In efforts to stimulate stable economic growth, relevant authorities have taken decisive actions by rolling out a comprehensive policy package. This package amalgamates various facets of economic governance, including monetary policy, fiscal policy, industrial policy, and livelihood policy. According to authoritative sources, the effective implementation of existing policies coupled with the accelerated introduction of new ones has resulted in a favorable shift in the economic landscape of China since October. Based on my research and observations, I will provide an analysis of the current economic and financial policies in place.The monetary policy has maintained a stance of flexibility and moderate easing. The issuance and utilization of ultra-long-term special treasury bonds and local government special bonds are central to galvanizing government investment. Additionally, there is a concerted effort to invigorate the capital market by attracting long-term capital investments. Obstacles preventing funds from social security, insurance, and wealth management from entering the market are being addressed. As global inflationary pressures ease and economic recovery slows down, the U.S. Federal Reserve has resumed cutting interest rates for the first time in four years as of mid-September 2024, indicating that major economies are shifting into a phase of declining interest rates. In this context, China, with relatively low benchmark interest rates, benefits from a more accommodative external financial environment, enabling the country to pursue a more flexible and moderately easing monetary policy. This has effectively complemented fiscal and industrial policies aimed at reviving the economy.The current fiscal policies prioritize alleviating local government debt and bolstering bank capitalization. Addressing local government debt has become a focal point of fiscal and financial initiatives. While local debt restructuring primarily falls within the fiscal domain, its implications are closely intertwined with the financial system. Since 2024, after following necessary procedures, the Ministry of Finance has allocated a significant quota of 1.2 trillion yuan to support the resolution of existing debt risks and the clearance of corporate arrears. This year, the Ministry of Finance launched the most extensive debt relief measures, increasing the debt limit significantly in a bid to replace local governments' outstanding debt.Another significant aspect of this financial support initiative involves capital infusion into six state-owned commercial banks to enhance their core capital adequacy ratio. This move aims to fortify the financial system's capital reserves and improve its capacity to withstand risks. Various banking institutions in China have faced mounting performance pressures due to the sluggish real estate market and other contributing factors. Furthermore, the ramifications of the three-year COVID-19 pandemic drastically decreased the financial burden on the real economy, placing additional stress on banks' capital adequacy ratios. Presently, small-to-medium local banks, particularly those in underdeveloped and rural regions, lack the appeal of their equity to private capital, necessitating capital infusions from local governments or state-owned resources to improve asset quality.Beyond monetary policy, financial support initiatives are focusing on reinforcing the foundational structure of the capital market, along with two innovative monetary policy tools tailored to support capital market advancements. One such tool is the swap mechanism for securities, funds, and insurance companies, which allows various institutional investors to trade securities, swapping their portfolios for more liquid, standardized government bonds. This assists financial institutions in achieving longer-term investments while ensuring asset liquidity and solvency. Another crucial policy encourages listed companies and their major shareholders to repurchase and increase stock holdings through special re-lending policies, enabling companies to utilize cash to enhance their market capital management. These comprehensive policy measures are revitalizing market confidence and providing a stable long-term capital source for the capital market. As of mid-October, the implementation of these incremental policies has led to a sustained recovery in market conditions, clearly revealing the positive effects of the policies.Fiscal policies are now amplifying their counter-cyclical adjustment efforts, ensuring necessary fiscal expenditures, and effectively managing grassroots “three protections” efforts—protection of lives, the living standards of residents, and economic stability. In comparison to financial and industrial sectors' incremental policies, there’s heightened social scrutiny regarding fiscal policy. The comprehensive fiscal measures are pivotal for improving the current economic performance, making the fiscal system a critical bulwark against internal and external economic pressures. While the financial and industrial systems are typically characterized by procyclical natures and operate under economic realities, only government fiscal expenditure can effectively exercise countercyclical adjustment and mitigate economic downturns. After the late pandemic period in 2022, China faced the triple pressures of “shrinking demand, supply shocks, and weakening expectations.” As we moved into 2024, global supply chains began to stabilize post the geopolitical shocks of the Russia-Ukraine conflict, alleviating supply-side challenges. However, reduced demand and diminished expectations persisted as predominant issues. The shrinking demand is largely attributed to insufficient domestic demand, which is intricately linked to weakened expectations. Drawing upon historical