Former econ official exhorts confidence in recent policymaking
Dong Yu sheds light on how Beijing frames its recent economic stimulus.
The much-anticipated press conference by the Ministry of Finance concluded on Saturday, and China’s stock markets responded positively on Monday. With that in mind, it seems like an opportune moment to reflect on the unexpected policy developments since late September — through the perspective of someone with in-house experience in the Chinese government.
Today’s newsletter features an article from the state-run China News Service by Dong Yu, Executive Vice Director of the China Institute for Development Planning at Tsinghua University, and former Deputy Director-General of the Second Economic Bureau of the Office of the Central Commission for Financial and Economic Affairs.
Dong offers an insider’s perspective on how Beijing has been framing its recent policies, connecting the dots in a way that may be unfamiliar to outsiders. He asserts there is no “information cocoon” in China’s economic policymaking, emphasizing that authorities have been closely monitoring the economic pulse. Without elaborating, he suggests that the timing for bold actions came in September (possibly hinting at the Fed’s rate cuts?). Dong acknowledges that some policy directions may seem “vague” at present, but highlights the strong coordination already visible among various government departments. He remains firm in his belief that the Private Economy Promotion Law, currently open for public consultation, will significantly boost confidence in the private sector.
Looking ahead, Dong predicts several specific policy measures, and given his track record, there’s little reason to doubt him. He notes that the implementation plan for a new round of fiscal and tax system reforms, promised in the Third Plenary Session [of the 20th Central Committee of the Communist Party of China] Resolution in July 2024, has “been under discussion for some time and may be accelerated.” Additionally, he hints that “the housing authorities will soon introduce specific policies to stabilize the real estate market.”
In his recommendations, Dong calls on government departments to actively create opportunities in various sectors, citing the much-touted “low-altitude economy.” Zheng Yongnian, a prominent Chinese intellectual, recently commented: “The low-altitude economy is not new. It always existed but wasn’t allowed by policy. Now that it’s permitted, there’s rapid development. There are many similar sectors, such as biomedicine, the internet, and AI. Once the government allows them and reforms follow, vitality is instantly released.”
Dong also addressed a growing concern in China’s private sector: local governments engaging in “profit-driven law enforcement.” With local government finances increasingly strained, some have resorted to using “law enforcement” as a tool to extract money from businesses, often outside their jurisdictions — a practice now colloquially known as 远洋捕捞 “long-range fishing.” Rather than advocating for empowering individuals through the courts to challenge such cross-regional law enforcement, Dong sticks to the traditional Chinese approach: higher-level government oversight to rein in local abuses.
In closing, Dong made an unusual appeal, urging Chinese entrepreneurs who have left the country in recent years to return. Though he did not mention any names, this reflects a rare acknowledgment of the exodus of China’s wealthy and the erosion of business confidence in recent years.
为什么可以对增量政策有信心
Why Can We Have Confidence In Incremental Policies
From September 24 to October 12, China’s macroeconomic regulation achieved a milestone in its execution. This effort followed a “2+3+1” framework, consisting of two meetings (the Politburo meeting on September 26 and the State Council executive meeting on September 29), three press conferences, (the financial regulators on September 24, the National Development and Reform Commission on October 8, and the Ministry of Finance on October 12), and one law (the Private Economy Promotion Law). At this point, it is necessary to conduct a phased summary to give everyone a comprehensive understanding of the central government’s deployment and considerations. More importantly, through analyzing the structure and mechanisms of the policies, it is essential to clarify the internal logic of the “package of incremental policies” to genuinely boost the confidence of investors and the market.
1. There should be no doubt about the determination to drive the economy toward recovery.
A considerable number of policies have already been introduced, and while more will undoubtedly follow, the government’s stance has been unequivocal.
None of these policy measures were suddenly prepared in September. Following the pandemic, the economic recovery in the first quarter of 2023 showed a positive trend, but problems emerged in the second quarter, prompting relevant government departments to implement a series of measures in the third quarter to stabilize and promote recovery. The first quarter of this year also started well, but it’s important to note that during the Politburo’s economic review [meeting] on April 30, it was emphasized that “the continued recovery of the economy still faces many challenges,” signaling a preparedness for potential fluctuations. By the mid-year [Politburo] meeting on July 30, it was explicitly stated that “macro policies should continue to be forceful and more impactful,” with the additional requirement to “make reserve of and timely introduce a batch of incremental policy measures,” thus coining the term “incremental policies.” The departments in charge of the economy have been closely monitoring and observing the economic dynamics, dispelling the notion of an “information cocoon” which is often imagined by non-professionals. All of these policies were prepared based on thorough observation and careful argumentation, with the key factor being the timing of their implementation. This timing arrived in late September. Once the moment came, the central government immediately convened meetings for deployment, with no hesitation or delay — a clear signal in itself.
