Guo Lei: Understanding the Spirit of the December Politburo Meeting

Summary

First, "The main goals and tasks for economic and social development for the whole year will be successfully completed," which means that a GDP growth of around 5% will be achieved in 2024. Based on a cumulative year-on-year growth of 4.8% in the first three quarters, the trend growth rate for the fourth quarter is expected to improve significantly under the drive of counter-cyclical policies.

Second, "More proactive and effective macro policies to expand domestic demand." After achieving 5% this year, what will happen next year? "Implementing more proactive and effective macro policies" is a general guideline. We expect that the GDP target for 2025 will continue to be set at around 5%. Considering the risk factors in the external demand environment, the contribution of external demand is likely to be lower than in 2024; similarly, a 5% growth rate requires higher internal demand, hence the need to "expand domestic demand."

Third, "Implement more proactive fiscal policies and moderately loose monetary policies" and "strengthen extraordinary counter-cyclical adjustments." This is a brand new combination; in recent years, the terminology has been "proactive fiscal policy and prudent monetary policy." The terms "more proactive" and "moderately loose" indicate a warming in terminology. The last time fiscal policy was defined as "more proactive and effective" was in 2020, corresponding to the increase in the deficit ratio, expansion of special bond issuance, and issuance of special government bonds; the last time monetary policy was defined as "moderately loose" was from late 2008 to 2010, when interest rates and reserve requirements were significantly lowered in the fourth quarter of 2008, and social financing saw a notable expansion in 2009. "Extraordinary counter-cyclical adjustments" is mentioned for the first time, indicating the policy's emphasis on the current economic situation and external uncertainties.

Fourth, "Prevent and resolve risks in key areas and external shocks." Here, "external shocks" should refer to the uncertainties of tariffs and external trade conditions in the context of de-globalization. We understand that the stabilization of real estate sales and investment is still needed, local debt continues to be resolved, nominal growth is relatively low, and potential external shocks are currently the main issues in the macro environment. "Extraordinary counter-cyclical adjustments" represent the policy's response plan and contingency measures.

Fifth, "Stabilize the real estate and stock markets." The Politburo meeting in September pointed out the need to promote the stabilization of the real estate market, and this meeting again emphasized stabilizing the real estate market, highlighting the importance of this issue. Adjustments to local real estate policies are expected to continue, with marginal space still available in 2025. The mention of the stock market also reflects the policy's emphasis on the capital market's role in real financing and expectation transmission.

Sixth, "Vigorously boost consumption, improve investment efficiency, and comprehensively expand domestic demand." Domestic demand prioritizes consumption, which is consistent with the framework of the Politburo meeting in July that emphasized "expanding domestic demand with a focus on boosting consumption." The market has noted that previous policies mainly related to debt resolution ("6+4+2"), while those related to consumption mainly involved "trade-ins" and adjustments to existing mortgage rates; from this policy statement, it appears that consumption promotion policies will still be the main policy tool in 2025. "Comprehensively expanding domestic demand" means that the policy also hopes to enhance the breadth of growth, allowing manufacturing, services, and construction industries to contribute Seventh, "We must leverage the guiding role of economic system reform to promote the implementation and effectiveness of landmark reform measures." At the press conference held by the State Council in August, the National Development and Reform Commission pointed out during the session on "accelerating the implementation of landmark reform measures" that "we will launch guidelines for the construction of a national unified market and release a new version of the negative list for market access." Furthermore, from the spirit of the Third Plenary Session, the fiscal and tax system, financial system, and regional development mechanisms are the three main focuses of reform; in terms of factor market reform, it also includes "promoting price reforms in water, energy, transportation, and other fields" and "improving the system to promote the deep integration of the real economy and the digital economy"; in terms of state-owned enterprise reform, it includes "conducting accounting for the added value of state-owned economy," among others.

