With the New Year right around the corner, now is a good time to take a look back at the major developments in China’s economy over the last year and look ahead to see what’s in store for 2022.
At last week consecutive meetings of the Political Bureau of the Communist Party of China (CPC) Central Committee and the Central Economic Work Conference, where policymakers are charged with coming up with a macroeconomic plan for the coming year, Chinese leaders emphasized that work on the economy should prioritize stability while pursuing progress in 2022.
“Stability” has become a watchword in economic policy circles, and the way it is achieved will directly affect how China’s economy develops in the future.
In recent years, as China’s economy has been under sustained pressure, “stability” has become a crucial part of setting macroeconomic policy. Consequently, “ensuring stability on six fronts” has become a widely known policy goal in China, along with maintaining security in six areas, including continuing to improve people’s livelihoods, striving to stabilize the macroeconomic landscape, keeping the operation of the economy within an appropriate range and maintaining social stability.
For 2022, top leaders have required that policymakers do everything in their power to reach these goals.
“Ensuring stability on six fronts,” which was first introduced at a meeting of the Political Bureau of CPC Central Committee on July 31, 2018, refers to maintaining stability in employment, the financial sector, foreign trade, foreign investment, domestic investment and expectations.
“Maintaining security in six areas” refers to maintaining security in jobs, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains and the normal functions of primary-level governments. It was first proposed at a meeting of the Political Bureau on April 17, 2020. Compared with the “six fronts,” the “six areas” goal is new, arising from the domestic economic fallout from the Covid-19 pandemic. Therefore, these two requirements have created a bottom line for macroeconomic policymaking in China, and have achieved positive results.
“Ensuring stability on six fronts” has been implemented as a whole but focuses on different fronts in different stages. Among the six fronts, there are causes and effects; some are external or internal requirements. Whether employment tops the list, or the financial sector, foreign trade and foreign and domestic investments highlighted in some stages or recently prominent expectations, all these ultimately fall on stabilizing policies. As long as policies are stabilized, expectations will follow suit, meeting another target of the “six fronts” goal.
Stabilization policies are urgently needed. China’s GDP growth rate slowed to a mere 4.9% year-on-year for the third quarter of 2021 from 9.8% year-on-year for the first three quarters, according to data from the National Bureau of Statistics. And China’s fourth-quarter GDP growth is expected to slow to further.
China’s economic growth took off at the beginning of 2021, only to decelerate as the year went on. There are factors behind the decline, including a relatively high baseline from 2020, the flooding that ravaged parts of the country earlier this year, and the Covid-19 pandemic. There have also been structural economic issues that have hindered growth, such as a slowdown in the recovery of consumer spending.
In addition, it is impossible to ignore the effects of stricter regulations on the real estate market and the after-school education industry, as well as rationing and controls on both the total amount and intensity of power consumption.
Policies such as the “dual carbon” goals, “double reduction” and “three red lines” are all aimed at promoting the sustainable healthy development of the industries they cover. However, their effects on businesses have definitely damaged the macroeconomy. That is the reason why the statement promoting the healthy development and virtuous circle of the real estate industry proposed at a meeting of the Central Political Bureau of the CPC has attracted such close attention in the market.
Since 2020, China’s economy has gradually recovered from the Covid-19 pandemic. However, uncertainties abroad have grown and China’s domestic economic recovery remains unstable and unbalanced, especially because domestic demand isn’t as strong as it could be. To stabilize the macroeconomy and ensure economic growth ends up in a reasonable range, China needs to pursue the “six fronts” and “six areas” goals, in particular by stabilizing growth through stabilizing policies.
Among China’s economic work for 2022, the macro policies can be seen as representative of the concept of “stability.” More specifically, the continuous implementation of financial policies and stable currency policies are the premises of the stability and effectiveness of macro policies.
The keys to implementing positive financial policies are improving efficiency and paying more attention to accuracy and sustainability to prevent local government debt risks. Robust currency policies need to show certain flexibility and moderation to maintain reasonable and sufficient monetary liquidity. On Dec. 15, the People’s Bank of China will cut the comprehensive reserve requirement ratio by 0.5%, in an effort to stabilize growth. Expanding domestic demand and effective investment, promoting sustained recovery of consumption and enhancing the endogenous driving force of development will facilitate the recovery and rise of China’s economy in 2022, while also entailing political stability.
China should seek to improve while maintaining stability. Stability is not an end in itself, but a foundation for improved development, and it is by no means low-level or passive stability. This is the true meaning of seeking improvement in stability. The Chinese economy is the second-largest in the world. It features strong resilience, high potential and ample room for maneuver. It has withstood the huge impact of a “black swan” event — the Covid-19 pandemic — and remains stable overall.
That being said, China’s economy is still long way from meeting the requirement of high-quality development. Many scholars, both at home and abroad, have pointed out in recent years that the stimulative effect of fiscal and monetary policies has continued to decline, and the proportion of new economy industries in the economic aggregate has stagnated. This can be seen in the continuous drop in total factor productivity in the Chinese economy. To reverse the situation and truly realize improvement in stability, strong measures should be taken to improve quality and efficiency.
In the long run, ensuring stability on six fronts and maintaining security in six areas ultimately depends on motivating market entities. Policymakers are fully aware that competitive enterprises are the building blocks of high-quality development. Therefore, entrepreneurship should be promoted, entrepreneurs must be fully trusted, relied on and respected and full play should be given to the important role they play in boosting corporate innovation and enhancing corporate competitiveness.
Recently, some individuals have been making waves in the court of public opinion, stirring up old rumors about the alleged loss of state assets at Lenovo, a matter that has long been settled. This runs counter to the policy direction of the central government and thus requires clearer and stronger policy signals from all departments and governments at all levels, who must work unswervingly to both consolidate and develop the public sector and encourage, support and guide the development of the nonpublic sector.
To stabilize and invigorate its economy in the coming year, China must press ahead with comprehensively deepening reform and further opening up to the outside world, as well as increase the stability of expectations through stability and enable supplies to create demand by relying on people’s imagination and creation. This is the most effective and reliable way for China to deal with the risks and challenges it faces in 2022.
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