Financial Times: A package of incremental policies is not simply stimulative, it represents a significant adjustment in policy logic.
11/11/2024
GMT Eight
Insufficient effective demand, weak social expectations, and low-price operation are prominent issues that macroeconomic regulation needs to focus on. This is not only a manifestation of the difficulties in short-term economic operations but also a reflection of the deep-seated contradictions in the medium-to-long-term structural transformation. In response to this, recent macroeconomic policy strategies have undergone adaptive changes.
On one hand, recent comprehensive policies to increase increments have gradually been implemented, effectively boosting market confidence. Since the beginning of this year, the People's Bank of China has increased its efforts in providing financial services to the real economy, implementing four major adjustments to monetary policy. A variety of monetary policy tools have been comprehensively used to maintain adequate liquidity, ensure the smooth transmission of monetary policy, and promote stability in social comprehensive financing costs. This has matched the scale of social financing and money supply with the expected economic growth level. Moreover, support has been strengthened for key sectors and vulnerable areas by enhancing financial "five major articles." Particularly since late September this year, the People's Bank of China has significantly reduced reserve requirements, implemented substantial interest rate cuts, and optimized adjustments to real estate financial policies. These included reducing interest rates on existing housing loans for 50 million households, reducing annual household interest expenses by approximately 150 billion yuan. Additionally, tools such as securities, funds, insurance companies' cross-border conveniences, stock repurchase special re-lending have been created to encourage long-term funding into the market and support the stable development of the stock market. The market response has been positive, and social expectations have significantly improved. Recently, financial markets such as stocks, bonds, and foreign exchange have shown positive trends, with some macroeconomic indicators and high-frequency data also showing marginal improvement. In October, the manufacturing Purchasing Managers Index (PMI) was 50.1%, up 0.3 percentage points from the previous month, returning to the expansion zone after five months, indicating a slight improvement in economic momentum.
On the other hand, it is important to note that recent comprehensive policies to increase increments are not merely stimulus measures. They represent a major adjustment in policy logic, not only providing short-term demand expansion solutions but also including a significant amount of reform and structural adjustment measures. Pan Gongsheng, Governor of the People's Bank of China, stated at this year's Financial Street Holdings forum that to promote high-quality and sustainable economic development, a balance between growth rate and quality, internal and external factors, and investment and consumption dynamics must be maintained. Currently, strengthening demand-side management is gradually gaining consensus, and the direction of macroeconomic policies will shift from previous biases towards investment to a focus on both consumption and investment, with greater emphasis on consumption. In the future, while introducing comprehensive support policies, efforts should also be made to advance reforms and substantially expand domestic demand.
In terms of the next steps in policy direction, it is widely believed within the industry that monetary policy will continue to maintain a supportive stance. The central bank has repeatedly stated its commitment to a supportive monetary policy since the beginning of this year. Recently, Pan Gongsheng further stated at the National People's Congress that the People's Bank of China will adhere to the fundamental principle of serving the real economy through finance, maintain a supportive monetary policy stance, intensify monetary policy adjustments, continuously improve the quality and efficiency of financial services, and promote economic high-quality development. Simultaneously, financial reform and opening-up will be further deepened, accelerating the establishment of a modern financial system with Chinese characteristics and ensuring overall financial system stability. It is widely believed that the supportive stance of monetary policy will not change in the short term, and next year, monetary policy is expected to continue to maintain significant strength, creating a favorable monetary and financial environment for stable economic growth and high-quality development.
At the same time, fiscal policy is also highly anticipated. It is believed that achieving the annual economic growth target will require a greater role for fiscal policy. Recently announced at the National People's Congress press conference, plans to permanently increase the government debt ceiling by 6 trillion yuan to replace local hidden debts and allocate an additional 4 trillion yuan in special local bonds over five years for debt restructuring will significantly reduce local interest expenditures and ease local debt risks. Additionally, the issuance of special national debt to support large state-owned banks in supplementing capital, optimizing tax policies to support the healthy development of the real estate market, and issuing local special bonds to repurchase existing land are expected to be released gradually. The effects of these fiscal policies will gradually become apparent in the future.