Former econ official says "trillions" to come, but be patient
Dong Yu says the policies announced so far are only the beginning and asks observers to take a holistic view.
Dong Yu, Executive Vice Director of China Institute for Development Planning, Tsinghua University, near midnight of October 9 in Beijing, published a piece via the state-run China News Service.
Dong was previously Deputy Director-General of the Second Economic Bureau of the Office of the Central Financial and Economic Affairs Commission and, before that, an official at China’s National Development and Reform Commission (NDRC), which held a press conference on October 8.
Astute China watchers will likely recall a recent instance where Dong spoke out.
On July 18, the day that the Third Plenary Session of the 20th Central Committee of the Communist Party of China concluded, Beijing, as usual, released a communique. The communique did not include a reference that Beijing will see “the market plays the decisive role in resource allocation,” a statement that was adopted in 2013 and, after 10 years, a standard Party-speak.
The omission immediately raised suspicions.
Dong, at the time already employed at the Tsinghua University institute away from the government, intervened, also via China News Service, on the next day July 19 to say that the communique, traditionally a shorter document than Resolutions out of plenary sessions, simply didn’t have enough space to include the statement, and then upcoming Resolution, not yet published at the time, will almost surely include it.
On July 21, the Resolution was published and indeed included “We will see that the market plays the decisive role in resource allocation.”
So, in addition to his significant Chinese government background, there is a recent case where Dong publicly intervened and foretold what would come.
Below is a translation of Dong’s article on October 9. All emphasis is his.
对增量政策，要有信心
Have confidence in incremental policies
Currently, China’s economy is at a critical juncture. There are many interpretations of the “comprehensive incremental policy package.” Some are superficial, some lack professionalism, and some even misinterpret the policy. It is necessary to clarify these misunderstandings and guide people to correctly understand the spirit of the economic work.
Firstly, the “comprehensive incremental policy package” is a systematic deployment at the macro level. The press conference held by the National Development and Reform Commission (NDRC) on October 8 essentially reflects the core content of the State Council executive meeting held on September 29. After the [October 1-7] holiday, it was modified based on the meeting’s spirit and presented as a comprehensive plan to the public. Its starting point is to implement the spirit of the Central Politburo meeting on September 26, proposing a complete policy framework to address the current economic situation. It should not be considered merely a specific introduction to the work of a single government department. The five areas of policy measures are interconnected. The overall requirement is macroeconomic regulation and counter-cyclical adjustment, with expanding domestic effective demand as the main focus. Strengthening support for enterprises is aimed at creating a favorable environment. Stabilizing the real estate market is about addressing the biggest risk, and boosting the capital market is key to managing expectations. Some policies first outline the direction, then responsible departments provide detailed measures. Therefore, interpreting the October 8 press conference purely from a technical policy perspective can lead to a biased view.
Secondly, macroeconomic regulation is not just about fiscal and monetary policies. China’s macroeconomic governance follows a “1+2+6” framework: national development planning as a strategic guide, fiscal and monetary policies as the main tools, supported by policies related to employment, industry, investment, consumption, environmental protection, and regional development. Policies in finance come out first, and other areas follow. Market observations of macroeconomic regulation often focus on analysis from financial institutions, which speak out often, as most analysts lack direct experience in macroeconomic regulation, which limits their views to the financial sector. However, at the macro level, the issues to consider are much more complex. For example, the requirement for consistency in macro policy evaluation now extends throughout the entire process of policy formulation and implementation, not just before policy release. This is a significant change, meaning there is now more room for policy correction, and judgment and adjustment of policies will be more closely tied to actual outcomes.
Thirdly, policy evaluation should not be limited to numbers. Some policies are quantifiable, while others are not. Terms like “X trillion yuan” are catchy and appealing, with people often hoping for higher figures, but such policies have specific applicability and cannot be the sole focus of every press conference. Economic policy is not just a numbers game. Some analysis that play on numbers, raising expectations deliberately and then claiming the result is “below expectations,” are tactics used by bearish speculators to manipulate markets and profit by stirring up emotions. This should be called out. Of course, policymakers should also consider market sentiment and adopt the perspective of “policy demanders” when determining the strength, timing, and steps of policy releases. We believe that the incremental policies will include new inputs, and “X trillion yuan” will certainly materialize, though some may still need to go through legal procedures. Everyone should remain patient and not be swayed by market manipulations.
Fourthly, one should focus on key breakthrough policies. Some policies can directly mobilize large amounts of capital, while others, although not involving direct financial input, are extremely valuable. For example, regarding the business environment for the private sector, this time there was an emphasis on addressing issues such as “illegal cross-regional law enforcement” and “profit-driven law enforcement,” which are prominent concerns among entrepreneurs. The central authority now did not avoid these issues but instead stated that “inspections will be conducted when necessary,” clearly showing its stance. It is expected that the 民营经济促进法 Law on the Promotion of the Private Economy will be accelerated [now available for public consultation], marking a significant event that will have an economic impact no less important than the “X trillion yuan.” Similarly, new urbanization is a topic that the government values but market entities do not pay much attention to. Although urbanization may no longer drive growth as strongly as it did in the past, the settlement of 170 million people will still significantly support real estate, investment, and consumption. This is a major move in economic work, and currently, there is a noticeable lack of professional analysis on this.
Fifthly, more incremental policies are on the way. The press conference held by financial departments on September 24 was the starting signal for this round. The Politburo meeting on September 26 issued a general mobilization order. The State Council executive meeting on September 29 made systematic arrangements, and the NDRC press conference on October 8 introduced the comprehensive policy package. When looking at these meetings, one must consider them in context rather than in isolation. It can be clearly said that this is only the beginning, signaling the central authority’s overarching message on economic work. In the future, various departments will certainly introduce policies favorable to economic recovery based on their respective responsibilities. Likewise, local governments will quickly follow up, turning the central government’s decisions into conscious local actions, and prioritizing the promotion of sustained economic recovery as the top task. Concerns such as local government debt risks will also be gradually addressed through strong measures. Therefore, the strength and continuity of subsequent policies can be anticipated.
Based on the economic performance in the fourth quarter, the Central Economic Work Conference in December will also make plans for the following year’s economic work, which is equally worth anticipating. Importantly, next year is also the year for drafting the “15th Five-Year Plan.” In conjunction with the needs for long-term development, many major projects, initiatives, and policies will be launched. The close combination of short-term and long-term goals is a key feature of China’s economy, and the “incremental” boost from the 15th Five-Year Plan will be an important pillar for stabilizing and improving China’s economy in the next phase. In analyzing economic work, we must consider such time points to grasp trends.
