China plans 2023 economy out of COVID's shadow
Takeaways from the December Politburo meeting readout on the Chinese economy.
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The Politburo of the Central Committee of the Communist Party of China (CPC) holds a monthly meeting. Every December, the Politburo meeting focuses on two subjects - the next year’s work on the economy and of the Central Commission for Discipline Inspection, the CPC’s disciplinary inspection and supervision arm. Every July, the Politburo meeting also focuses on the mid-year economy.
Therefore, the readout of the December Politburo meeting offers the earliest official clue on China’s priorities for economic development next year. (Following December Politburo meetings, the CPC holds the annual Central Economic Work Conferences that will offer more detailed accounts.)
On Wednesday, December 7, Xinhua, China’s official news agency, published the readout of the December Politburo meeting held on Tuesday, December 6. Below are some takeaways, plus a translation.
OUT OF COVID’S SHADOW
As China recently signals a new phase of COVID control, the readout mentions COVID only twice and briefly, where China will 更好统筹疫情防控和经济社会发展 “better integrate epidemic prevention & control and economic & social development” and 优化疫情防控措施 “optimize epidemic prevention and control measures.”
That is a striking difference from the July 2022 Politburo meeting readout, which dedicated an entire paragraph on COVID and vowed adherence to the 动态清零 “dynamic zero COVID” policy and 出现了疫情必须立即严格防控 “the emergence of an epidemic must be immediately brought under strict prevention and control.”
Last year’s December Politburo meeting readout said China would 坚持“外防输入、内防反弹” “insist on preventing inbound cases and domestic resurgences” of COVID, and 科学精准扎实做好疫情防控工作 “solidly conduct COVID control and prevention work in a scientific and precise way.”
ELEVATING CONSUMPTION IN ECONOMY
Following the report to the 20th National Congress of the CPC in late October, the latest readout says China will 把实施扩大内需战略同深化供给侧结构性改革有机结合起来 “make sure that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform.”
That was one of the major economic strategy shifts from the CPC’s 20th National Congress, as told by Vice Premier Liu He in the People’s Daily, the CPC flagship newspaper. Liu wrote that
The report of the 20th Party Congress proposed to "make sure that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform." This is a major strategic initiative of the Party Central Committee based on the changes in the development environment at home and abroad and the mission and tasks of the CPC in the new era and new journey.
Previously, the emphasis was 供给侧结构性改革 supply-side structural reform. So the shift means 扩大内需 expand(ing) domestic demand is now on par with supply-side structural reform.
A bit later in the text, the readout says
We should focus on expanding domestic demand and give full play to the foundational role of consumption and the key role of investment.
The statement of the “foundational role of consumption” likely suggests a bigger emphasis on consumption. Seasoned watchers of the Chinese economy know that there is a view that China’s investment-driven economy is extreme and unsustainable, and influential economists have been advocating a shift.
MORE FORCEFUL IN GOVT SPENDING & MONEY SUPPLY
The readout says China will 继续实施积极的财政政策和稳健的货币政策 “continue to implement proactive fiscal policy and prudent monetary policy,” which is the same as December 2021.
The difference is in their respective - but also brief - elaborations
2022
积极的财政政策要加力提效，稳健的货币政策要精准有力
The proactive fiscal policy should be more forceful and effective, and the prudent monetary policy should be targeted and forceful.
2021
积极的财政政策要提升效能，更加注重精准、可持续。稳健的货币政策要灵活适度，保持流动性合理充裕。
The proactive fiscal policy should enhance its effectiveness and emphasize more on precision and sustainability. The prudent monetary policy should be flexible and moderate, and maintain a reasonable abundance of liquidity.
This may be too subtle, but it’s more likely than not that Beijing seems willing to spend and print more to aid the economy.
Recently, there are following developments:
The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio for banks by 25 basis points (bps), effective from Dec. 5, freeing up about $70 billion in lending.
China's local governments accelerated special bonds issuance in October.
Chinese media reported that the central government had already notified local governments of their respective amount of local govt special bonds for 2023; the amount is bigger, and funds raised from the bonds must be released to actual projects in the first half of 2023.
ATTEMPT TO STIMULATE CONFIDENCE & VITALITY
The readout says China will 全面深化改革开放，大力提振市场信心 “comprehensively deepen reform and opening up and vigorously boost market confidence,” addressing the apparently insufficient and waning confidence in the economy.
