China's leaders have once again demonstrated their lack of clarity regarding the policies needed to steer the country's economy away from the tightening grip of deflation, weak demand, and uncertain confidence.
Last Friday, the Communist Party's Politburo delivered a burst of Communist eco-speak, promising prudent and flexible fiscal stimulus. Late Tuesday night, State-run TV reported on the 2023 Central Economic Work Conference, which is expected to provide the framework for Chinese economic activity in the coming year, yet it offered another round of vague economic rhetoric.
The Conference pledged to boost domestic demand, prioritise the development of strategic sectors, and address the country's real estate crisis. It also committed to strengthening macro policies, continuing proactive fiscal measures, and implementing prudent monetary actions, according to the State TV report.
President Xi Jinping addressed the meeting, reviewing the country's economic work in 2023 and analysing the current economic situation while setting the agenda for next year's economic work, as reported by Xinhua.
Despite President Xi's speech, the meeting failed to provide specific details related to the current economic challenges, including growth and inflation targets, which are typically disclosed during the March National People's Congress meetings. However, a new slogan emerged from the meeting: "stability through economic progress."
The gathering acknowledged the need to overcome various challenges, such as insufficient demand, overcapacity in certain industries, weak social expectations, and lingering hidden risks, as summarised on Tuesday night's TV broadcast.
Chinese leaders, as summarised by state-owned Xinhua, stated, "China's economy has achieved a recovery, with solid progress made in high-quality development in 2023. China still has to overcome some difficulties and challenges to further revive the economy."
The language used on Tuesday echoed the Politburo's release from the previous Friday, emphasising that fiscal policy "must be moderately strengthened" and should be "flexible, moderate, precise, and effective" to stimulate economic recovery.
The Work Conference also pledged to mitigate risks associated with the deteriorating property sector, local debt, and small and medium-sized financial institutions. They signaled a strategy to construct affordable housing in an effort to resolve the nation's ongoing real estate crisis.
The TV broadcast addressed various economic issues, including declining fertility rates, high rates of youth unemployment, and the resilience and safety of domestic supply chains. Additionally, the government reiterated its support for private enterprises and the promotion of innovation in science and technology, green transformation, and the digital economy, including artificial intelligence.
Notably absent from the discussion were concerns about deflation in consumer and producer prices, as well as unemployment problems, particularly among young people. The government has not released unemployment data for young people, although the broadcaster reported an unemployment rate of around 5%, which is high compared to current measures in Australia, the US, and the UK.
There were no significant moves regarding interest rates or bank reserve ratios to substantiate the claimed new approach. The decision on the one-year indicator rate is expected on Friday, while the medium-term rates (3 and 5 years) are due next Wednesday. A substantial reduction in these rates, beyond the usual minimal adjustments (0.10% in June), would send a clear message that the government and the Communist Party are taking substantial actions to support their stated goals.
Friday will also bring crucial monthly data, including investment, retail sales, and production figures for November, with particular attention on property investment, sales, and fundraising.