Eighth, the December Politburo meeting mainly set the tone for next year's economic work, with more detailed work content to be deployed in the subsequent Central Economic Work Conference. From the spirit of the Politburo meeting, the main statements are likely to be more positive than market expectations. We anticipate that it will lead to an upward revision of market expectations regarding growth, liquidity, and risk appetite; especially the new signal of "moderately loose" monetary policy, which will support the growth logic and is expected to impact the central tendency of nominal GDP.

Main Text

Focus Point One: "The main goals and tasks for economic and social development for the whole year will be successfully completed," which means that a GDP growth of around 5% will be achieved in 2024. Based on a cumulative year-on-year growth of 4.8% in the first three quarters, the trend growth rate in the fourth quarter is expected to improve significantly under the drive of counter-cyclical policies.

The meeting believes that this year is a key year for achieving the goals and tasks of the "14th Five-Year Plan." The Party Central Committee, with Comrade Xi Jinping at its core, has united and led the entire Party and people of all ethnic groups in the country to respond calmly and implement comprehensive measures, resulting in overall stable economic operation with progress amid stability. China's economic strength, technological strength, and comprehensive national strength continue to enhance. New productive forces are steadily developing, reform and opening up continue to deepen, risk resolution in key areas is orderly and effective, and social welfare guarantees are solid and powerful. The main goals and tasks for economic and social development for the whole year will be successfully completed.

Focus Point Two: "More proactive and effective macro policies to expand domestic demand." What about next year based on achieving 5% this year? "Implementing more proactive and effective macro policies" is a general tone. We expect that the GDP target for 2025 will continue to be set at around 5%. Considering the risk factors in the external demand environment, external demand is likely to be lower than in 2024; similarly, a 5% growth rate requires higher internal demand, so it is necessary to "expand domestic demand."

The meeting emphasized that to do a good job in next year's economic work, we must be guided by Xi Jinping's Thought on Socialism with Chinese Characteristics for a New Era, fully implement the spirit of the 20th National Congress of the Communist Party and the second and third plenary sessions of the 20th Central Committee, adhere to the general principle of seeking progress while maintaining stability, fully and accurately implement the new development concept, accelerate the construction of a new development pattern, solidly promote high-quality development, further deepen reforms comprehensively, expand high-level opening up, build a modern industrial system, better coordinate development and security, implement more proactive and effective macro policies, and expand domestic demand Focus Point Three: "Implementing a more proactive fiscal policy and moderately loose monetary policy" and "Strengthening extraordinary counter-cyclical adjustments." This is a brand new combination; the terminology in recent years has been "proactive fiscal policy and prudent monetary policy." The terms "more proactive" and "moderately loose" indicate a warming in phrasing. The last time fiscal policy was defined as "more proactive and effective" was in 2020, corresponding to the increase in the deficit ratio, the expansion of special bond issuance, and the issuance of special government bonds; the last time monetary policy was defined as "moderately loose" was from late 2008 to 2010, with significant reductions in interest rates and reserve requirements in the fourth quarter of 2008, and a noticeable expansion in the growth rate of social financing in 2009. "Extraordinary counter-cyclical adjustments" is mentioned for the first time, indicating the policy's emphasis on the current economic situation and external uncertainties.

The meeting pointed out that next year, we must adhere to seeking progress while maintaining stability, promoting stability through progress, innovating while maintaining integrity, establishing before breaking, integrating systems, and coordinating efforts, implementing a more proactive fiscal policy and moderately loose monetary policy. Strengthening extraordinary counter-cyclical adjustments, creating a "combination punch" of policies, and improving the foresight, targeting, and effectiveness of macro-control.

Focus Point Four: "Preventing and resolving risks in key areas and external shocks." Here, "external shocks" should refer to the uncertainties of tariffs and external trade conditions in the context of de-globalization. We understand that the stabilization of real estate sales and investment is still needed, local debt is continuing to be resolved, nominal growth centers are relatively low, and potential external shocks are currently the main issues in the macroeconomic landscape. "Extraordinary counter-cyclical adjustments" represent the policy response and contingency plans.

