Graphics: What can be expected from China's economic work conference?

The upcoming annual Central Economic Work Conference (CEWC), closely watched by investors, may focus on discussions to prioritize development, expand domestic demand, and prevent and defuse risks next year, as a key meeting hinted.

The Political Bureau of the Communist Party of China (CPC) Central Committee, the top decision-making body of the CPC, held a meeting on Friday to analyze the economic work in 2024 and the economic priorities expected to be fleshed out at the upcoming CEWC.

Chinese policy makers will continue to implement proactive fiscal policies and prudent monetary policies and underpin technological innovation, according to the meeting of the Political Bureau of CPC Central Committee.

A number of international financial institutions, including UBS and Goldman Sachs, have expressed optimism about China's growth outlook for 2024 as they believe that domestic consumption will continue to recover, investment will continue to increase and exports will improve.

The International Monetary Fund (IMF) forecast that China's economy will increase by 5.4 percent in 2023 and 4.6 percent in 2024. UBS predicted the country's economic growth will stand at 5.2 percent in 2023 and 4.4 percent in 2024, while Goldman Sachs predict GDP growth to be 5.3 percent in 2023 and 4.8 percent in 2024.

"The proactive fiscal policies should be appropriately strengthened and improved in quality and efficiency, while the prudent monetary policies should be flexible, appropriate, precise, and effective," said the meeting.

China's central government announced in October it will issue 1 trillion yuan (about $140 billion) in additional government bonds, half of which will be transferred to local governments this year and another 500 billion yuan will be carried over to next year. As a result, the deficit-to-GDP ratio rose from 3 percent to 3.8 percent for 2023.

China can raise its budget deficit ratio next year to support the economic recovery because there is still space for the central government to issue more debt, according to Wang Yiming, a policy adviser to the central bank.

The upcoming CEWC may emphasize the need to speed up the allocation and better use of the special government bonds, and fiscal expenditures will be more directed to areas related to social issues and people's livelihood, according to UBS.

UBS has said it is unlikely that the government will introduce large-scale direct income subsidies and/or consumption vouchers. The investment bank expected the government to set a budget deficit target of 3.5-3.8 percent in March next year.

In terms of monetary policy, UBS expected the central bank will lower the MLF policy interest rate by another 10-20 basis points and the reserve requirement ratio by 25 basis points next year, and credit growth to remain at a solid level of 9.5 percent in 2024.

Banks may increase credit support to qualified real estate developers on whitelist, but may remain cautious about issuing large-scale working capital loans, according to UBS. It expected that the decline of real estate activities will be narrowed in 2024, so the drag on economic growth will weaken.

Goldman Sachs believed that with the support of fiscal and monetary policies, the growth rate of China's manufacturing and infrastructure investment is expected to accelerate in 2024. UBS believed that in manufacturing, investment related to green transformation will remain strong.

UBS also believed that investment in new energy, flood and waterlogging prevention and other water conservancy-related projects, urban agglomeration transportation networks, public utilities and public facilities have great growth potential.

"We should lead the building of a modern industrial system with technological innovation, and boost the resilience and security of industrial and supply chains," the meeting of the Political Bureau of CPC Central Committee added.

In 2024, technology industries related to new energy, artificial intelligence, bio-manufacturing, green and low carbon, as well as quantum computing will still be the top priority for development, according to Soochow Securities.