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It's the economy - July Politburo meeting readout
Full translation, context, and notes.
Typically, the Political Bureau of the Communist Party of China (CPC) Central Committee holds one meeting every month and in recent years, the meeting every July is about the economy. This month is no exception.
I am sharing the translation of the readout just published by Xinhua and add some notes in between.
The Political Bureau of the Communist Party of China (CPC) Central Committee convened a meeting, analyzing and studying the current economic situation and economic work. General Secretary of the CPC Central Committee, Xi Jinping, presided over the meeting
On July 24th, the Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting to analyze and study the current economic situation and to deploy economic work for the second half of the year. The meeting was chaired by Xi Jinping, the General Secretary of the CPC Central Committee.
The meeting acknowledged that since the beginning of this year, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at the core, various regions and departments have better coordinated both domestic and international situations, pandemic prevention and control, economic and social development, as well as development and security. As a result, the national economy has steadily recovered and improved, with high-quality development solidly advancing. Industrial upgrading has accumulated strength, and food and energy security has been effectively ensured. The overall social situation has remained stable, laying a solid foundation for achieving the annual economic and social development goals.
The meeting pointed out that the current economic operation is facing new challenges, and they are mainly: insufficient domestic demand, difficulties in some enterprises' operations, multiple risks in key areas, and a complex and severe external environment. After a stable transition in pandemic prevention and control, the economic recovery has been a process of ups and downs. Nevertheless, the Chinese economy possesses great development resilience and potential, and its long-term positive fundamentals remain unchanged.
The last Politburo meeting on the economy was held on April 28, 2023. At the time, the meeting found “With macro policies well in place, the triple pressure of shrinking demand, supply shocks, and weakening expectations has been alleviated. The economic growth has exceeded expectations, market demand is picking up, economic growth is rebounding, and China's economy is off to a good start.”
Three months later, the readout is less optimistic: “pointed out that the current economic operation is facing new challenges, and they are mainly: insufficient domestic demand, difficulties in some enterprises' operations, multiple risks in key areas, and a complex and severe external environment. After a stable transition in pandemic prevention and control, the economic recovery has been a process of ups and downs.”
Beijing set its GDP growth target for 2023 at 5%, the lowest in a quarter century, which was widely seen as conservative. With disappointing economic numbers reported in recent weeks, Beijing believes “Beijing set its GDP growth target for 2023 at 5%, the lowest in a quarter century, which was widely seen as conservative. Against disappointing economic numbers reported in recent weeks, Beijing believes so far there is “a solid foundation for achieving the annual economic and social development goals” - en route to meeting the 5% target.
The meeting emphasized that to do well in the economic work for the second half of the year, it is necessary to adhere to the general principle of making progress while maintaining stability. It called for the comprehensive, accurate, and full implementation of the new development concept, the acceleration of the construction of a new development pattern, comprehensive deepening of reforms and opening-up, enhanced macro-policy regulation, and efforts to expand domestic demand, boost confidence, and prevent risks so as to continuously promote sustained improvement in economic performance, continuous enhancement of endogenous growth momentum, continuous improvement of societal expectations, and continuous resolution of risks and hidden dangers. The aim is to achieve qualitative and effective growth in the economy.
Note: Beijing put a high priority on confidence and expectations, saying in the following paragraph to “boost confidence” and to strive for “continuous improvement of societal expectations.” The joint document by the Central Committee of the Communist Party of China (CPC) and the State Council was clearly an attempt.
The meeting also stressed the importance of utilizing policy space and identifying areas of focus to promote high-quality economic development. It called for precise and effective macroeconomic regulation, strengthened countercyclical adjustments, and policy reserves. It emphasized the continuation of proactive fiscal policies and prudent monetary policies, the optimization and implementation of tax reduction and fee reduction policies, the use of both quantity and structural monetary policy tools to strongly support technological innovation, the real economy, and the development of small and medium-sized enterprises. Maintaining the basic stability of the renminbi exchange rate at a reasonable and balanced level was also highlighted, as well as invigorating the capital market to boost investor confidence.
Beijing says it will “enhance(d) macro-policy regulation” and dedicate an entire paragraph to it, starting by "stressing the importance of policy space and identifying areas of focus.” China in recent years prides itself on not resorting to significant stimulus - for close watchers, the last premier and other officials often talked about China adopting 大水漫灌 a deluge of massive stimulus policies. Theoretically, that leaves Beijing room for “utilizing policy space” such as, for example, cuts into interest rates and reserve requirement ratio (funds that banks must set aside with the central bank and thus not for lending).
In China, “quantity” policy refers to monetary policy, and “structural” refers to fiscal policies. Now both of them will be put to use.
“Maintaining the basic stability of the renminbi exchange rate at a reasonable and balanced level” in the readout could be read in the context that the Renminbi (RMB) ,or yuan, slid 4% against the USD by late June, at which time China reportedly intervened to shore up the Chinese currency.