The meeting pointed out that we should implement a more proactive and effective macro policy, expand domestic demand, promote the integrated development of technological innovation and industrial innovation, stabilize the real estate and stock markets, prevent and resolve risks in key areas and external shocks, stabilize expectations, stimulate vitality, promote sustained economic recovery, continuously improve people's living standards, maintain social harmony and stability, achieve high-quality completion of the "14th Five-Year Plan" goals and tasks, and lay a solid foundation for a good start to the "15th Five-Year Plan."

Focus Point Five: "Stabilizing the real estate and stock markets." The Politburo meeting in September pointed out the need to promote the stabilization of the real estate market, and this meeting reiterates the importance of stabilizing the real estate market, indicating the emphasis on this issue. Adjustments to local real estate policies are expected to continue, with marginal space still available until 2025. The mention of the stock market also reflects the policy's emphasis on the functions of capital market financing and expectation transmission.

The meeting pointed out that we should implement a more proactive and effective macro policy, expand domestic demand, promote the integrated development of technological innovation and industrial innovation, stabilize the real estate and stock markets, prevent and resolve risks in key areas and external shocks, stabilize expectations, stimulate vitality, promote sustained economic recovery, continuously improve people's living standards, maintain social harmony and stability, achieve high-quality completion of the "14th Five-Year Plan" goals and tasks, and lay a solid foundation for a good start to the "15th Five-Year Plan."

**Focus Point Six: "We must vigorously boost consumption, improve investment efficiency, and comprehensively expand domestic demand." Domestic demand prioritizes consumption, which is consistent with the framework of the July Politburo meeting's focus on "expanding domestic demand with an emphasis on boosting consumption." The market has noted that previous policies mainly related to debt resolution ("6+4+2"), while those related to consumption mainly involve "trade-in" and adjustments to existing mortgage rates; From the policy statement, the consumption promotion policy for 2025 remains the main policy tool. "Comprehensively expanding domestic demand" means that the policy also hopes to enhance the breadth of growth, allowing the manufacturing, service, and construction industries to contribute.

The meeting pointed out that efforts should be made to vigorously boost consumption and improve investment efficiency, comprehensively expanding domestic demand. Technological innovation should lead the development of new productive forces and build a modern industrial system.

Focus Point Seven: "We must leverage the guiding role of economic system reform to promote the implementation of landmark reform measures." At the press conference held by the State Council in August, the National Development and Reform Commission noted in the section on "accelerating the implementation of landmark reform measures" that "guidelines for building a unified national market will be introduced, and a new version of the negative list for market access will be released." Additionally, from the spirit of the Third Plenary Session, the fiscal and tax system, financial system, and regional development mechanisms are the three main focuses of reform; in terms of factor market reform, it also includes "promoting price reforms in water, energy, transportation, and other fields" and "improving the system to promote the deep integration of the real economy and the digital economy"; in terms of state-owned enterprise reform, "conducting accounting for the added value of state-owned economy," etc.

The meeting pointed out that we must leverage the guiding role of economic system reform to promote the implementation of landmark reform measures. We should expand high-level opening up and stabilize foreign trade and foreign investment.

Regarding landmark reform measures, we have provided a detailed overview in the "Understanding the Key Points of the 20th Central Committee Third Plenary Session Communiqué" on July 18 and "Fifteen Key Details of the Third Plenary Session Decision" on July 22.

The December Politburo meeting mainly sets the tone for next year's economic work, with more detailed work content to be deployed in the subsequent Central Economic Work Conference. From the spirit of the Politburo meeting, the main statements may be more positive than market expectations; we anticipate it will lead to an upward revision of market expectations regarding growth, liquidity, and risk appetite; especially the new signal of "moderately loose" monetary policy, which will support the growth logic and is expected to impact the central tendency of nominal GDP.

Author of this article: Guo Lei S1220515070001, Source: Guo Lei Macro Tea Room, Original Title: "New Signals: Understanding the Spirit of the December Politburo Meeting"

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