Source: Securities Times Network

The Central Economic Work Conference was held in Beijing from December 11 to 12.

What important information and policy signals were conveyed during the conference? Let’s look at the latest insights and interpretations from Securities Times reporters.

Fiscal and Monetary Policies to Strengthen and Emphasize a "Combination Punch"

By 2025, China will implement "more proactive and effective macroeconomic policies." According to the directives from the Central Economic Work Conference, fiscal policy is set to be "more proactive" than before, maintaining policy continuity and demonstrating a commitment to policy enhancement. Monetary policy will shift towards "moderate easing," continuing to uphold a supportive monetary stance.

The fiscal deficit rate is one of the most important macroeconomic variables. In the new year, an increase in the fiscal deficit rate will bring about a greater fiscal leverage effect, further enhancing government investment and grassroots support. After incorporating an additional 1 trillion yuan in bond issuance in 2023, the fiscal deficit rate reached 3.8%. Chief economist Ming Ming from Citic Securities believes that the fiscal deficit rate could reach around 4.0% in 2025.

Special government bonds are considered a "special strategy" during extraordinary times and are not included in the fiscal deficit, ensuring fiscal sustainability. In the new year, increasing the issuance of ultra-long special government bonds will further support the "dual重" and "two new" initiatives and inject capital into state-owned banks. Zhang Ming, deputy director of the Financial Research Institute at the Chinese Academy of Social Sciences, estimates that the central government may issue an additional 2 trillion to 3 trillion yuan in special bonds for traditional infrastructure and social welfare.

Local government special bonds are important tools for implementing proactive fiscal policy. In the new year, these bonds will continue to leverage government investment effectively, expanding funding allocations to support the recovery of idle land and affordable housing projects. If the new quota of 3.9 trillion yuan for special bonds in 2024 is increased, a new scale of 4 trillion yuan in special bonds next year is expected.

The shift from "prudent" to "moderate easing" in monetary policy reflects a responsive change in macroeconomic regulation strategies.

A loose monetary policy typically involves lowering interest rates, relaxing credit, and increasing money supply. Moderate easing, however, emphasizes flexibility and prudence. Tian Lihui, director of the Financial Development Research Institute at Nankai University, explained that "moderate" aims to balance economic growth with risk control.

"Valuable policy tools should be used at critical stages." Zhang Xu, chief fixed income analyst at Everbright Securities, stated that during phases of insufficient credit demand and weak market expectations, policy should aim to boost market confidence; in phases of accelerated government bond issuance, support for more active fiscal policies should be emphasized, effectively deploying a "combination punch."

Implementing this "combination punch" requires leveraging policy synergies and enhancing policy effectiveness while preventing misalignment and avoiding "composite errors." The Central Economic Work Conference reiterated the need to unify economic and non-economic policies within a consistent macro policy framework. This means that each department must clarify the scope of policy evaluations and refine their evaluation processes in the new year.

Breaking "Involution" Competition Through Technological Innovation

Technological innovation is a core element of developing new productive forces. The Central Economic Work Conference emphasized leading the development of new productive forces through technological innovation and building a modern industrial system. According to Zhu Keli, executive director of the China Information Association and founder of the National Research Institute for New Economy, this reflects the country's firm commitment to leading the development of productive forces through technological innovation.

Zhu pointed out that technological innovation is the driving force behind high-quality economic development. The state will enhance research and development investment, optimize the innovation environment, and strengthen intellectual property protection to provide robust support for technological innovation, continuously creating internationally competitive innovation hubs.

On December 12, He Yadong, spokesperson for the Ministry of Commerce, indicated that the ministry would work with relevant departments to develop demonstration areas for new productive forces tailored to local conditions. Accelerating the cultivation of strategic emerging industry clusters and world-class advanced manufacturing clusters will promote the high-end, green, and digital transformation of industries, supporting the layout of digital and future industries.

Notably, compared to last year, this year's Central Economic Work Conference explicitly deployed the "Artificial Intelligence +" initiative, indicating that artificial intelligence will permeate and integrate into more industries beyond isolated areas. Zhu believes that "Artificial Intelligence +" can not only spur new economic growth points but also promote the transformation and upgrading of traditional industries, injecting new vitality into high-quality economic development.

