The annual Central Conference on Financial Work is the premier discussion on financial planning. Every year, the state of the economy, the main political choices and the priorities of the Chinese government for the coming year are discussed there. And they are discussed at the highest level, that is, in the presence of members of the Politburo Standing Committee and Xi Jinping himself.
The meeting came after a controversial year for the Chinese economy, mainly due to the impact of various local lockdowns that were imposed until the line was changed and critical aspects of the zero covid policy were abandoned, lockdowns that created serious problems in areas important to the overall dynamic of the Chinese economy such as Shanghai.
The summit effectively recognized these contradictions in Chinese economic policy. According to China Daily the main points of the Conference were the following:
1. Promoting steady progress along with economic stability.
2. Active fiscal policy together with a prudent monetary policy.
3. The big scientific and technological projects.
4. The steady growth of the housing market.
5. The promotion of youth employment.
6. The equal treatment of public and private enterprises.
7. The prevention and mitigation of major economic and financial risks.
8. The optimization of birth policies and the gradual increase of the retirement age.
9. Promoting the regeneration of the countryside.
10. The development of the real economy.
11. The attraction and utilization of foreign capital.
Stability and endogenous dynamics
The presentation of key decisions by the Chinese government itself is somewhat more specific.
- First of all, the emphasis on the very concept of stability is important, which means that the main goal is to get China out of the vicious cycle of continuous disruptions in economic activity mainly due to the pandemic.
- Second, it is clear that the Chinese leadership seeks with an “active fiscal policy”, which includes some deficits, special purpose bonds and interest rate subsidies, to be able to provide a stimulus to the economy without negating the need for “fiscal sustainability”.
- The third element concerns industrial policy where it is evident that what is being sought is mainly a transformation of traditional industries, tackling the “weak links” in industrial and supply chains and obviously promoting even more scientific and technological innovations, given also the great pressure from US sanctions on high technology.
- The fourth element concerns the effort to improve the employment condition of young people, even those who have a degree of higher education, which shows the concern about the protests of people precisely from these age and social categories.
Regarding the pandemic, the conference confirmed the change of line that has taken place, calling for the prevention and control of the pandemic to be combined with economic development, mainly through targeted interventions in vulnerable groups, such as the elderly and those with underlying diseases.
Focus on domestic demand
All this is presented as a combination between qualitative and quantitative growth, between “structural reform on the supply side” and “expansion of domestic demand”.
This point is of particular importance and reflects the clear choice of the Chinese leadership not to limit itself to strong export performance, which has traditionally been a determining factor of Chinese growth dynamics, but to also rely on endogenous dynamics, including domestic consumption. This, after all, also corresponds to a period marked by a more difficult and competitive international environment. “To support a new development paradigm, the endogenous dynamics and reliability of internal traffic must be strengthened, while the quality of external traffic must be upgraded.”
A new type of “partnership” with private enterprises
Despite an image that the current Chinese leadership and Xi Jinping himself has chosen to go head-to-head with private enterprises, the conference emphasized the balance between public and private enterprises. The former are called upon to improve their competitiveness, while for the latter the emphasis was on the protection of their property rights and the interests of their entrepreneurs.
As has been pointed out, China’s effort to return to sustainable and stable growth rates creates enough scope for a new, more upgraded presence of private enterprises. Essentially, what he is asking is much more to respect the “rules of the game”, that is, not to claim big business and an upgraded political role, which must remain the responsibility of the Chinese Communist Party.
Of course, at the same time the conference was confronted with the problematic situation in the construction industry, which in the previous period seemed to take on the characteristics of a “bursting bubble”. Here the emphasis was on “effective prevention” and the mitigation of risks faced by large enterprises in the sector, without negating the objectives of meeting basic housing needs.
The big challenges
All this highlights both the big stakes of the Chinese leadership and the first big test at the beginning of Xi Jinping’s third term.
It is clear that a certain growth dynamic has been set as a priority, probably around 5%, and in its name has consciously changed the “paradigm” in terms of managing the pandemic, which has become much more flexible and avoiding practices that could to bring great economic disruption. Of course, at the same time, it remains to be seen whether the rather deficient Chinese health system will in turn be able to cope with the expected increase in cases.
Correspondingly, a new space is also being formed for private enterprises, provided they do not challenge the central political line. After all, it seems that the main subject of the conference was much more the issues concerning the growth and sustainability of the economy, than the issues of “common prosperity” which are a characteristic aspect of the “Xi Jinping Thought”. This also explains why unlike the 2021 conference this time there were no negative references to the private technology sector. References to the need to attract foreign capital are also not without significance, as several of them were withdrawn during the period when it seemed that the aim was to “hit” the large private companies in the construction sector. It is clear that this time the message is that there is room for private sector development, including foreign capital.
The question is whether active fiscal policy will mean an increase in related interventions. However, it is estimated that the monetary policy will not be more restrictive in the next period.