“Invigorating the capital market to boost investor confidence,” the last sentence in this paragraph, will no doubt stimulate Chinese stock investors’ imagination that the government might do something about - or at least looks forward to - the flagging stock market. By late July, China's blue-chip equity index is down around 1% year to date, while the S&P 500 and Nasdaq are up 18% and 35%, respectively.
To stimulate domestic demand, the meeting called for harnessing the fundamental role of consumer spending in driving economic growth. This would be achieved through increasing household incomes to expand consumption and to final demand through increase through generating effective supply. The strategy of expanding domestic demand should be integrated with deepening supply-side structural reforms. The meeting also urged support for major consumer goods such as automobiles, electronic products, and home furnishings, as well as for service consumption in sports, leisure, culture, and tourism. Additionally, it emphasized a better role of government investment in driving economic growth, expediting the issuance and utilization of local government special bonds, and introducing policies to promote non-governmental investment. The meeting also emphasized the need to stabilize the foundation of foreign trade and foreign investment. Increase international flights and ensure the stable and smooth operation of China-Europe freight trains.
It’s comforting to see that Beijing recognizes that to “expand consumption,” the way is “through increasing household incomes.” The earlier policy statement of “improving conditions for consumption and creating consumption scenarios” were met with online comments that basically said people don’t buy stuff because they don’t have money, not because they couldn’t find a venue to spend.
“Automobiles, electronic products, and home furnishings,” and “sports, leisure, culture, and tourism” are mentioned specifically and should be understood that government restrictions on them would be relaxed.
Quite some Chinese big cities maintain purchasing restrictions for automobiles due to traffic reasons, and they were simply told to increase their quotas - the number of new cars allowed on their respective streets - based on their local conditions. 2023 is also the first year that direct subsidy to consumers for electronic vehicles disappears in China, although there is still the exemption of a purchase tax.
As a matter of fact, the National Development and Reform Commission several days have published measures for encouraging buying automobiles and electronic products respectively. However, no government subsidies were mentioned - a lot of “encouragement” in it, that is.
“Expediting the issuance and utilization of local government special bonds” is not new, as the Ministry of Finance has already said it.
On trade, a MOFCOM official said last week the second half of this year looks “extremely severe.” Outbound shipments from the world's second-largest economy slumped a worse-than-expected 12.4% year-on-year in June, data from China's Customs Bureau showed on Thursday, following a drop of 7.5% in May.
On investment, Beijing reported that foreign direct investment in the Chinese mainland in actual use fell 2.7 percent in the first half of 2023. The Wall Street Journal, on the other hand, reported in July that “Foreign direct investment in China fell to $20 billion in the first quarter of this year, compared with $100 billion in last year’s first quarter, according to an analysis of government figures by analyst Mark Witzke at research firm Rhodium Group. Goldman Sachs economists predict outflows from China this year will cancel out investment going into the country, a stunning change for a country that over the past four decades has consistently seen more money coming in than going out.”
Hence “the meeting also emphasized the need to stabilize the foundation of foreign trade and foreign investment.”
No need to interpret “Increase international flights and ensure the stable and smooth operation of China-Europe freight trains.”
Regarding industrial development, the meeting called for vigorous efforts to construct a modern industrial system, accelerate the development of strategic emerging industries, and create more pillar industries. The integration of the digital economy with advanced manufacturing and modern services should be promoted, along with the safe development of artificial intelligence. It also emphasized the need for platform enterprises to develop in a 规范（gui fan, orderly?), healthy, and sustainable manner.
EVs now sure look like a pillar industry. Can’t make much out of other sentences.
Continuing deepening of reforms and opening-up was underlined, as well as the “two unswervingly”. Efforts to enhance the core competitiveness of state-owned enterprises and optimize the development environment for private enterprises were stressed. The meeting also called for decisive actions to rectify arbitrary fees, fines, and levies (by the government), and to address the issue of government arrears to enterprises. Additionally, it emphasized the establishment of sound mechanisms for regular communication and exchanges with enterprises, encouraging them to take risks, make investments, and explore potential market opportunities. Support for pilot free trade zones and free trade ports in aligning with international high-standard economic and trade rules and advancing reform and opening-up was also highlighted. The Third Belt and Road Initiative (BRI) International Cooperation Summit Forum was called for to be organized well.
Most subscribers to this newsletter know “two unswervingly” is a code for encouraging private companies.
The “core competitiveness of state-owned enterprises” most likely will mislead people unfamiliar with government speak. It’s actually a veiled call for SOEs to make money through their core business, not to waste resources in, for example, expanding to areas that they are unfamiliar with.
The story behind “arbitrary fees, fines, and levies (by the government), and to address the issue of government arrears” is that the Chinese government, especially local ones, owes money to private companies. And private entrepreneurs usually have a difficult time cashing their checks because they can do little to push the government.