He also noted that industries such as manufacturing, healthcare, financial services, and education are expected to benefit most from AI empowerment. Through intelligent transformation, these sectors will achieve significant improvements in production efficiency, effective cost reductions, and innovative service models.

Importantly, the Central Economic Work Conference this year indicated the need to comprehensively rectify "involution" competition and regulate the behaviors of local governments and enterprises. Song Zhiping, president of the China Listed Companies Association and chief expert at the China Enterprise Reform and Development Research Association, previously highlighted that certain industries in China are experiencing market involution, where intensified competition among enterprises leads to frequent price wars. This not only severely impacts corporate profitability but also affects the stock prices of listed companies.

Zhu believes that in addressing involution competition, market regulation should be strengthened, unfair competition behavior should be curtailed, and enterprises should be guided toward differentiated and specialized development pathways. Improving the relevant policy system will provide innovation support and guide industrial upgrades for enterprises.

At the same time, enterprises should focus on enhancing their independent innovation capabilities, increasing R&D investment, and expanding new market spaces to avoid falling into low-level homogeneous competition. Zhu stated that through collaborative efforts between the government and enterprises, a healthier competitive landscape is expected to emerge, promoting high-quality economic development.

Boosting Consumption as a Top Priority for Economic Work

Among the nine key tasks for next year's economic work, "vigorously boosting consumption and improving investment efficiency to comprehensively expand domestic demand" ranks first. Here, "consumption" holds a more prominent position. The Central Economic Work Conference emphasized the necessity of grasping key areas to fulfill the main tasks for next year's economic work, especially focusing on boosting domestic demand, particularly residential consumption, to address the prominent issue of insufficient demand.

Zhao Bo, a senior lecturer at Peking University's National Development Research Institute, noted that since the Third Plenary Session of the 11th Central Committee of the Communist Party, the share of household consumption in GDP has experienced a brief increase followed by a sustained decline. Following around 2009, it rebounded but has remained at about 40% since then.

Zhou Qingjie, a professor at the School of Economics at Beijing Technology and Business University, stated in his article, "Recognizing 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" of GDP, alongside total private investment, government purchases, public investment, and net exports. Comparatively, the share of household consumption in China's GDP is relatively low. Therefore, as China constructs a new development pattern, effective practices in the strategy to expand domestic demand rely heavily on the household sector making internal efforts, ensuring that residents have the means to consume, confidence in consumption, and freedom in consumption.

In July of this year, several initiatives were launched to support large-scale equipment upgrades and the replacement of consumption goods (the "two new" policy). Among them, 300 billion yuan in ultra-long special government bonds is seen as a crucial driver for the implementation of the "two new" policy. The implementation effects of this initiative have been accelerating the release of consumption potential. Data from the Ministry of Commerce indicates that national sales from the recent appliance replacement campaign exceeded 100 billion yuan in just 79 days, and the time taken to double that amount to 200 billion yuan was only 40 days. By December 9, the total number of cars replaced under the vehicle replacement program had surpassed 5 million, with over 2.44 million being scrapped and over 2.59 million being replaced.

In specific deployments, the Central Economic Work Conference determined to "implement special actions to boost consumption, promote income increases and debt reduction for low- to middle-income groups, and enhance consumption capacity, willingness, and levels."

Officials from the National Development and Reform Commission have repeatedly stated that consumption is a function of income; thus, promoting consumption must involve multiple channels to increase urban and rural residents' incomes. The series of measures deployed by the Central Economic Work Conference aligns with widespread calls from both academia and industry. Zhang Bin, deputy director of the World Economy and Politics Research Institute at the Chinese Academy of Social Sciences, has emphasized that the essence of insufficient demand lies in the negative cycle formed between "expenditure—income—credit." Therefore, boosting household consumption confidence from the income side is a crucial initiative.

Moreover, the conference confirmed the need to "enhance and expand the implementation of the 'two new' policy," which is also a significant focus for incremental policies next year. In the early implementation of the replacement policy for consumption goods, cities like Shenzhen and Shanghai have explored expanding the scope of fiscal subsidies from eight major categories of home appliances to include 3C products, arranging local fiscal funds for broader support.

