This article is the 751st original article published by Xijing Research Institute.This is Dr. Jian Zhao's 705th original article.
Compared with the Third Plenary Session of the 20th CPC Central Committee, which drew up a long-term development blueprint,The Politburo meeting on July 30 may give the market more expectations——At least for the more realistic steady growth policy at present. From a personal perspective, I think the whole argument is quite positive: it acknowledges the current difficulties and puts forward the pain of transformation for the first time; it promises that various policies will continue to be more powerful; it has some specific arrangements for equipment replacement, expanding consumption, increasing residents' income through multiple channels, accelerating the issuance of special bonds, and implementing a package of debt reduction plans. It can be said that this meeting is quite positive.pragmaticAfter all, poetry and distant places can only be imagined when things are going well. Difficulties and crises will make people more realistic and sober.
I wrote an article a year ago.Zhao Jian: Transformation enters a painful period”, believes that China will have to pay an enormous pain to bid farewell to real estate and land finance. Not only at the economic level, but also at the level of governance system and social stability. Of course, from an objective point of view, it is inevitable for China to bid farewell to the extensive, debt-based, high-speed development model and move towards an era of high-quality development through a “soft landing” of transformation and upgrading. Everything is just a matter of time. However, whether it is a radical one-size-fits-all “shock therapy” or a gradual reform, gradually digesting spatial distortions through long-term structural reforms, or solving long-term problems in a short period of time, this is a test of the wisdom of transformation and specific technical routes. In another article, I wrote:Zhao Jian: It is not advisable to be radical in addressing long-term problems and be careful to prevent the economy from stalling in the short term》 has conducted a relatively detailed analysis of these issues.
Since the epidemic crisis, the world has seen massive money printing and debt explosion, followed by the sequelae of inflation. China also began to experience "overheating" phenomena such as inflation and soaring housing prices from the fourth quarter of 2020 to the first half of 2021. Although the economy is still in the epidemic crisis, due to the good recovery of China's industrial chain and supply chain, the stimulus policy was withdrawn ahead of schedule and structural reforms aimed at high-quality development were carried out. Tightening policies such as the "three red lines", rectification of education and training, and platform investment traffic lights were successively introduced in an attempt to "soft land" before the 20th National Congress. However, due to the out-of-control of the real estate market, a comprehensive revaluation of China's assets as a whole resulted in...The structural crisis of the balance sheet, that is, assets were liquidated, but liabilities continued to expand, resulting in a cyclical downward trend of debt deflation.China has officially entered the contractionary deleveraging phase of its super debt cycle.
Therefore, since the epidemic subsided in 2023 and society returned to normal, demand has continued to shrink under the situation of major adjustments in the real estate market, especially the real estate investment and infrastructure investment that represented the internal circulation and were highly relied on in the past, which have reached a historical low. Although consumption has rebounded in retaliation, the downward trend in real estate has brought down the demand for durable goods and has not been able to provide sufficient incremental compensation. In the end, we can only rely on exports, which rely on the external circulation. SoOf the three horses, one is weak, one is not moving forward but is dragging backward, and only one is strong, but it still needs "outsiders" to feed it grass.。It can be said that today’s situation is not a short-term problem, but a long-term cycle and trend adjustment.It is unprecedentedly complex and severe.
The situation is like this,PolicyIn fact, it is also constantly correcting the deviation. Take real estate as an example. From the three red lines, to the three arrows of financing, to the three major investment projects, to the new three arrows of 517, it is not a matter of not exerting force or not giving it enough strength. It’s just that too many industries and fields have been brought down by the downturn in real estate, especially the balance sheets of the three departments, especially the cash flow statements of local governments, so it feels a bit like Sisyphus pushing a rolling boulder. Against this backdrop, from the Central Economic Work Conference and the Central Financial Work Conference in the fourth quarter of last year, to this year’s 430 Politburo meeting, the Third Plenary Session of the 20th Central Committee, to the just-opened 730 Politburo meeting, all of them focus on how to deal with the current situation. However, the Third Plenary Session of the 20th Central Committee faces more cross-cycle issues, while the Politburo meeting will make arrangements for policies in the most recent quarter and half a year.
The overall tone is still positive and full of positive energy.On the one hand, we recognize the difficulties of insufficient demand and the complexity of the external environment, and on the other hand, we have made some specific arrangements. We are still full of confidence in the challenges of the current and future situations, and we must maintain "strategic determination" and endure the "transformation pains." The subtext is that the current economic and social transformation, whether it is real estate problems, local fiscal problems, or overcapacity caused by shrinking domestic demand, as well as social expectations and lack of confidence among private entrepreneurs, are all temporary and are the inevitable pains of transformation. Compared with the benefits of transformation, the cost of these pains is still worth it. This is a reflection of the socialist market economy with Chinese characteristics in the new era.Highly confident.
Maintain strategic focusThis does not mean that there will be no policy action.There are many things in this Politburo meeting.More pragmaticFor example,Macroeconomic policies should continue to be more effective, prevent involutionary competition, create conditions to resolve local debts, speed up the use of special bonds, and make good use of ultra-long-term special government bonds.Prevent and correct some places from using administrative and criminal means to intervene in economic disputes, increase residents' income through multiple channels to boost consumption, etc.This means that the policy in the second half of the year will be better than that in the first half of the year.More activeWe maintain our judgment that the economy will rebound in the second half of the year with a "low at the beginning and high at the end". In terms of market analysis, as the US interest rate cuts are implemented, China's fiscal policy is effectively implemented.The capital market is expected to usher in a wave of valuation repairAfter all, the valuation was killed too badly in the first half of the year. The corresponding strategy may need to be fine-tuned. On the basis of maintaining bonds as the base position, the interest rate bonds and bond-like dividend stocks should be appropriately reduced, and the oversold cycles and growth stocks should be added when the opportunity arises; in an environment with increased volatility, hedging derivatives such as options should also occupy a stable proportion of positions. Of course, it is still not advisable to be overly optimistic overall.
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