The Communist Party of China published a statement after ending its four-day closed-door period third plenary to its decision-making Central Committee. Investment banks rushed to read between the lines for clues about the trajectory of the world’s second-largest economy.
Offering few details, the statement outlined the broad reform package in the medium and long term, focusing on technological innovation, new quality production strength, risk control and supply chain security. The wording and policy framework are very consistent with what key policymakers emphasized before the high-stakes meeting.
Still, the stock market was disappointed in its search for short-term solutions, as benchmark indices fell in Shanghai, Shenzhen and Hong Kong following the statement. The renminbi prolonged its depreciation against the US dollar.
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One bright spot from the plenary was the government’s specific reference to China’s 2024 economic growth target, set at around 5 percent, raising speculation that a series of policies to support and stimulate the economy will be rolled out. A meeting of the party’s all-powerful political cabinet, scheduled for the end of July, could be the occasion for policy details.
Here are the views of the world’s leading investment banks and asset managers at the third plenary:
Goldman Sachs analysts led by Lisheng Wang and Hui Shan:
“We consider the results to be broadly aligned with respect to the long-term direction of reform, but slightly more positive in terms of the short-term macroeconomic policy stance. We believe that more demand-side easing measures are needed – especially in fiscal and housing fronts – to secure the full-year real GDP growth target of “around 5 percent” and view the July Politburo meeting (around the end of the month) as a potential window for more rhetoric and flexibility measures.”
HSBC Holdings Chief Economist for Greater China Liu Jing:
“China will increasingly support the development of advanced technology to increase productivity while improving people’s livelihoods, [which] should help fuel more consumption-driven growth. Fiscal reforms and management of ongoing risks, such as local government debt and the real estate sector, should help free up more resources for areas of higher productivity. While China’s transition still needs time, we think further reforms could help unlock more productivity gains along the way.
Noteworthy is the statement’s emphasis on “openness as a distinctive feature of China’s modernization.” We hope the government prioritizes reforms that facilitate foreign investment.”
Moody’s Analytics economist Harry Murphy Cruise:
“Although the statement lacks detail, as is typical, China should, in the coming weeks, publish a comprehensive document outlining the decisions. For now, the statement says most of the right things.
Ahead of the four-day meeting, we called for reforms around local government property, taxes and debt, as well as support for private businesses and investment, all of which were mentioned. The reference to supporting domestic consumption is also a positive development.
There is still tension between the expansion of the supply side of the economy and the increase in household spending. As expected, there were few policies for the here and now. Third plenary sessions generally take a long-term view, but this was still a missed opportunity. The mention that the Central Committee is “firmly committed to meeting this year’s objectives for economic and social development” – an unusually short and direct objective – suggests that more support is on the way to ensure China achieves its goal. [2024] growth target.
The statement is taken from the existing manual. It reinforces the desire to shift the economy away from real estate and construction growth towards advanced technologies such as artificial intelligence, semiconductors and green technologies. National security and supply chain resilience also feature strongly.”
Citigroup China equity strategist Pierre Lau:
“The statement included a comprehensive set of goals with key targets defined for 2029 and 2035. Given that most of the orientations mentioned are familiar, we see the result reflecting a high level of political continuity on the part of China’s leadership, with consistent approaches to the status quo. Hence: no major changes to our sector and stock recommendations.
From a strategic point of view, we maintain our preference for sectors oriented towards the global economy, such as exporters and raw materials names (especially gold), rather than goods or consumer names oriented towards the domestic market, in a context of weakness economic situation that could persist in the second half of 2024.”
Andrea Yang, fixed income portfolio manager at JPMorgan Asset Management:
“We do not see significant changes in the position of policymakers in pursuing the new growth model in the medium to long term. Therefore, the real estate sector is expected to focus on managing downside risks rather than bazooka-type stimuli. A similar approach applies to local government debt management.
The Plenary mentioned that the authorities are committed to meeting the growth target for this year. We thought [the growth target of] around 5 percent remain intact and expect incremental policy support in the second half of the year, especially through fiscal guidance, investment in fixed assets in industry/infrastructure and the goods trade program.
We maintain a mixed trading view on Chinese government bonds as the lack of a [policy] the bazooka limits the rise in CGB yields, while the intervention of the People’s Bank of China limits the fall. On the currency front, policymakers will likely prefer a stable currency, although there may be more flexibility for a weaker yuan against the US dollar as the Fed’s cut becomes more concrete and trade tensions rise.”
DBS Analysts:
“The main reform tasks are consistent with the current policy framework, with high-quality development and technology advancement taking center stage. We are pleased to see that key leaders promise to improve market mechanism ensuring good economic circulation and increasing internal vitality, which have been concerns among investors.
The Third Plenum also discussed recent economic development and reaffirmed the GDP target for 2024. We believe this requires further policy support, such as accelerating the issuance of special local government bonds and reducing interest rates. The expectation of more political support will serve as one of the catalysts for market movement in the second half of the year.”
Economists at Société Générale Yao Wei and Michelle Lam:
“The statement does not provide significant new information, aligning with low expectations ahead of the event. It reaffirms the commitment to meeting this year’s economic and development goals by actively increasing domestic demand and developing new quality productivity forces, such as at the April Politburo meeting.”
With additional reporting by Mia Castagnone and Jiaxing Li.
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