Investment Institutions' Analyses of Political Bureau's 2019 Economic Meeting
Chen Juan
/SOURCE : yicai
Investment Institutions' Analyses of Political Bureau's 2019 Economic Meeting

(Yicai Global) Dec. 14 -- The Political Bureau under the Central Committee of the Communist Party of China convened a meeting yesterday to study its economic work for next year and proposed the goal of seeking an optimal policy mix and maximal effects. 

The meeting also revealed the direction of the country's economic policies for next year, thus drawing great market attention. Summaries of the analyses of this conference by three leading investment firms appear below for our readers' reference.

Haitong Securities: The meeting stressed placing 'stability' at the forefront of the economy and further opening.

The first point is the assessment of the economy. This meeting was more cautious in its wording than the one held at the end of last year, but still emphasized the importance of 'primarily focusing on supply-side reform and continuing to fight the "three tough battles,"' just as last year's did. 'Maintaining economic performance within a reasonable range' came up again during this year's session (in a departure from last year), which is consistent with the expression of 'worsening pressure of the downward economic trend' which was a refrain in the Political Bureau's conference at the end of October. 

Both statements reflect the rising pressure to stabilize economic growth, whose core is indeed steadying employment, rather than the growth rate.

The second is the direction of development. Against the backdrop of greater pressure from the economy's continuing downward trend, the signals sent by this meeting are not quite so pessimistic. 'China's economy should continue to seize and fully exploit the important period of strategic opportunities for growth,' the meeting noted in the face of the ongoing changes in the current global tableau and the domestic situation.

Judging from the formulations from the conference, 'strategic opportunities' are mainly in three areas, one of which is high-end manufacturing. The conference highlighted promoting the high-quality growth of the sector, as well as its in-depth integration with the modern service sector in the proportion of economic value added by China's new sectors, formats and modes in gross domestic product, which reached 15.7 percent last year in a sign of growing new economic momentum. 

Furthermore, expanding domestic demand facilitates the formation of a strong domestic market. 

Third is reform and opening. Accelerating economic reforms and advancing comprehensive opening-up means their intensification and further expansion of opening-up to grapple with China-US trade frictions and boost the progress of reform by these means, the meeting stressed.

Fourth, this year's conference focused more on deleveraging and regulation and control of the real estate market than last year's. We assume targeted poverty reduction and pollution prevention will be the key aspects of the 'three tough battles' next year. 'Accelerating housing reform and constructing a long-term mechanism' that carried such weight during the conference at the end of last year did not come up at all during this year's session, which also focused less on the control and regulation of the real-estate market than the one at the end of October. This means bubbles in this sector are relatively controllable and corresponding regulation is not included at the core of policies for next year.

China International Capital: The meeting stressed China's continuation of the three major offensive and resolute battles and maintenance of stability.

The Political Bureau Economic Work Meeting sets the stage for the later Central Economic Work Meeting. The Political Bureau traditionally meets in December to analyze the economic situation for the coming year and set the policy tone, with the Central Economic Work Meeting held later to plan more detailed economic priorities, which suggests the Central Economic Work Meeting may convene in the near future. 

Emphasizing stability basically carries forward the spirit of the Economic Work Meeting in the third quarter. Growth pressure has not eased since the second half; more micro indicators in particular have recently signaled growth pressure, and market expectations for the introduction of new policies to spur the economy are also building. However, the spirit of the meeting yesterday did not convey the sense that policy changes need to be more active. 

As for promoting domestic demand and further opening, the international environment has become more complex this year, which means greater emphasis will rest on domestic demand as a basis for growth next year. Judging from the tenor of yesterday's meeting, its emphasis on aiding the formation of a strong domestic market may indicate the rising importance of local demand to stabilize growth. 

The meeting also emphasized advancing the high-quality development of the manufacturing sector, which suggests independent innovation and industrial upgrading are also directions government policies will encourage. More detailed guidance on economic work may have to await information released in the wake of the Central Economic Work Meeting, however. 

China Securities: The three new formulations from the meeting are key.

The first point is referencing the 'first centennial' goal twice. The Political Bureau Economic Work Meeting yesterday uttered this goal for the first time, in a phrase which appears twice. 

The Political Bureau proposed that 'new steps must be taken toward realizing the first centennial goal' in reviewing the economic work this year. Then it proposed that next year will be key to 'securing the first centennial goal of building a moderately prosperous society in all respects.'

The CPC initially proposed the 'two centennial goals' at the 15th National Congress it held in 1997: The national economy will have further developed, and various systems will have improved by 2021 (the 100th birthday of the CPC) and China will basically have achieved modernization and be a strong, prosperous, democratic and civil socialist country by 2049 (the 100th birthday of the People's Republic of China). One of the economic targets of the first centennial goal is to double 2010 GDP by 2021. 

As GDP growth is very likely to be around 6.7 percent this year, this means its average annual rise over the next two years must be above 6.1 percent, which is equivalent to setting a bottom line for economic growth. 

Second, is re-referencing the 'important period of strategic opportunity.' The Political Bureau has not mentioned this since the Central Economic Work Meeting in late 2014, at which the body proposed that 'entering the new normal in economic development does not change the judgment that China's development is still in an important period of strategic opportunities where much can be done.' 

The Political Bureau proposed 'to seize and continue to make good use of the important period of strategic opportunity' at the meeting yesterday, suggesting a more positive and optimistic view of the international situation. Domestic issues are likely to remain at the forefront of future policy, with repeated mentions of 'unswervingly dealing with our own business' and 'maintaining a strategic focus' and a view of the international situation. 

Three is citing an 'optimal policy mix and maximal overall effects' for the first time. We believe that 'maximal overall effects' implies that the importance of various targets might be more equal in future policy goals and, correspondingly, the government may depend less on the utility of a single policy. Therefore, the means, pace and strength of future policy adjustments in many areas may diverge from those of the past, and relevant signs of this may be glimpsed at present.

Editor: Ben Armour

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Keywords: Central Committee Meeting