experience and present economic realities, there is a pressing need for government intervention to reverse the prevailing situation. It’s well recognized that credit and industrial policies are primarily supply-side measures targeting production sectors. However, genuine improvement in consumer expectations requires an expansion in fiscal measures. That is, only through fiscal expansion and deficits can we effectively translate funds into purchasing power, focusing resources on tangible economic boosts.It’s crucial that any additional fiscal spending, such as the newly issued ultra-long-term special treasury bonds, primarily addresses large-scale equipment upgrades and the recycling of consumer goods, contrasting with historical initiatives primarily focused on expansive infrastructure funding. This current fiscal stimuli can quickly convert to purchasing power demand, thereby exerting a direct impact on real economy needs. Concurrently, industrial promotion and livelihood enhancement policies heavily rely on sound fiscal policy support. Within the purview of industrial policy, there is a concentrated effort on two key areas captured in the phrases “new and old.” The “new” pertains to emerging industries, recognizing the cultivation of these sectors as a long-term endeavor. Current incremental policies further amplify support mechanisms to inspire quality growth across the entire industrial framework. The “old” signifies traditional industries, notably the beleaguered real estate sector. Given the pressing realities confronting this traditional sector, achieving stabilization and reversing the downtrend must be prioritized to avoid a hard landing.The real estate sector epitomizes the “old dynamics” of the economy, characterized by its sheer magnitude and interwoven industrial chains, fostering an expansive ecosystem worth trillions. This ecosystem has effectively shaped China's heavy industry structure, capital intensity, and extensive energy consumption profiles. Transitioning from one dominant economic driver to another inevitably unfolds over an extended historical timeline, particularly regarding industrial structure upgrades. Though the boom-and-bust cycle of the real estate market was born from China’s rapid urbanization phase, its future won't witness a total decline but rather a gradual decrescendo in significance, eventually yielding ground to new forces of economic growth.At present, emerging industries are flourishing, with a steadily expanding marketScale, albeit their absolute scale remains comparatively modest and their capacity to absorb labor is limited. Traditional sectors such as real estate, which epitomize the “old forces,” continue to be the primary avenues for absorbing surplus labor, particularly migrant workers. In contrast to the broad distribution of traditional old dynamics, emerging industries exhibit spatial concentration patterns, leading to economic disparities during the transition of dynamics. Should the decline of traditional sectors accelerate or collapse suddenly, without the timely rise of emerging sectors to fill that gap, the continuity of economic growth would undoubtedly face disruptions, engendering a plethora of socioeconomic issues.In this context, it is imperative to expedite the formulation of supporting policies related to land, taxation, finance, etc., to foster a new model of real estate development.As it stands, the livelihood policies hinge on fusing consumer stimulation efforts with enhancing citizens' well-being, advocating for increased income for lower and middle-income groups and promoting structural spending upgrades while encouraging the emergence of new consumption forms. There remains a conspicuous lack of effective demand in the current economic framework, thus broadening domestic demand as a shift in growth strategy is a predetermined policy direction for economic development in China. However, the vibrancy of consumption markets is deeply intertwined with the evolution of livelihood initiatives. Social surveys reveal that many households are hesitant and unwilling to spend due to inadequacies in the social security system.To truly invigorate domestic consumption dynamics and cultivate new growth avenues in the consumption domain, substantial advancements in the livelihood sphere are necessary, particularly in expanding social security coverage among rural populations and vulnerable urban cohorts. Current economic conditions warrant significant improvement, directly impacting employment and income levels. Failure to effectively manage employment strategies may amplify societal anxieties, dampening consumer enthusiasm. Consequently, current livelihood policies focus on revitalizing domestic consumption and bolstering effective demand.Similar to the emphasis on stock adjustments over indiscriminate volume expansion in industrial development, the consumption sector must identify and rectify shortcomings. Currently, significant income and consumption disparities exist between urban and rural areas, particularly in high-value consumer product categories where penetration rates are much higher among urban households. The focus on amplifying domestic consumption to stimulate internal demand should predominantly center on rural regions and small towns. In the face of declining birth rates in central urban areas, rural and small-town demographics still fall within reasonable birth rates, providing conducive conditions for sustained consumption growth. In these regions, housing leverage ratios are lower, and participation in financial markets is limited, and the recent downturn in housing prices and financial market fluctuations has less adversely affected household wealth. All these factors constitute important components for sustaining consumer resilience and creating effective demand.