Regarding investment, the conference reiterated the importance of "improving investment efficiency." Cai Yang from the National Development and Reform Commission's Investment Research Institute and Hao Xiaojing from the China Academy of Fiscal Sciences noted that "efficiency" primarily encompasses three characteristics: overall, long-term, and adaptive. In their compilation of an "investment indicator system to expand effective benefits," they identified four primary indicators for quantifying investment efficiency: comprehensive economic benefits, adaptability to demographic changes, accelerating the formation of new productive forces, and solidifying national strategic security.

Stabilizing the Real Estate Market to Ensure Economic Stability

Concerning next year's real estate market, the Central Economic Work Conference emphasized again the need to "stabilize the real estate market," continuing the tone set during the Central Political Bureau meeting on December 9 regarding real estate in 2025. This clearly indicates the critical importance of stabilizing the real estate market for maintaining steady economic growth next year.

The Central Economic Work Conference's statements about real estate this year align with those from the 2022 and 2023 meetings, placing them within the framework of "effectively preventing and mitigating risks in key areas." The conference explicitly stated, "Continue efforts to promote the stabilization of the real estate market, enhance the implementation of urban village and dilapidated housing renovations, and fully release the potential for rigid and improvement housing demand." It also called for reasonable control over the supply of new real estate land, revitalizing existing land and commercial properties, and advancing efforts to address unsold housing.

It is worth noting that the Central Political Bureau meeting on September 26 was the first to propose "promoting the stabilization of the real estate market." The subsequent Central Economic Work Conference has added emphasis on "continuing efforts to promote stabilization."

"This indicates that the central government is resolute in achieving stabilization in the real estate market and has prepared sufficient policy tools," said Yin Zhongli, a counselor at the State Council and director of the Real Estate Finance Research Center at the Chinese Academy of Social Sciences.

Li Yujia, chief researcher at the Housing Policy Research Center of Guangdong Urban Planning Institute, also believes that the reiterated call for "stabilization" signifies that the foundation for stabilization needs to be further solidified. The phrase "continuing efforts to promote" suggests that further incremental policies will be introduced to create a cumulative policy effect.

Regarding potential policy directions for next year, Ming Ming, chief economist at Citic Securities, believes that under the requirement to "stabilize the real estate market," subsequent policies in finance and fiscal areas are likely to be further intensified, such as lowering mortgage and provident fund loan rates, increasing purchasing efforts, and optimizing financing conditions for real estate companies.

Furthermore, regarding the call to "enhance the implementation of urban village and dilapidated housing renovations," Chen Wenjing, policy research director at the China Index Academy, noted that this has become one of the key measures under the goal of "stabilizing the real estate market." The Ministry of Housing and Urban-Rural Development has already clarified the implementation of 1 million urban village and dilapidated housing renovations, and the continued emphasis on "enhancing implementation" suggests that the scale of such renovations may continue to increase, with an overall strengthening of efforts. It is expected that various regions will combine monetary compensation with housing vouchers, purchasing unsold housing as a means of resettlement, and further enhance the use of housing vouchers through subsidies and incentives, which will help accelerate the pace of urban village renovations and have a practical boost to new housing sales by 2025.

Deepening Capital Market Reforms to Strengthen Investment and Financing Coordination

The Central Economic Work Conference explicitly addressed two aspects of the capital market: stabilizing the stock market and deepening comprehensive reforms in investment and financing within the capital market, aiming to eliminate barriers to the entry of medium- and long-term funds and enhance the inclusiveness and adaptability of the capital market system.

The stock market plays a crucial role in financial operations, impacting innovation capital formation, supporting industrial transformation and upgrading, enhancing social wealth management, and stabilizing societal expectations. Li Qiuxing, chief strategist at CICC, stated that stabilizing the stock market not only helps directly enhance household wealth effects but also boosts demand, particularly in terms of household consumption capacity and willingness. Furthermore, it improves the investment and financing environment for listed companies, facilitating economic transformation and upgrading, thereby enhancing both domestic and global investor confidence in the Chinese market.

To stabilize the stock market, it is essential not only to enhance the inherent stability of the capital market through incremental policies but also to deepen reforms that better coordinate investment and financing functions. Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), previously outlined three requirements for the coordinated development of investment and financing at the Financial Street Forum: achieving overall balance in quantity, continuous improvement in quality, and effective checks and balances in responsibilities.