The readout says
要切实落实“两个毫不动摇”，增强我国社会主义现代化建设动力和活力。要推进高水平对外开放，更大力度吸引和利用外资。
We shall effectively implement the "two unwavering", to enhance the momentum and vitality of our socialist modernization. We shall promote a high level of openness to the outside world and greater efforts to attract and use foreign investment.
As seasoned China watchers know, the “two unwavering” is the CPC’s way of reiterating its support for the private sector. Sometimes put as “two unswervingly,” it is a CPC set phrase for
毫不动摇巩固和发展公有制经济，毫不动摇鼓励、支持、引导非公有制经济发展
unswervingly consolidate and develop the public sector and unswervingly encourage, support, and guide the development of the non-public sector.
Toward the end of the part on the 2023 economy, the readout says
要坚持真抓实干，激发全社会干事创业活力，让干部敢为、地方敢闯、企业敢干、群众敢首创。
We must persist in working hard, stimulate the entrepreneurial vitality of all social officers, and enable cadres to be bold, local authorities to be bold, enterprises to be bold, and the masses to be bold.
AIM FOR OVERALL IMPROVEMENT OF ECONOMY
In March, Beijing officially set a 5.5% GDP growth target in 2022, and by all accounts, the goal is now out of touch.
China Macroeconomy Forum, hosted at the prestigious Renmin University of China and made up of influential economists, released a recent report that predicted a 3.3% growth for 2022 and advocated setting a 5% growth target for 2023. They say 5% will be difficult to reach but setting a high target inspires more supportive policies.
The wording in the readout is
推动经济运行整体好转，实现质的有效提升和量的合理增长
Promote the overall improvement of the economic operation, achieve effective improvement in quality and reasonable growth in quantity
Notably, the readout didn’t mention the real estate industry or the “platform economy” (the Internet industry), the two sectors previously under heavy scrutiny.
Finally, a translation of the part in the readout on the 2023 “economic work”
The meeting emphasized that next year will be the first year of comprehensively implementing the spirit of the 20th National Congress of the Communist Party of China. To do a good job in next year's economic work, we should take Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guide, fully implement the spirit of the 20th Party Congress, solidly promote the Chinese path to modernization, adhere to the general principle of striving for progress while maintaining stability, fully, accurately, and comprehensively implement the New Development Concept, speed up the construction of the New Development Paradigm, focus on promoting high-quality development, better coordinate epidemic prevention & control and economic & social development, better coordinate development and security, comprehensively deepen reform and opening up, and vigorously boost market confidence. We should better integrate epidemic prevention & control and economic & social development, give prominence to the work of stabilizing growth, employment, and prices, effectively prevent and resolve major risks, promote the overall improvement of the economic operation, achieve effective improvement in quality and reasonable growth in quantity, and make a good start for building a socialist modernized country in an all-round way.
The meeting pointed out that next year, we should adhere to the principle of ensuring stability and seeking progress based on stability, continue to implement a proactive fiscal policy and a prudent monetary policy, strengthen the coordination of various policies, optimize epidemic prevention and control measures, and facilitate joint forces joint force to contribute to promoting high-quality development. The proactive fiscal policy should be more forceful and effective, and the prudent monetary policy should be targeted and forceful. The industrial policy should uphold development and security simultaneously. The science and technology policy should focus on self-reliance and self-improvement. The social policy should hold the bottom line of people's livelihood firmly. We should focus on expanding domestic demand and give full play to the foundational role of consumption and the key role of investment. It is necessary to speed up the construction of a modern industrial system and improve the resilience and safety of the industrial chain and supply chain. We shall effectively implement the "two unwavering" to enhance the momentum and vitality of our socialist modernization. We shall promote a high level of openness to the outside world and greater efforts to attract and use foreign investment. It is necessary to effectively prevent and resolve major economic and financial risks and keep the bottom line that systemic risks do not occur.
The meeting stressed that it is necessary to strengthen the Party's overall leadership over economic work, comprehensively study, grasp, and implement the spirit of the 20th Party Congress, and improve the implementation mechanism of major decision-making arrangements of the CPC Central Committee. We must persist in working hard, stimulate the entrepreneurial vitality of all social officers, and enable cadres to be bold, local authorities to be bold, enterprises to be bold, and the masses to be bold. It is necessary to make overall plans to ensure the supply and price stability of important goods for livelihood and the supply and transportation of coal, electricity, oil, and gas transportation, care for the production and life of people in need, ensure the payment of wages for migrant workers, pay close attention to safety in production and disaster prevention and mitigation, and maintain social harmony and stability.
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