On the morning of March 5 at the opening ceremony of the Chinese People’s Congress, Premier Li Qiang made a report on the work of the 2024 government. This is the first Report on the Work of the Government made by Premier Li, and as Huang Shouhong, head of the drafting team and director of the Research Office of the State Council, said, the report has the distinctive characteristics of “connecting with the antennae on the top and connecting with the atmosphere on the bottom”. On the one hand, the report is very good to take over the policies and tasks deployed by the Central Economic Work Conference in December last year; on the other hand, the report was formed to various regions, departments and units to solicit more than 4,000 opinions, and widely solicited the suggestions of netizens, with a strong problem-oriented nature.
After the release of the report, there were also some market voices that the targets set, policies deployed and tasks proposed therein did not exceed expectations. Then, taking into account the internal and external situation facing the current economic development and analyzing the details of the policy deployment, we can find that the target setting of this Government Work Report faces the challenges and pressures, the deployment of policies leaves space, and the key tasks emphasize the development of new quality productivity and the storage of energy for the future, which is in fact quite pragmatic and the target is also challenging.
Development Goal: 5% growth rate target is facing up to difficult challenges, and it is not easy to reach it
The government’s work report sets the economic growth target for 2024 at 5%, which is lower than last year’s actual growth rate of 5.2%, but judging from all factors, this target is not low and still requires more policy efforts to realize it successfully.
From the point of view of the growth rate changes in recent years, the economic growth rate of 5.2% in 2023 was built on a low base of 3.0% in 2022, and the average growth rate for the two years 2022 and 2023 was only 4.1%. This year’s growth rate target of 5% in fact represents an acceleration, which is a significant increase of 0.9 percentage points over the average growth rate of the previous two years.
From the high-frequency data of the two months since the beginning of the year, the pressure to open the door in the first quarter of this year is very strong. Although the number of trips and service consumption income during the Spring Festival holiday hit record highs, per capita consumption only recovered to 91% of the same period in 2019; manufacturing PMI was in contraction for two consecutive months in January-February; and real estate sales declined sharply, with data from the China Index Research Institute showing that the total sales of the top 100 real estate enterprises fell 51.6% year-on-year in January-February. From the production side, steel, asphalt starts lower than the same period last year, is expected in the first quarter growth rate is difficult to reach 5%.
Especially for the current economic development of the most relied upon consumption, 2023 total social retail sales year-on-year growth rate rose to 7.2%, but 2022, 2023 two-year average growth rate of 3.4%, and in December the chain of only 0.42%, the recovery of the momentum is not strong. Behind this consumer confidence index continues to be at a low level (with 100 as the glory line, only 87.6 in December 2023), structural unemployment rate is high (survey unemployment rate of 14.9% for 16-24 year olds), slowing income growth and shrinking wealth and other factors are intertwined, and it is not easy to see how the consumption growth rate of 2024 can surpass the average of 2022-23 years.
From the perspective of the overall internal and external situation, China’s current economic development faces four major challenges: insufficient effective demand, excess capacity in some industries, weak social expectations, and many hidden risks. In particular, the real estate market is still in a downward trend, some local governments are still under great debt risk pressure, and the task of energy conservation and emission reduction is arduous. Moreover, the European economy continues to be sluggish and the United States pursues the policy of “de-Sinization of the industrial chain” to restrict the growth of foreign investment and foreign trade. Given the internal and external challenges, achieving the 5% growth target by 2024 will not be easy.
Fiscal policy: the actual fiscal expansion efforts to leave room for manoeuvre
The government work report will set the deficit rate at 3%, the same as last year, substantially lower than the inclusion of last year’s fourth-quarter trillion additional treasury bonds after the issuance of 3.8%, the general public budget expenditure scale increased by 1.1 trillion yuan, local government special bonds (3.9 trillion yuan) compared with last year only increased by 100 billion yuan, some market views according to which the strength of the fiscal policy is not large. However, in view of the comprehensive arrangement of the general public budget and government funds, the strength of fiscal policy in 2024 substantially leaves room.
First of all, although the deficit rate remains unchanged at 3%, but taking into account the special bonds, special treasury bonds, other transferred funds and other tools to expand fiscal spending, broad fiscal spending has increased significantly. 3% deficit rate corresponds to the size of the deficit is 4,060 billion yuan, plus the transfer of funds and the use of carry-over funds (including 1 trillion yuan of additional treasury bonds issued in the fourth quarter of last year, the 500 billion yuan has not yet been used). This year’s issuance of an additional 1 trillion yuan of ultra-long-term special treasury bonds, plus 3.9 trillion yuan of local government special bonds, we measured the actual deficit rate of about 8.2%, higher than last year’s 7.6%, the broader fiscal spending strength is not low, second only to 10.9% in 2020.
Second, this year’s government work report proposed that the next few years will be consecutive issuance of ultra-long-term special treasury bonds, and this year is just the first issuance of 1 trillion, leaving open the possibility of additional issuance. In order to boost domestic demand, the Central Economic Work Conference and the State Council have recently deployed the implementation of large-scale equipment renewal and trade-in of consumer goods such as automobiles and home appliances, all of which will require the fiscal authorities to increase subsidy spending.