“the establishment of sound mechanisms for regular communication and exchanges with enterprises” means government leaders and executives of private companies will sit down together more often and regularly.
The head of the National Development and Reform Commission (NDRC), the key economic policy-making agency, met five private businesspeople on July 4 and five others on July 10. The commerce minister met executives of Japanese companies on July, 17, multinational corporations in the health industry on July 5, and U.S. companies on May 25. Premier Li Qiang, China’s No.2 official, met some major companies on July 12.
There was a recent development in “support for pilot free trade zones and free trade ports in aligning with international high-standard economic and trade rules and advancing reform and opening-up,” where several central ministries rolled out measures to “proactively align with rules” of the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP, which China has said will make its best effort to join.
The Third Belt and Road Initiative (BRI) International Cooperation Summit Forum is expected in the following months of 2023. The second one was held in April 2019, before COVID-19.
To mitigate risks in key areas, the meeting emphasized adapting to the new situation of significant changes in the supply and demand relationship in the domestic real estate market. It called for timely adjustment and optimization of real estate policies and targeted measures according to local conditions to better meet the rigid and improved housing needs of residents and promote the stable and healthy development of the real estate market. Efforts to increase the supply of affordable housing, promote the transformation of run-down neighborhoods and develop "permanent and emergency dual-use" public infrastructure were also highlighted, as well as effectively preventing and resolving local government debt risks through a comprehensive debt package plan. The meeting also called for strengthened financial supervision and steady reform of high-risk small and medium-sized financial institutions.
The flagging real estate is one of the main reasons for China’s lackluster economic recovery and the Politburo now recognizes “the new situation of significant changes in the supply and demand relationship in the domestic real estate market” and says China needs to “adapt to it.”
The adaptations are “timely adjustment and optimization of real estate policies and targeted measures according to local conditions to better meet the rigid and improved housing needs of residents and promote the stable and healthy development of the real estate market. “
That is to say, relax the purchasing restrictions in place over housing and allow the local governments to make their own decisions.
“Rigid” housing needs in China typically mean the need of a first-time buyer. Improved housing needs typically refer to someone who wants to buy a second - and bigger - apartment. So expect banks are instructed by financial regulators to extend more and easier credit to them.
Gone is the famous “housing is for living, not for speculation” statement from this readout. It appeared in the readouts of April 2023, July 2022, and April 2022. But that shouldn’t be read as Beijing now permitting speculation, but that restrictive policies on purchase and financing - mainly, bank credit for homebuyers - will be relaxed.
The “transformation of run-down neighborhoods” has a lot of translations such as the slum initiative or shanty-town redevelopment. The last wave resulted - in numbers by Bloomberg - 500 billion USD of “helicopter money”. Beijing significantly slashed the initiative in 2019 due to ballooning government debt and accusations that the redevelopment in smaller cities contributed to soaring real estate prices. Last week, an Executive Meeting of the State Council said the redevelopment will take place in super-large and mega cities.
In “effectively preventing and resolving local government debt risks through a comprehensive debt package plan,” the key word is “comprehensive.” Bloomberg reported in late June that China began a nationwide to reveal hidden government debt. There have been a lot of debates about whether the Central Government, with a healthy and strong balance sheet, should step in to aid the debt-ridden local governments.
Beijing should not bail out its indebted local governments, former Finance Minister Lou Jiwei said recently, warning against the moral hazard of swapping local government debt with central government debt.
The meeting emphasized the need to enhance people's well-being, raise stabilizing employment to a strategic height, ensure basic guarantees for the three areas (basic livelihood, basic wage payment, and basic operation), and expand the middle-income group. It also called for the protection and improvement of arable land, consolidation and expansion of the achievements of poverty alleviation, and the comprehensive advancement of rural revitalization. Preventing major safety accidents and ensuring energy and power supply during peak seasons in summer, were also mentioned.
An unusually public claim by a Peking University professor that the country's youth unemployment rate might have hit close to 50 percent in March stirred further debate about the job picture in China. The official jobless rate for people between 16 and 24 was a record 21.3% in June. Hence “Stabilizing employment to a strategic height” is now promoted to a “strategic height.”
The meeting underscored the significance of using the year’s education campaign on studying and implementing Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as an opportunity to educate and guide CPC members and cadres to firmly establish the correct concept of political achievements. This would help stimulate their enthusiasm for work and entrepreneurship, encourage outstanding cadres who are courageous and skilled at tackling difficulties to emerge and make more contributions, and promote new achievements in high-quality development with a new outlook and new actions.
Interestingly, Xinhua News Agency recently published a commentary blasting some Chinese officials for bureaucratic shirking, especially for “not speaking up.”
The meeting also discussed other matters.
It is typically understood that at least some of the “other matters,” often seen in readouts of Politburo meetings, are personnel matters.