China’s Economic Policy for 2024: Prioritizing Technological Innovation and Growth

China has emphasized “growth” in its economic policy for the coming year. This move intends to revitalize the Chinese economy, which has been grappling with recent issues like the real estate crisis, unemployment, and deflation (a price decline during an economic downturn).

The Chinese government’s determination to rejuvenate the economy was reaffirmed during the two-day Central Economic Work Conference held on December 11-12. The Central Economic Work Conference is a closed-door meeting where Chinese leaders gather to review the economic work of the past year and set the direction for macroeconomic policy for the coming year. The decisions reached at the conference are incorporated into the government work report for the following year after thorough discussions at the two sessions (the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference) held in March. Look at the content of this year’s Central Economic Work Conference through a few keywords.

Stability and Growth: The Emphasis on ‘Growth’

This is the keyword that the Chinese leadership has put forward as the economic principle for next year. It means “pursue growth in stability and promote stability through growth,” emphasizing growth more than last year’s conference phrase, “stability is the top priority; pursue growth instability.”

To this end, they emphasized proactive fiscal policy and moderate monetary policy.

In particular, the conference emphasized the need to “appropriately strengthen proactive fiscal policy,” and Wang Qing, Chief Macro Analyst of Dongfang Jincheng, commented, “This implies that China’s fiscal deficit and the issuance of local special bonds may see an increase this year to some extent.” He notably predicted a heightened focus on addressing local governments’ financial challenges, particularly those impacted by the real estate market downturn, through increased infrastructure investment.

In fact, amid concerns about a slowdown in the economic recovery this year, China actively used the fiscal stimulus card, such as adjusting the budgetary deficit ratio from 3.0% at the beginning of the year to 3.8% by issuing an additional 1 trillion yuan in government bonds in October.

A new phrase was added regarding monetary policy: “The scale of social financing and money supply should be in line with the expected goals of economic growth and price levels.” This differs from last year’s conference, which mentioned that the money supply should align with the nominal growth rate.

Experts point out that while maintaining a moderate monetary policy stance for next year, China emphasized the flexibility, accuracy, and efficiency of monetary policy, implying the possibility of shifting to a monetary easing stance if deflation problems worsen next year.

Larry Hu, head of China economics at Macquarie, told Bloomberg, “Monetary policy could shift to a more easing stance in the face of deflation risks,” and suggested that “over the next year, there could be more cuts in the benchmark interest rate and bank reserve requirement ratio.” This year, China cut the benchmark interest rate and reserve requirement ratio by 20 basis points (1bp=0.01 percentage point) and 50 basis points, respectively.

Establish First, Break Through Later: Gradual Solution to Long-Term Tasks

This phrase, meaning ‘establish first, breakthrough later,’ appeared first as the economic principle for next year at this year’s Central Economic Work Conference.

This suggests that the Chinese leadership has learned from past mistakes when the economy was already struggling due to COVID-19. The government pushed too hard to implement various policies, such as real estate regulation, low carbon, crackdown on big tech (internet companies) platforms, and private education regulation, increasing downward pressure on the economy.

This interpretation suggests that the Chinese government’s primary focus will be on revitalizing the economy, which is currently facing challenges, while gradually addressing long-term issues such as local debt and real estate risks without rushing into solutions.

This year’s conference stated that it would further strengthen the coordination of various economic and non-economic policies such as fiscal, monetary, employment, industry, regional, science and technology, and environmental protection to support the economy’s recovery.

The conference outlined nine crucial tasks in the economic field for the upcoming year, and the resolution of critical risks involving small and medium-sized banks, real estate, and local debt was placed fifth in priority. This ranking followed technological innovation, the promotion of domestic demand, the deepening of crucial reforms, and the expansion of opening up.

Particularly about the real estate issue, the conference prioritized reviving the real estate market rather than regulation. The conference emphasized that it would meet the reasonable funding needs of real estate companies and accelerate the construction of guaranteed housing, urban redevelopment, and public infrastructure.

Technological Innovation Prioritized Over Domestic Demand Promotion

Instead, China mentioned industrial development through technological innovation as the first essential task in the economic field for next year at this year’s conference. The expansion of domestic demand was mentioned second, after being pushed back by technological innovation.

The conference stated, “We will build a modern industrial system through scientific and technological innovation. We will develop new growth and productivity with disruptive, cutting-edge technology.”

The first thing mentioned was the development of the digital economy and the AI industry. They also emphasized upgrading traditional industries with digital eco-friendly technologies while developing new sectors such as biomanufacturing, commercial aerospace, quantum, and biotechnology.

This interpretation highlights how China relies on technological self-reliance to fuel its national economic growth. This emphasis comes amid escalating competition for technological dominance between the United States and China, alongside the United States reinforcement of sanctions on China’s advanced semiconductor technology.

Duncan Weldon, senior economist for China at Pantheon Macroeconomics, a UK economic and financial research institute, said, “Chinese policymakers firmly believe that the development of new technologies, upgrading of traditional industries, and nurturing of emerging industries are the keys to increasing growth and productivity,” but also pointed out, “This strategy carries geopolitical risks.” Bloomberg mentioned, “Investors who hope to focus on boosting the economy through consumption will likely be disappointed.”

Likely to Maintain 5% Growth Rate Next Year

Given the emphasis on “growth” in China’s economic policy for the next year, experts anticipate that the Chinese leadership will likely establish a growth rate target for the upcoming year at approximately 5%, mirroring this year’s target.

Several institutions are currently forecasting China’s growth rate for the next year to be within the 4% range, which is expected to be higher than the current year’s rate. Moody’s recently downgraded China’s credit rating outlook from stable to negative and predicted next year’s growth rate would drop to 4%.

Wen Bin, a senior economist at Minsheng Bank in China, said on the 13th through the Shanghai Securities News, “The mention of ‘promote stability through growth’ as the economic principle for next year means solving stability issues through growth,” and predicted, “Next year, they will set the growth rate target at around 5% and use more proactive policies to boost corporate confidence.” Morgan Stanley also conveyed that setting the growth rate target ‘optimistically’ at 4.5% or higher would help boost confidence.

Reuters previously reported, citing sources, that government advisors recommended setting next year’s economic growth target in the range of 4.5-5.5%, and most people agreed to put it around 5%, the same as this year. The growth rate target set at the Central Economic Work Conference will be disclosed in the government work report at the two sessions in March next year.

By. In Sun Bae