The Chinese Communist Party has issued a communiqué after concluding its four-day closed meeting third plenary meeting before its decision-making Central Committee. Investment banks rushed to read between the lines for clues about the direction of the world’s second-largest economy.
The communiqué gave few details but outlined the broad Chinese reform package in the medium and long term, with an emphasis on technological innovation, the new productive force, risk management and supply chain security. The language and policy framework are very much in line with what top policymakers stressed ahead of the high-stakes meeting.
However, the stock market was disappointed in its search for short-term solutions, as benchmark indexes in Shanghai, Shenzhen and Hong Kong fell after the communiqué. The renminbi continued its depreciation against the US dollar.
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One bright spot from the plenum was the government’s specific reference to China’s 2024 economic growth target, set at around 5 percent, raising speculation that a raft of policy measures to support and stimulate the economy will be released. A meeting of the party’s all-powerful political bureau, scheduled for late July, could provide the cue for the policy details.
These are the positions of the world’s largest investment banks and asset managers during the Third Plenary Congress:
Goldman Sachs analysts led by Lisheng Wang and Hui Shan:
“We see the outcome as broadly in line with the long-term direction of reforms, but somewhat more positive in terms of near-term macroeconomic policy. We believe that more demand-side easing measures – particularly in the fiscal and housing areas – are needed to secure the full-year target of “around 5 percent” real GDP growth, and see the Politburo meeting in July (around the end of the month) as a potential window for more easing rhetoric and measures.”
HSBC Holdings Chief Economist for Greater China Liu Jing:
“China will increasingly focus on supporting advanced technological development to raise productivity while improving people’s living conditions, (which) should help stimulate more consumption-driven growth. Fiscal reforms and management of persistent risks such as local government debt and the real estate sector should help free up more resources for higher productivity areas. While China’s transition still needs time, we believe further reforms could help unlock more productivity gains.
The communiqué’s emphasis on “opening up as a distinguishing feature of China’s modernization” is worth noting. We expect the government to prioritize reforms that will facilitate foreign investment.”
Harry Murphy Cruise, economist at Moody’s Analytics:
“Although the communiqué was not detailed, as usual, China should publish a comprehensive document in the coming weeks outlining the decisions. For now, the communiqué says most of the right things.
Ahead of the four-day meeting, we called for reforms in real estate, taxation and local government debt, as well as support for private businesses and investment, all of which were mentioned. The reference to support for domestic consumption is also a positive development.
There is still a tension between expanding the supply side of the economy and stimulating household spending. As expected, there was little policy for the here and now. Third plenary sessions tend to take a long-term view, but this was a missed opportunity. The Central Committee’s statement that it is “determined to achieve this year’s economic and social development goals” – an unusually short-term and forthright goal – suggests that more support is on the way to ensure China meets its (2024) growth target.
The communiqué reads from the existing playbook. It reinforces the desire to shift the economy from real estate and building-led growth to advanced technologies such as artificial intelligence, semiconductors and green technologies. National security and supply chain resilience also play a major role.”
Pierre Lau, Citigroup’s China equity strategist:
“The communiqué contained a comprehensive set of objectives with key targets for 2029 and 2035. Since most of the directions mentioned are known, we see that the outcome reflects high policy continuity of China’s leadership, with consistent status quo approaches. Hence: no major change in our sector and stock recommendations.
From a strategic perspective, we maintain our preference for sectors driven by the global economy, such as exporters and commodity companies (particularly gold), over domestically focused consumer or real estate companies, given the economic weakness that may persist into the second half of 2024.”
Andrea Yang, Fixed Income Portfolio Manager at JPMorgan Asset Management:
“We do not see a significant change in the policymakers’ stance in pursuing the new growth model in the medium term. Therefore, the real estate sector is expected to focus on managing downside risks rather than bazooka-style stimulus. A similar approach applies to local government debt management.
The Plenum noted that the authorities are committed to achieving the growth target for this year. We believe that (the growth target of) around 5 percent remains intact and expect incremental policy support in the second half, notably from fiscal targeting in production/infrastructure fixed asset investment and commodity trade-in program.
We maintain a range-trading view on Chinese government bonds as the absence of a (policy) bazooka limits the upside of CGB yields, while the intervention of the People’s Bank of China limits the downside. On the foreign exchange front, policymakers are likely to favor a stable currency, although there may be more flexibility for a weaker yuan versus the US dollar as the Fed’s cut becomes more concrete and trade tensions increase.”
DBS analysts:
“The key reform tasks are consistent with the current policy framework, with high-quality development and advanced technology as the centerpiece. We are pleased to see top leaders pledge to market mechanism to ensure smooth economic flow and boost internal vitality, which investors are concerned about.
The third plenary session also discussed recent economic developments and reaffirmed the 2024 GDP target. We believe this requires more policy support, such as accelerating the issuance of special local government bonds and lowering interest rates. Expecting further policy support will serve as one of the market-moving catalysts in the second half.”
Economists of Societe Generale Yao Wei and Michelle Lam:
“The communiqué does not provide any significant new information, which is consistent with the low expectations ahead of the event. It reaffirms the commitment to achieving this year’s economic and development goals by actively expanding domestic demand and developing new high-quality productivity forces, as at the Politburo meeting in April.”
With additional reporting by Mia Castagnone and Jiaxing Li.
This article originally appeared in the South China Morning Post (SCMP)the most authoritative voice covering China and Asia for over a century. For more SCMP stories, explore the SCMP app or visit the SCMP’s Facebook And Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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