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Reuters, Beijing, December 14: As the world’s only major economy to achieve positive growth this year, the CPC Central Committee Politburo meeting that sets the tone for next year’s economic work believes that China’s economic operations they have gradually returned to normal. Having more confidence in the economic situation next year will not only lay the foundation for the return of macroeconomic policies to normalization, but will also provide a rare window for China to deepen reform and openness.
The Politburo proposed “striving to keep the economy operating within a reasonable range,” indicating that stable growth remains an important consideration. The meeting particularly emphasized the expansion of domestic demand, the strengthening of scientific and technological support and the expansion of high-level openness to the outside world, which are in line with the requirements of the Fifth Plenary Session of the XIX Central Committee of the Communist Party. from China on high-quality development. Personal improvement, greater relaxation of market access, etc.
At the policy level, the People’s Bank of China has long signaled the return of monetary policy to normalization. In terms of finances, analysts generally believe that the deficit rate in 2021 is expected to decline from 3.6% this year to around 3%. There is no question about the scale of the new special bonuses. It will also slow down, however, as the economic recovery is still underway, attention is expected to be paid to the timing and intensity of the withdrawal from politics to avoid a “political cliff”.
The Politburo meeting also proposed that “all kinds of existing risks and the prevention of incremental risks must be resolved,” stating that with the return of policies to normalization, the monetary tide will gradually fade and risk prevention will return to leadership. of policies, especially for zombie companies, real estate and local governments. For risks in public debt and other areas, stabilizing the macroeconomic leverage ratio and preventing the concentrated outbreak of credit default risks in the future remain political priorities.
“The Politburo meeting revealed five important signals: policy continuity, demand-side reforms, antitrust, improvements in the industrial chain, and resolution of existing risks. The central government is expected to downplay economic growth targets in 2021 and policies will once again be ‘neutral’, “Guotai Junan Securities said. Macro analyst Hua Changchun and Tian Yuduo said.
They believe that the main tone of politics in 2021 may not change much and that politics will not be reversed. The Central Conference on Economic Work is expected to continue to set the tone for “proactive fiscal policy” and “prudent monetary policy”, but some easing measures against the epidemic will undoubtedly be withdrawn and policy will once again be “neutral.”
The CPC Central Committee Politburo meeting held last Friday considered that China’s economic operation is gradually returning to normal, but there are still many uncertainties in the new corona pneumonia epidemic and the external environment. Therefore, we must continue to do a good job on the “six stability” and implement the “six guarantees” in 2021. “, scientifically and precisely implement macroeconomic policies and strive to keep the economy operating within a reasonable range.
We must adhere to the domestic demand expansion strategy, strengthen the support of scientific and technological strategies, and expand the high-level opening to ensure a good start in the XIV Five-Year Plan. Structural reforms on the supply side need to be reversed, while concentrating on reforms on the demand side. It is necessary to promote reform and openness as a whole, strengthen the national strategic scientific and technological force, enhance the independent control capacity of the industrial chain and supply chain, and form a strong domestic market.
“Monetary policy and fiscal policy will gradually be withdrawn and gradually return to normal,” said Xiong Yuan, chief macroeconomic analyst at Guosheng Securities.
He believes that the main policy line may be structural adjustment, stabilization of leverage and risk prevention. It manifests itself in exchange rate neutrality, the tightening of credit, the reduction of the fiscal deficit and a constant but decreasing leverage ratio; and policy dividends can be expected, focusing on “dual cycles.” Reform of the factor market, technological innovation, modernization of the industrial chain, military and national defense industry and pensions.
** Reform accelerates and macroeconomic policies return to normalization **
The Politburo meeting in December of each year generally sets the main tone for the economic work of the next year, and can also be said to be the prelude to the Central Conference of Economic Work. The annual Central Economic Work Conference, usually held within a week or two after the Politburo meeting, will make detailed arrangements for the next year’s economic work.
And 2021 is the first year of China’s “XIV Five-Year Plan”, and its importance is evident.
“China’s economic growth will rebound significantly next year … accelerate reforms, gradually return to policy normalization, and pay more attention to financial stability,” Goldman Sachs (Asia) analyst Zhennan Li said in a investigation report. “But the probability of a political cliff is very high. The government will pay attention to timing and strength to support withdrawal from politics.”
He hopes that a major and more targeted reform plan will be introduced next year, focusing on technological innovation, a more efficient allocation of factors of production such as labor, land and capital, and boosting consumption.
Li Xunlei, chief economist at Zhongtai Securities, also said that due to the low base this year, the GDP growth rate next year will definitely increase dramatically. The current consensus is 9%. Still, the average growth rate for 2020-2021 will not be enough. 5.5%, economic growth is still one step down.
“The policy stimulus next year should be less than this year,” he said. The return of monetary policy to normality in the previous period has been clearly indicated. In terms of fiscal policy, the Politburo did not mention “countercyclical control.” It is estimated that special national debt and the general budget deficit will not be reissued. The rate level can be lowered from 3.6% this year to the security cordon position, which is about 3%.
Compared to fiscal policy, which is more constrained by the budget, monetary policy is more flexible. Therefore, “next year’s monetary policy should not be adjusted again after returning to normal, especially when inflationary pressures are small, there is basically no room for increases in interest rates,” he said.
** Prevent risk and return to domain **
Affected by the strong support policies introduced by the epidemic, China’s leverage ratio has increased by 27.7 percentage points in the first three quarters of this year to 270.1%, which means that the debt is 2, 7 times the GDP. For now, the growth rate of social finance may have peaked. When the monetary tide is gone, it will be revealed who is swimming naked.
So what exactly is equity risk and what is incremental risk?
According to Zhang Jiqiang, Huatai Securities fixed income team, zombie companies, real estate finance and local government debt are stock market risks that need to be resolved urgently, and debt and bad debt problems after the withdrawal of credit policy next year should be prevented in advance.
They noted that easing policies during the epidemic have delayed the liquidation of zombie companies. Next year will be the peak year for state company debt. With the withdrawal of credit policies, risks can be released in an orderly manner; real estate is considered the gray rhino with the highest financial risk in China, and real estate is going to be financed. From the perspective of the “three red lines” and macroprudence, the pace is expected to advance steadily.
“The balance of government bonds has expanded significantly this year, local government debt ratios have approached the edge of the international warning line, and special bonds have problems like financial maturities and mismatched revenue packing. next year, the quota or control and bond issuance conditions will be regulated, “said Zhang Jiqiang.
Since the fourth quarter, the risk of default on the bonds of some local state-owned companies in China has also raised concerns about subsequent debt pressures from local governments. Officials at China’s Ministry of Finance issued a warning last week that the local government debt index will approach the warning line by the end of this year and may enter the warning range next year; the leverage ratio should be controlled and the scale of legal debt, especially special debt, will gradually decrease after the macroeconomy improves. , To prevent the formation of path dependence and the continuous accumulation of debt risks.
“Stabilizing leverage and preventing risks is the focus of the coming year,” Xiong Yuan said.
He believes that 2021 is likely to be an important regulatory year, and equity risk should refer to high leverage ratio, debt risk from state-owned companies and local governments, and new asset management regulations, etc. ; Incremental risk should refer to the risk of managing risks and withdrawing from the policy. Risks, possible escalation of conflicts between China and the US, etc. (Terminate)
