China CEWC – key takeaways: Economic stability and policy coordination

CMB International Securities | Economic Research | Economic Perspectives PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE ACCESS KEY TO OUR REPORTS ON BLOOMBERG: CMBR Ding Wenjie, PhD (852) 3900 0856 / (86) 755 2367 5597 dingwenjie@cmbi.com.hk Related Reports 1. China inflation in Nov: Pork remains in the spotlight – 11 Dec 2019 2. The toughest grass stands strong winds: 2020 China economic outlook – 2 Dec 2020 3. Trough in 3Q, expect marginal stabilization in 4Q – 21 Oct 2019 4. China inflation in Sep: Pork price up higher – 15 Oct 2019 5. China-US trade talk: Phase One Deal for tentative truce – 14 Oct 2019 6. China Economy in Aug: Still in a trough & why we bet on stabilization in 4Q – 17 Sep 2019 7. China inflation in Aug: Surging pork prices and PPI contraction – 10 Sep 2019 8. China cut banks’ RRR – What’s next? Which stocks will benefit? – 9 Sep 2019 (co-work with CMBI Research Team) 9. Hovering around bottom and keep forging ahead – 15 Aug 2019 13 Dec 2019 1 The tone-setting Central Economic Work Conference convened on 10-12 Dec 2019, which enlightened tones and direction of policymaking and rolled out major tasks of economic work next year. Stability remains top priority. While the government will continue to implement proactive fiscal policy and prudent monetary policy, the statement urges coordination of macro policies with micro policies in order to effectively support economic growth.  2020 is a critical connecting year. It will be the last year to finish up building a moderately prosperous society and achieving goals of the 13th Five-Year Plan. It will also prelude the 14th Five-Year Plan. That said, we could pin down “required” or target growth of many different sectors using numbers stipulated in the 13th Five-Year Plan.  Ensuring stability is top priority. To keep economic growth “in a reasonable range” is stressed again in order to create jobs and improve people’s livelihood. We expect the government to adjust next year’s growth target to “around 6 percent” compared to “between 6.0% and 6.5%” in 2019, to reflect the probability of GDP growth falling below 6.0% (CMBIS estimate is 5.9%). The target will be officially announced in Mar 2020.  Policymaking to be more targeted, effective and coordinated. The meeting urges continual implementation of proactive fiscal policy and prudent monetary policy. But there exists some difference when compared to previous years’. 1) Fiscal policy will focus more on optimizing expenditure (i.e. reducing general admin expense but supporting key areas) rather than cutting taxes and fees. 2) Monetary policy will strive to reduce financing cost for the real economy, while being flexible and appropriate and liquidity reasonable and adequate. 3) Emphasized coordination between macro and micro policies. The statement requires fiscal and monetary policies to form a joint force with consumption, investment, employment, industry as well as regional policies. To promote synergies and improve implementation mechanism is critical for policy effectiveness.  To achieve high quality growth via 1) innovation-driven, and 2) reform and opening-up. The dual engines were outlined for the first time at the highest level. The statement called on efforts to reform institutional system for science and technology, to encourage corporate technology innovation, and to support basic research. Opening-up policies will cover a wider landscape and go deeper, which entail shortening the negative list of foreign investment, reducing overall tariffs, helping corporates diversify export destinations, and etc.  Key sectors or areas. 1) Advanced manufacturing, 2) infrastructure, and 3) areas related to improving people’s livelihoods carry larger multiplier effect and will benefit from channeled funding and other supportive measures to drive even bigger growth in both demand and supply. Data Summary GDP growth (%) 2015 2016 2017 2018 2019E 2020E Target range Around 7.0 6.5-7.0 Around 6.5 6.0-6.5 6.0-6.5 Around 6.0 Realized 6.9 6.7 6.8 6.6 6.2 5.9 Source: NBS, Government Work Report, CMBIS estimates China CEWC – key takeaways Economic stability and policy coordination 13 Dec 2019 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 2 Figure 1: GDP growth target may be lowered to “Around 6.0%” next year Source: Government work reports, NBS, CMBIS estimate Figure 2: Decomposing major content of the CEWC statement Source: CEWC statement, CMBIS 4567891011200820092010201120122013201420152016201720182019E2020EGDP grow th, %Growth target rangeRealized2018年12月19-21日2019年12月11-13日背景研判我国发展仍处于并将长期处于重要战略机遇期；世界面临百年未有之大变局，变局中危和机同生并存。我国正处在转变发展方式、优化经济结构、转换增长动力的攻关期，结构性、体制性、周期性问题相互交织，“三期叠加”影响持续深化，经济下行压力加大。当前世界经济增