The package of measures reflects the responsibility and action of the economic departments. This time, several departments indeed made their utmost efforts within their scope of responsibilities. The statements from the financial regulators, along with the new initiatives introduced, ignited market enthusiasm because investors believed that these measures were sufficiently strong and effective. The NDRC’s comprehensive measures were designed to convey a complete implementation plan for five key areas, including some topics that may not draw much market attention but are essential for long-term development, such as consistency evaluations of macro policy directions and new urbanization initiatives. Notably, the NDRC took a firm stance on issues that economic departments do not typically address, such as “illegal law enforcement in other regions”[within China] and “profit-driven law enforcement,” which deserves praise. The Ministry of Finance did not mention specific figures, aligning with the judgment in our October 10 article that “‘X trillion’ will definitely happen, though some aspects may still need to go through statutory procedures.” However, this does not indicate uncertainty but rather the opposite — it reflects the clear direction and attitude, as the ministry’s stance gives the market substantial backing for speculation. Many policies also showcase the internal coordination between government departments, as the NDRC already mentioned “supporting large state-owned commercial banks to replenish core Tier 1 capital,” while the Ministry of Finance detailed how to “actively raise funds through the issuance of special government bonds to steadily support state-owned commercial banks in further increasing core Tier 1 capital.” This demonstrates the consistency in policy signals.
The sequence of press conferences reflects the logic of systematic advancement. The three press conferences do not represent the entirety of policy announcements. The five measures presented by the NDRC at the October 8 press conference essentially laid out the basic framework for the package of incremental policies, serving as a headquarters deployment plan. The NDRC, based on its functions, emphasized macroeconomic regulation and the expansion of effective demand, the Ministry of Finance highlighted its role in fiscal policy within these five areas, and the financial regulators focused on financial policies and boosting capital markets. The upcoming press conference by the State Administration for Market Regulation on October 14, themed around support for businesses, clearly serves as a detailed implementation of the third measure from the five-point plan. It is highly likely that the housing authorities will soon introduce specific policies to stabilize the real estate market. Collectively, this illustrates a systematic approach of combining central and distributed actions, advancing step by step, with each press conference being planned and deliberate. Therefore, while some policy directions may currently seem “vague,” specific implementation measures will undoubtedly follow in the next steps.
2. The core of the package of incremental policies is to address the prominent issues facing China’s economy.
Confidence doesn’t fall from the sky — only by solving problems can it be enhanced. If we analyze the package of incremental policies from a technical standpoint, we can see a clear problem-oriented approach. The truly professional way forward is to systematically review the summaries from recent central meetings regarding the issues in economic operations and see how the economic departments have responded with countermeasures. This way, we can go beyond the stock market thinking favored by financial circles or the specifics of regulatory policies and instead grasp the broader outline of this round of macroeconomic regulation.
First, addressing the issue of insufficient effective demand. This has consistently been identified as the foremost issue in China’s domestic economy across multiple meetings. The significant focus on “two new” [Promoting Large-scale Equipment Renewals and Consumer Goods Trade-ins] and “two key” [implement major national strategies and build up security capacity in key areas] policies in the incremental measures is aimed at tackling this problem. From the perspective of the “two new,” it’s rare to see the Central Commission for Financial and Economic Affairs directly implement economic policies like equipment upgrades and replacing old consumer goods with new ones, highlighting these as key focal points. Many policies have already been introduced this year, and the emphasis is on seeing tangible results in driving consumption and investment. From the perspective of the “two key,” according to reports, the ultra-long-term special bonds were already planned at the December 2023 Central Economic Work Conference, and the implementation this year has been relatively swift. The NDRC’s role is to clarify the project list, while the Ministry of Finance accelerates fund disbursements, with a clear advance deployment. Our assessment is that this is the primary focus of economic work, the main lever for expanding domestic demand, and the pace of its implementation will further accelerate, providing fundamental support in areas such as stabilizing employment and promoting income growth.
Second, addressing the expectations of private enterprises. During the consultation on the Private Economy Promotion Law on October 10, some raised questions, such as why certain “common sense” provisions were written into the law. The reason is simple: these “common sense” provisions need to be codified because, in the past, they were either not implemented or not adequately enforced. If we review the Third Plenary Session [of the 20th Central Committee of the Communist Party of China] Resolution [in July 2024] on “improving the fundamental systems of a market economy,” it’s clear that the most pressing concerns of private entrepreneurs have been addressed, particularly regarding property rights protection, which has shifted from 依法平等保护 “legal equal protection” to 依法平等长久保护 “legal, equal, and long-term protection” to reassure entrepreneurs. Shortly after the Third Plenary Session, opinions on market access were released, further sending signals. The People’s Bank of China’s recent financial support for small and micro enterprises is another positive move, and we expect more specific measures to be announced at the October 14 [State Administration for Market Regulation] press conference. Our view is that these efforts directly address the most critical concerns of private enterprises and accelerate the introduction of fundamental laws, demonstrating genuine intent.
