Where does China’s confidence in its macroeconomic policy come from?

Illustration: Liu Xidan/GT

The Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting recently to analyze the current economic situation. It further clarified that China's overall economic recovery and growth has been stable, and the upward trend has continued. The meeting also made arrangements for economic work in the second half of the year, calling for efforts to accelerate the cultivation of new growth drivers and strengths, and to steadily promote high-quality development.

First, the meeting affirmed the overall judgment that China's economy maintained a positive momentum in the first half of 2024. This is significant for the expectations of China's macroeconomic policy in the second half of the year and the global asset price predictions. China's economy has far exceeded the development levels of the early reform and opening-up period. After over 40 years of hard work by the Chinese people, China's economic policies now have a global impact, influencing prices of commodities, financial currencies and other assets worldwide. 

The Chinese government, with a long-term perspective, has neither implemented, nor will it implement, any irrational fiscal or monetary policies. At the macro level, the focus remains on the economic structure and the welfare of the people. The active and stable fiscal and monetary policies of 2024 are in sharp contrast to the extensive debt expansion by the US government. According to the latest data from the US Treasury Department, as of July 26, the US federal government debt exceeded $35 trillion, accounting for more than 120 percent of GDP. In contrast, China has consistently adhered to macro policies to mitigate hidden debt risks at various government levels over the past few years. The Political Bureau meeting further emphasized the need to improve and implement a package of local debt-clearing plans and create conditions for speeding up efforts to defuse debt risks of local financing platforms.

Without relying on government debt to stabilize the economy, where does the confidence in China's macro policy come from? The competitiveness of "Made in China" in the global market undoubtedly plays a crucial role. In the first half of 2024, China's goods trade volume reached 21.17 trillion yuan ($2.9 trillion), up 6.1 percent year-on-year. Moreover, this strong trend in foreign trade is not temporary. It has persisted over the past few years, accelerating quarter by quarter. This is a result of China's strategic focus on shifting from virtual to the real economy, and continuous high investment in R&D in high-end manufacturing, fundamentally enhancing the technological content of foreign trade enterprises. As reiterated in the Political Bureau meeting, "It is imperative to achieve greater self-reliance and strength in science and technology, strive for breakthroughs in core technologies in key fields, and promote the transformation and upgrading of traditional industries."

Looking ahead to the second half of 2024, foreign trade is expected to continue to achieve steady growth. The market's highest expectations undoubtedly lie in the structural optimization and upgrading of domestic consumption, driving a more stable and long-term economic structure. This is why the Political Bureau meeting proposed to "make service consumption a major driver in the expansion and upgrading of consumption." From the perspective of the long-term economic cycle, China's economy has achieved a miracle of rapid development over the past 40 years of reform and opening-up. Today, China has completed basic urbanization and industrialization. In the future, China's "dual circulation" development aims to deflate the "irrational consumption" bubble of wild real estate growth, while actively encouraging consumption structure optimization, promoting the flow of consumption to smaller county-level regions and encouraging private investment to upgrade, ultimately achieving the long-term goal of common prosperity.

To achieve these goals, an important source of motivation for China's future economy remains the promotion of a positive cycle of "technology-industry-finance." This means using modern financial tools and methods to serve the development of the real economy, increasing the proportion of direct financing, and supporting tech-innovative enterprises to build a financially strong nation. Nowadays, more and more scientists are focusing on the industrialization and product application of their academic research results. Additionally, more entrepreneurs are emphasizing the acquisition, storage and incubation of tech-innovative projects, while more local government leaders are considering tech-innovative industries as the most important means for future differentiated competition with other regional economies. In other words, China's new generation of scientists, entrepreneurs, financial investors and local governments are proactively focusing on the tech-innovation field, gradually forming a new industrial ecosystem in the field of commercialization of invention achievements.

Looking ahead, the confidence in China's future economy not only comes from the nation's major manufacturing and the pursuit of being part of the "lighthouse factories," but also from the industrial chain ecosystem of new quality productive forces. China should implement the emphasis of the Political Bureau meeting on "supporting the development of 'gazelle' and 'unicorn' enterprises," and steadily advance China's intelligent manufacturing. 
 
The author is the vice president of Yongxing Securities. [email protected]