China's macro-economic policy in 2024 emphasizes stability

Editor's note: Wang Jianhui is the general manager of research and development at Capital Securities. The article reflects the author's opinions and not necessarily the views of CGTN.

Setting the lowered targets may signal the subtle change of governmental macro-economic policy. The newly released monthly statistical data shed some light on that.

According to the National Statistic Bureau (NBS), social consumption in the first two months this year was 8.13 trillion yuan ($1.1 trillion), 5.5 percent higher on a year on year basis, compared to 3.5 percent in the same period last year. This score is especially impressive if considering that new home sales, which traditionally was closely related to households' consumption, slumped by 20.5 percent in floor area or 29.3 percent in sales amount.

Online-sales of goods and services accounted for 26 percent of the total consumption and grew by 15.3 percent, suggesting that efficient business model of digital age has continued its expansion and boosted the overall consumption. As more people have been dining out or traveling frequently, the catering industry generated revenue of 948.1 billion yuan, 12.5 and 30.8 percent more than in 2023 and pre-pandemic 2019 respectively, accounting for 11.7 percent of the consumption. The growth of this industry is crucial to urban employment.

The solid performance and structural improvement of social consumption is not only the spontaneous response of people to better expectations, but also the result of governmental supportive policy. As a major sustainable driving force of the economy, consumption has become a long-term focus of policy. The government has been engaging actively, by increasing households' income, strengthening social security, and promoting urbanization, to improve the environment for consumers. More policy measures, such as organizing major theme events, raising pension payout, and launching trade-in programs for home appliances, will be on the way this year. Consumption is expected to play a bigger role in leading economic growth.

Relatively speaking, fixed assets investments tended to reflect more governmental intentions directly or indirectly during the past decade. As a powerful tool, major investment projects, such as highway or railway constructions, commercial real estate development, can be utilized on government initiatives to fight economic downturn.

In the first two months of 2021, the fixed investment recorded an astonishing jump of 35 percent, and it went on with 12.2 percent, still a double-digit growth, in the following year. It takes greater courage to exit from the proactive investment policy. The government clearly realized that investment-led growth could be hardly sustainable and enlarge the chance of overcapacity after the nation's per capita GDP crossed the 10,000-dollar level, which is usually viewed as starting point from middle income towards high income countries. Since April 2022, investment growth decelerated under 6 percent, and for January and February this year it further slowed down to 4.2 percent. The ratio between fixed investment and consumption declined to 0.63, the lowest level in the last 10 years, meaning the investment is not as significant as it used to be.

To match or even push the change, the central bank may be quietly scaling back the accommodative monetary policy little by little through adequate guidance. With the leading interests such as one-year Medium-term Lending Facility (MLF) unchanged since last August, the net increase of social financing for the first two months of this year declined from 6.75 trillion yuan same period in 2023 to 5.82 trillion yuan. M2, the main measure of the money stock including cash, checkable deposits, savings deposits, and time deposits, grew by 8.7 percent, the slowest since 2020. With less excessive liquidity in the market, the cost of funds would likely edge up from the current 1.87 percent (7-day interbank rate), which in the long run helps prevent inefficient projects and encouraging high-quality and high-return investment projects.

Besides the overall scale and pace adjustments, the government has been working hard as well to improve the structure of fixed investments. It continues to reduce the dependance on real estate expansion to minimize the economic impacts caused by the industry fluctuations, and free up resources for other industries. For the first two months of this year, real estate development investment, declining by 9 percent, accounted for 23.3 percent of total fixed investment, down from 30.4 percent during the same period in 2020. The growth of infrastructure investment also slowed down to 6.3 percent from 9.0 percent a year ago.

(Cover via CFP)