood is maintained at a stable price, so that supply will not be cut off and that prices will not rise significantly.
OPPORTUNITY IN CRISIS
In Chinese culture, a crisis always comes with an opportunity. With this never-say-die spirit, China has managed to achieve an annual 4.5-percent growth on average over the past three years, much higher than the world's average.
When making arrangements for the economic work for the next year, Chinese policymakers have stressed the necessity and viability of putting to good use the blocking points, pains, difficulties and gaps in economic development and encouraged the Chinese to take advantage of the tough time for future development.
One of the ground rules for finding the solutions to tough issues, to a large extent, involves finding a right point to meet multiple needs--where inputs can not only meet current demand for economic recovery but also create new supply for high-quality development in the future, facilitate industrial upgrading and enhance economic resilience. Electric vehicle and smart grid development have been taken as good examples.
PROBLEMS EXIST
Chinese policymakers have been sober-minded with the scope and intensity of the country's economic weakness.
**INCOME
By their own admission, due to the impact of the epidemic, Chinese people's income growth has slowed down, their expectations have declined. People are afraid to consume, they are not comfortable to consume, and they are more likely to save money to avoid risk.
To remedy the situation, policymakers say it's necessary to prioritize the recovery and expansion of consumption, and take strong measures to increase consumption power, improve consumption conditions and increase consumption scenarios, so as to fully unleash the consumption potential.
**EMPLOYMENT
With more than 11.5 million college graduates expected to graduate next year, another record high, China will need to focus on creating jobs for young people, especially college graduates, strengthen employment training, strive to improve the competence of workers, and help workers quickly adapt to the changing industrial structure.
In a word, the country hopes to fully unleash more job opportunities generated by industrial optimization and upgrading, and enable more market players and new forms of employment to spring up after the outbreak has entered a new stage, so as to create more jobs with its economic development.
**INDUSTRIAL AND SUPPLY CHAINS
Disruptions to the stability of industrial and supply chains are worldwide, as a result of the multiple headwinds from anti-globalization, the COVID-19 pandemic to geopolitical conflicts.
At this conference, Chinese policymakers have made comprehensive arrangements for speeding up the building of a modern industrial system. The country will focus on key industrial chains in the manufacturing industry, speed up research in key and core technologies, and remove bottlenecks. China will strive to enhance its capacity to ensure food, energy and resources security, strengthen material reserves and ensure supply security through multiple channels.
In addition, China will figure out a way to comprehensively modernize its industrial system. For the traditional manufacturing sector, the key is to accelerate the spread of advanced and applicable technologies, enhance competitiveness, and create a more solid foundation for the modern industrial system. High-end manufacturing is not all about chips, sectors like clothing and furniture can pursue high-end development, too.
For strategic emerging industries, the key is to accelerate research, development and application of cutting-edge technologies, support the development of specialized new firms, and open up more new racetracks for future development. In key areas such as integrated circuits, the key is to further refine the industrial ecosystem, give full play to market forces, and vigorously support the development of the whole industrial chain. Fourth, China will continue to strengthen opening-up and cooperation to build an open world economy.
**APPEAL TO FOREIGN INVESTMENT
If the world economy slows, trade and investment will slow too. At this meeting, Chinese authority has made it clear that state-owned enterprises, private firms and foreign companies are all important parts of the socialist market economy, and the market access of foreign capital should be expanded. China will appropriately reduce the negative list for foreign investment access, intensify opening-up of its modern service sector, and promote greater openness in education, health care, elderly care and other sectors. Pilot free trade zones, the Hainan Free Trade Port, various development zones and bonded zones and other open platforms will be put to better use to lead relevant reform, while the announced policies on foreign investment access will be promptly implemented.
Apart from expanding market access, the country also seeks to optimize its business environment based on laws, market rules and international practices. China will promote fair competition, ensure foreign firms' equal participation in government procurement, bidding and standard-setting in accordance with the law, and strengthen protection of intellectual property rights and the legitimate rights and interests of foreign investors. The country's reform will be advanced as it seeks to align domestic policies with high-standard economic and trade agreements such as the Comprehensive and Progressive Trans-Pacific Partnership and the Digital Economy Partnership.
**REAL ESTATE
The property market has been viewed as a major risk affecting the Chinese economy. Since the latter half of last year, China's real estate industry has weakened significantly.
As a pillar industry of the national economy, the real estate industry has a long industrial chain and involves a wide range of sectors, accounting for about 7 percent of China's gross domestic product. Land transfer income and real estate-related taxes account for nearly half of local comprehensive financial resources and 60 percent of urban household assets. Real estate loans and real estate mortgage loans take up 39 percent of the country's total loan balance, having an important impact on financial stability. The real estate sector thus is systemically important and has a strong spill-over effect.
Next year, China will continue to optimize demand-side management and increase financial support for rigid and improved housing needs. In the medium term, it will study fundamental measures to promote the healthy development of the real estate industry, reform and improve the basic land, fiscal, tax, and financial systems related to real estate, increase the supply of market-based long-term rental housing and low-income rental housing through multiple channels, promote the transformation and development of real estate enterprises, and strive to establish a new model of healthy real estate development.
**FINANCIAL RISKS
Policymakers noted that several small and medium-sized banks, village banks and trust companies are relatively vulnerable but the foundation of large state-owned financial institutions remains fairly solid. Efforts need to be made to strengthen the corporate governance of financial institutions, tighten the supervision over the qualification and behavior of senior executives and major shareholders and effectively isolate industrial capital from financial risks, guide financial institutions to focus on their main business.
As for local debts, the growth rate of local implicit debt has slowed down, but the scale remains large. In particular, the debt pressure of some local governments is growing, especially those of county and municipal governments. Going forward, China will strive to address both the symptoms and root causes, deepen reform of the fiscal and taxation systems at and below the provincial level, increase transfer payments, accelerate the establishment of local tax systems, and strengthen local governments' basic financial resources and capacity for self-development.