In terms of achieving quantitative balance, the capital market has previously focused heavily on investment-side reforms, not only expediting the implementation of guidelines for medium- and long-term funds entering the market but also promoting the development of equity public funds and employing targeted measures to address obstacles faced by medium- and long-term funds. This includes supporting policies for stock repurchases and increasing shareholding loans to introduce incremental funds into the A-share market.

Reports indicate that the CSRC is currently developing a comprehensive implementation plan for further deepening capital market reforms, aiming to create robust mechanisms for enhancing the high-quality development of listed companies and strengthening the inherent stability of the market.

Li Xiao, deputy director of the Capital Market Regulation and Reform Research Center at Central University of Finance and Economics, believes that comprehensive reforms in investment and financing may lay a solid foundation for coordinated development. Recommendations include enhancing transparency in information disclosure, optimizing financing tools, enriching financing methods, strengthening investor education and protection, and improving the regulatory system to prevent financial risks.

The Central Economic Work Conference also mentioned strengthening the construction of national strategic technological capabilities, improving the multi-tiered financial service system, cultivating patient capital, and attracting more social capital to participate in venture capital, nurturing innovative enterprises gradually.

It is reported that the CSRC will further improve systems such as equity incentives and focus on nurturing patient capital, utilizing various tools such as stocks, bonds, and futures, and enhancing support policies for venture capital and private equity investment. This aims to guide investments that are early-stage, small-scale, long-term, and focused on hard technology, thereby supporting the development and growth of high-quality innovative enterprises, which is crucial for the transformation and long-term development of China's economy.

Strong Support for High-Quality Development of Various Business Entities

The Central Economic Work Conference outlined plans to deepen and elevate the reform of state-owned enterprises (SOEs), introduce the Private Economy Promotion Law, conduct special actions to standardize law enforcement against enterprises, and implement 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 for the new round of SOE reforms, and achieving high-quality reform outcomes will manifest in the positive progress made by state-owned assets and enterprises in enhancing technological innovation, constructing industrial systems, serving national security, and deepening institutional reforms.

"According to the plan, SOEs must widely implement systems for ranking adjustments and the exit of underperforming personnel, and significant progress must be made in building boards for central enterprises and their secondary subsidiaries," Hu stated.

Next year, the revenue share of strategic emerging industries within central enterprises is expected to reach 35%. Zhou Lisha, research director at Tsinghua University's Institute of Modern State-owned Enterprises, believes that central enterprises will adopt more proactive and in-depth measures in advancing the construction of listing platforms and continuing to inject assets to improve quality and efficiency.

The rule of law is the best business environment. China's first foundational law specifically regarding the development of the private economy—the "Promotion Law for the Private Economy of the People's Republic of China"—has concluded its public opinion solicitation. Analysts believe that the enactment of the Private Economy Promotion Law will further optimize the environment for private economic development, ensuring that all types of economic organizations can compete fairly in the market.

In terms of strictly regulating law enforcement against enterprises, the deputy director of the National Development and Reform Commission, Zheng Bei, recently stated that administrative law enforcement will adopt a more inclusive and cautious regulatory approach to minimize the impact on normal production and business activities. This includes standardizing cross-regional administrative law enforcement actions and establishing a sound system for administrative law enforcement assistance to prevent selective and opportunistic enforcement.

Tian Xuan, director of the National Financial Research Institute at Tsinghua University, noted that with the introduction of various laws and regulations aimed at creating a rule-based business environment, regional restrictions, administrative interventions, and market protections will gradually be dismantled. The construction of a unified national market is accelerating, and the basic systems for market access, fair competition, and property rights protection are continuously improving, which will facilitate the flow of factors and resources, enhance the standardization and transparency of market transactions, and further improve market efficiency.

Small and micro enterprises are the mainstay of employment absorption. "With the continued optimization of the environment for the development of the private economy, the operational risks of small and micro enterprises are gradually decreasing, creating a relatively stable internal operational foundation for these entities to absorb employment," said Zhang Yuejia, president of Zhaopin Recruitment Group. With more supportive policies for enterprises, small and micro enterprises will have more resources and energy to focus on production operations and talent recruitment, effectively enhancing their capacity and willingness to create jobs.