Tian Xuan on Beijing's dramatic week of econ policy intervention
Tian Xuan on Beijing's dramatic week of econ policy intervention
The Associate Dean of Tsinghua PBCSF observes the extraordinary Politburo meeting and policy implementation and notes turning the current momentum into long-term, sustainable growth remains crucial.
I’m on a midnight train back from New York to Princeton, NJ, but the Tsinghua PBCSF (People’s Bank of China School of Finance) Chief Economists Forum is taking place in Beijing now. As an alumnus of Tsinghua PBCSF’s non-degree scholarship program for journalists, I’m happy to share some interesting remarks from Tian Xuan on the extraordinary economic policy intervention we all saw recently.
Tian, Associate Dean and Chair Professor of Finance at Tsinghua PBCSF, was making an opening speech at the star-studded forum.
The following is a part of his speech. Tsinghua PBCSF made a transcript of his whole speech available in a WeChat group.
On September 24, 2024, during a press conference held by the State Council Information Office, the three major financial regulatory bodies made significant announcements, covering a range of measures including a reduction in reserve requirement ratios, interest rate cuts, and lowering rates on outstanding loans. They also introduced various tools to support the stable development of the stock market. Notably, the Governor of the People's Bank of China, Pan Gongsheng, announced an injection of 800 billion yuan into the stock market through operations such as swap facilities between securities, fund, and insurance companies, as well as stock repurchase refinancing. This marks the first time in China's history that the central bank has directly provided liquidity support to the stock market, transitioning from previous restrictions on capital flowing into the market to requiring that this capital now exclusively be used for purchasing stocks.
Following this, on September 26, the Politburo of the Central Committee of the Communist Party of China convened a meeting, with several unusual aspects pushing market enthusiasm to new heights.
The first unusual aspect is the timing of the meeting. The Politburo typically holds meetings at the end of each month, with economic issues being primarily discussed in April, July, and November. The April meeting usually reviews the economic situation for the year’s start and lays out how to meet the economic goals set during the Two Sessions. The July meeting generally summarizes the economic performance of the first half of the year and plans for the second half. These two meetings were held as scheduled this year. According to tradition, the third Politburo meeting focused on economic matters should be held in November, primarily to prepare for the Central Economic Work Conference at the end of the year. However, this meeting was held two months earlier, reflecting the urgency and the high level of attention the central government places on the current economic situation.
The second unusual aspect is the background against which the meeting took place. Several financial institutions have recently released forecast reports, estimating that our nation's GDP growth for the third quarter. If these predictions are accurate, given the current circumstances, the pressure to achieve the annual GDP growth target of around 5% remain substsantial.
The third unusual aspect lies in the way the decisions were communicated. Firstly, the length of the Politburo’s communiqué is noteworthy. Typically, the communiqué from these meetings is about 2,500 words, but this time it was only 1,200 words, with much of the usual fixed language omitted, indirectly indicating the urgency of the meeting. Furthermore, the tone of the communiqué was resolute and decisive, with several expressions notably more proactive and forceful, even reversing previous statements.
Let me provide a few examples. For instance, the assessment of the current economic situation no longer includes the standard phrase "stable with positive momentum, but facing many challenges." Monetary policy no longer calls for "prudence and precision," but instead focuses on "reducing reserve requirement ratios and implementing decisive interest rate cuts." Real estate policy has also shifted from the previous call to "accelerate the creation of a new model for real estate development and promote high-quality development in the sector" to directly stating that "we must stabilize the real estate market, address public concerns, adjust home purchase restrictions, lower rates on outstanding loans, and quickly improve policies related to land, finance, and other areas to promote the creation of a new model for real estate development."
More importantly, the attitude is directly confronting the problem. In response to new situations and issues, it was a call to increase the sense of responsibility. Whereas the previous stance was to maintain strategic composure, the latest statement emphasizes a heightened sense of urgency.
Then, following this on September 27, the implementation of a series of rare and highly intense policy combinations, including reserve requirement and interest rate cuts, had an immediate and significant impact on the market. Although the effects on the real estate market have yet to materialize, given the short time frame, the A-share market saw clear results. On September 27, over 2,500 stocks surged, with more than 100 stocks hitting their daily limit, while the trading volume on the Shanghai and Shenzhen markets reached 1.4556 trillion yuan, an increase of 289.3 billion yuan from the previous trading day, with the turnover exceeding one trillion yuan for three consecutive days. We successfully defended the 3,000-point threshold for the 60th time, and investors are once again willing to be "friends of time."
In mid-September, there was still public discussion surrounding the pessimistic narrative of a potential "lost 30 years" for the Chinese economy. But by September 25, the rallying cry of "ABC" had gained prominence. Do you know what ABC stands for? It means "All-in Buy China." From the results so far, the correctness of these recent policy directions is beyond question. However, how we can turn this momentum into long-term, sustainable growth—like a great bird soaring thousands of miles—remains a crucial question.
Our macroeconomic policies must maintain their efficacy, not only to help the economy navigate through short-term difficulties safely but also, more importantly, to support the rapid development of the real economy and achieve a successful transformation toward high-quality growth. There are many critical issues in this regard that deserve our attention beyond the current fervor, and should be calmly reflected upon, discussed, and analyzed.