Finally, in recent years, the lack of domestic demand has become the biggest drag on China’s economic development, the lack of residents’ spending power and low consumer confidence are intertwined, the Central Economic Work Conference for three consecutive years to emphasize the solution to the problem of demand contraction or lack of effective demand. Financial strength to support large-scale equipment renewal and a wide range of trade-in is crucial for demand-driven supply and a virtuous cycle of supply and demand. If the pressure to stabilize growth and employment continues to be strong in the second half of the year, further issuance of special treasury bonds to increase support for equipment renewal and trade-in of consumer goods is very likely.
Monetary policy: money and credit anchor economic growth and CPI trends, leaving more room for relaxation
The government work report on the deployment of monetary policy, a continuation of the tone of the Central Economic Work Conference in December last year, the requirements to maintain a reasonable abundance of liquidity, the scale of social financing, the money supply with economic growth and price levels expected to match the target, and to promote the social financing of the integrated cost of financing steadily declining.
According to the previous practice of monetary policy operation, the reasonable M2 growth rate is roughly equal to the GDP growth rate + CPI growth rate + 2-3 percentage points. As a result, the M2 growth rate in 2024 will be around 10%, which is not low overall. At the same time, since 2024, the central bank has cut the agricultural and small-scale refinancing and rediscount rates by 0.25 percentage points, cut the overall quota by 0.5 percentage points, renewed the medium-term lending facility (MLF) for 15 consecutive months to release liquidity, and the 5-year LPR was also cut sharply by 25 bps, so the monetary policy has already increased the counter-cyclical adjustment.
In addition, the central bank to increase monetary policy easing, there is demand and space. From the domestic point of view, in January, CPI fell 0.8% year-on-year, 4 consecutive months of negative growth, PPI fell 2.5% year-on-year, 16 consecutive months of negative growth, from the government work report set the CPI rate target of 3% there is still a large gap to promote the stabilization of prices continue to be greater pressure. At the same time, the government work report in the monetary policy part of the requirements to “enhance the internal stability of the capital market”, but also requires non-discriminatory support for the financing needs of real estate enterprises of different systems of ownership, and accelerate the promotion of the supply of housing construction. “flat emergency dual-use” public infrastructure construction and urban village renovation “three major projects”, all need to further increase monetary and credit support. From the external point of view, the Federal Reserve interest rate hike topped, has been suspended for four consecutive interest rate hikes, Fed Watch shows that the probability of a 25BP interest rate cut in June is 52%, the Fed into the channel of interest rate cuts, will be for the central bank to further reduce the interest rate cuts to open up the space.
New quality productivity: accelerating the development of new and future industries and digital economy
The government work report calls for efforts to promote high-quality development, accelerate the development of new productivity, and constantly shape the development of new momentum and new advantages, will promote the transformation of traditional industries, accelerate the innovation and development of new industries, future industries and the digital economy, as the primary task in 2024. For this deployment, the market attention is not enough, but in fact very important, not only to solve the current scientific and technological innovation “neck” problem and enhance the current economic vitality, but also in order to strengthen the future period of economic growth momentum and development potential.
A two-pronged approach has been adopted in establishing a modernized industrial system. On the one hand, vigorously promote the transformation and upgrading of traditional industries, requiring the implementation of manufacturing key industry chain high-quality development action, manufacturing technology transformation and upgrading project, accelerate the development of modern productive service industry, to create more “Made in China” brand. On the other hand, actively cultivate new industries future industries, not only specified new energy vehicles, new materials, biological manufacturing and other specific industrial categories, but also requires the development of future industrial development planning, innovation of a number of future industrial pilot zones, and increase venture capital, equity investment support. Prior to this, 19 local governments have been in their respective government work report on the development of future industries to make specific deployments, is expected to emerging industries future industries will develop rapidly.
Comprehensively release the power of digital economy development is an important part of China’s economy to achieve high-quality development. In the implementation of policies, the government work report requires the development of policies to support the high-quality development of the digital economy, carry out the “artificial intelligence +” action, the implementation of the digital transformation of the manufacturing industry; in the application of technology, the requirements to promote the deep integration of digital technology and the real economy, to deepen the research and development applications of big data, artificial intelligence, accelerate the industrial internet planning into applications; on enterprise transformation, it is required to carry out in-depth special actions to digitally empower small and medium-sized enterprises, support platform enterprises, especially new types of real enterprises, and show their strengths in promoting innovation, increasing employment, and international competition, and building smart cities and digital villages; on data empowerment, it is required to vigorously promote the development, openness, and circulation and use of data, appropriately overreach the construction of digital infrastructure, and accelerate the formation of the national integrated arithmetic system. Considering that the growth rate of the digital economy in recent years has been about 1.5 times that of the GDP growth rate, the innovative development of the digital economy will provide more and more support for the overall economic development.