The tone-setting Central Economic Work Conference convened on 10-12 Dec 2019, which enlightened tones and direction of policymaking and rolled out major tasks of economic work next year. Stability remains top priority. While the government will continue to implement proactive fiscal policy and prudent monetary policy, the statement urges coordination of macro policies with micro policies in order to effectively support economic growth.
- 2020 is a critical connecting year. It will be the last year to finish up building a moderately prosperous society and achieving goals of the 13th Five-Year Plan. It will also prelude the 14th Five-Year Plan. That said, we could pin down “required” or target growth of many different sectors using numbers stipulated in the 13th Five-Year Plan.
- Ensuring stability is top priority. To keep economic growth “in a reasonable range” is stressed again in order to create jobs and improve people’s livelihood. We expect the government to adjust next year’s growth target to “around 6 percent” compared to “between 6.0% and 6.5%” in 2019, to reflect the probability of GDP growth falling below 6.0% (CMBIS estimate is 5.9%). The target will be officially announced in Mar 2020.
- Policymaking to be more targeted, effective and coordinated. The meeting urges continual implementation of proactive fiscal policy and prudent monetary policy. But there exists some difference when compared to previous years’. 1) Fiscal policy will focus more on optimizing expenditure (i.e. reducing general admin expense but supporting key areas) rather than cutting taxes and fees. 2) Monetary policy will strive to reduce financing cost for the real economy, while being flexible and appropriate and liquidity reasonable and adequate. 3) Emphasized coordination between macro and micro policies. The statement requires fiscal and monetary policies to form a joint force with consumption, investment, employment, industry as well as regional policies. To promote synergies and improve implementation mechanism is critical for policy effectiveness.
- To achieve high quality growth via 1) innovation-driven, and 2) reform and opening-up. The dual engines were outlined for the first time at the highest level. The statement called on efforts to reform institutional system for science and technology, to encourage corporate technology innovation, and to support basic research. Opening-up policies will cover a wider landscape and go deeper, which entail shortening the negative list of foreign investment, reducing overall tariffs, helping corporates diversify export destinations, and etc.
- Key sectors or areas. 1) Advanced manufacturing, 2) infrastructure, and 3) areas related to improving people’s livelihoods carry larger multiplier effect and will benefit from channeled funding and other supportive measures to drive even bigger growth in both demand and supply.
