China Economics_ Preparing for Another Resilience Test - Central Economic Work Conference Preview

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the China Economics sector, particularly the upcoming Central Economic Work Conference (CEWC) scheduled for December 12, 2023, which will set the economic priorities for 2025 [10][14]. Core Insights and Arguments 1. GDP Growth Target: Policymakers are likely to maintain the "around 5%" target for real GDP growth in 2025, with the target for 2024 appearing achievable due to policy efforts since mid-year [10][14][15]. 2. Inflation and Deflation: Ending deflation is not expected to be a priority. The current policy system lacks a designated ministry for price stability, and the best outcome may be a focus on stabilizing overall price levels [15][17]. 3. Reactive Policy Mode: The policy shift observed since September is real but does not indicate a move towards a proactive policy mode. Policymakers are showing urgency to address economic slowdown but are unlikely to adopt a more aggressive stance [17][21]. 4. External Uncertainties: Elevated uncertainties regarding external factors, such as US tariffs, may limit clarity for policymakers. The CEWC is expected to highlight these risks without providing specific reaction plans [19][53]. 5. Monetary Policy Constraints: The supportive monetary policy stance is anticipated to continue, with expectations of 50 basis points rate cuts in 2025. The current net interest margin (NIM) is at an all-time low of 1.53%, which may constrain monetary policy [22][32]. 6. Fiscal Policy Outlook: A supportive fiscal policy tone is expected, with a projected general government deficit of approximately RMB 11.6 trillion for 2025, an increase from RMB 8.96 trillion in 2024. This could lead to a deficit exceeding 3% of GDP [33][34]. 7. Consumer Stimulus Initiatives: There is a consensus that fiscal stimulus will focus more on consumption in 2025, with potential areas for funding including trade-in programs, childbirth subsidies, and targeted cash transfers [37][38]. 8. Property Market Support: The housing policy aims to stabilize the market, with government buybacks seen as an effective tool to address excess supply. However, the balance between funding support and moral hazard remains a challenge [48][49]. 9. Response to US Tariffs: The CEWC is likely to reiterate the commitment to opening up and may respond symbolically to US tariffs, but no concrete plans are expected. The focus will remain on boosting domestic demand in light of external pressures [53][55]. Additional Important Insights - Local Government Incentives: The effectiveness of policy easing may depend on local governments' willingness to implement central directives, which has historically varied [20]. - Economic Diplomacy: The US tariff threats could reshape China's trade relations, potentially expanding trade negotiations with other partners [55]. - Monitoring Future Developments: Key areas to watch include the implementation of announced policies, the impact of monetary easing, and the effectiveness of consumption support measures as 2025 approaches [58][59]. This summary encapsulates the critical insights and projections regarding China's economic landscape as discussed in the conference call, highlighting the interplay between domestic policies and external challenges.