Third, resolving local government debt issues. Without addressing this issue, the economy cannot effectively circulate. The signals released by the Ministry of Finance have been positively received, and it’s believed they will have a favorable impact on debt reduction. Many specific analyses have already been conducted, and the Ministry of Finance has clearly stated that the accounts of all budgetary units and grassroots financial operations nationwide are transparent. It’s worth noting that the implementation plan for the new round of fiscal and tax system reforms has been under discussion for some time and may be accelerated. In other words, even within the fiscal and taxation field, a combination of short- and long-term measures is being used to address current challenges while establishing a long-lasting new system to eliminate the root causes of these issues. We must also recognize that the “fiscal expansion” that the market is concerned about is not just to meet debt reduction needs but also to serve as a crucial method for adding value to economic work. Minister of Finance Lan Fo’an has stated that the central government still has considerable room for increasing debt and deficit levels, and it’s important to focus on the word “considerable.” Of course, determining the deficit rate requires following the proper procedures, and we shouldn’t be too anxious. Since we introduced the concept of “X trillion,” it has reportedly become somewhat of a meme, but what we implied was that the scale and pace of macroeconomic regulation can remain flexible, depending on the state of the economy.
We remain confident in the strength of the upcoming regulatory policies. Anyone who believes there’s not much left in the “ammunition box” clearly doesn’t understand macroeconomic policy.
Fourth, resolving the real estate market issue. Around the core principle of “stopping the decline and stabilizing,” all three press conferences provided specific explanations, and there were clear measures for several key areas. Judging by the assessment from real estate companies, these measures have generally been well-received. We believe that more detailed regulatory measures for the real estate market will be proposed in the next steps. When discussing real estate, we cannot avoid the issue of population, which, although a long-term issue, is closely intertwined with many short-term strategic decisions. In this regard, the government has also addressed the issue of “the elderly and children,” such as supporting and regulating the development of elderly care and childcare industries by the private sector and accelerating the improvement of the fertility support policy system, reflecting the government’s high level of attention. We once again remind everyone to pay close attention to urbanization; a five-year action plan was recently launched, which will also provide a degree of support to the real estate market.
Fifth, resolving issues in the stock market. Extensive analysis has already been conducted regarding boosting the stock market. We do not wish to comment too much on the stock market, but one key point is that all macroeconomic regulation is not solely for the stock market itself. The key to alleviating stock market “anxiety” and changing the mindset of “make a profit and leave” or “sell once you break even” is the fundamental economy. All the issues mentioned above represent the bottlenecks the economic departments are working hard to address. These problems are difficult, and some may not be resolved in one stroke, but at the very least, there has been no avoidance this time. The government is determined to face and resolve these issues, and the determination and consensus this time, from top to bottom, is the greatest source of confidence. Once these fundamental issues in the economy are addressed, healthy economic growth will undoubtedly reflect in the long-term health of the stock market.
3. Suggestions for the next steps
As we have mentioned, more incremental policies are on the way. After the initial announcements by the macroeconomic departments, other government departments and local governments will certainly follow suit, and there will undoubtedly be real financial support. We can remain optimistic about the upcoming policies. I have a few personal suggestions:
First, pay attention to listening to the market’s voice. The interaction between the policy package and public opinion is a rare and valuable experience. Going forward, I suggest that expectation management be placed at the forefront of macroeconomic governance. Fiscal, financial, industrial, employment, investment, and consumption policies should all revolve around managing expectations. Policies should be designed and introduced by considering the perspective of the “policy demand side.” According to the new requirements of the consistency evaluation of macro policy orientation, during policy implementation, market feedback should be collected regularly, and adjustments and improvements should be made accordingly. I suggest that relevant departments strengthen communication with the market by addressing market concerns directly, dispelling uncertainties, and continuously enhancing market confidence in policies.
Second, actively create “windows of opportunity” in economic work. The government should present more opportunities like the “low-altitude economy.” In the future, relevant departments should combine the promotion of new-quality productive forces with the deliberate introduction of new industries and concepts that have not been mentioned before, creating new “points of stimulation” and “points of excitement” for economic work. This is not only necessary to accelerate industrial transformation and upgrading and build a modern industrial system, but also an important way to guide the flow of market elements and point capital in the right direction. Industrial policy should gradually shift from focusing on industries themselves to serving enterprises, nurturing more unicorns and gazelle companies to set good examples and encourage faster growth among other enterprises.
Third, focus on stabilizing sentiment. One important standard for evaluating the incremental policies is how they are implemented. This requires focusing on concrete cases. I suggest conducting a “law enforcement against illegal law enforcement” campaign: if anyone dares to engage in profit-driven “offshore fishing” [cross-regional law enforcement against companies and entrepreneurs] that goes against central government policies, they should be severely punished to create a deterrent effect. Local governments should take action to solve the real difficulties faced by business entities. For entrepreneurs who have left China in recent years, they should be welcomed back and shown that there are still many opportunities for development in China, and that the environment is still inclusive, encouraging them to continue contributing to the country’s development.