Liu Yuanchun's Interpretation of the Central Economic Work Conference: The Macro Policy Will Not See Big Change Next Year

From 16 to 18 December, the annual Central Economic Work Conference was held in Beijing, in which the current economic situation is examined to set the tone for next year's macro policy. Liu Yuanchun, economist and vice president of Renmin University of China (RUC), offers his interpretations of the meeting during an interview.

1. Next year's macro policy is expected to be continuous, stable and sustainable

China is leading the world in its economic recovery and expects to embrace an accelerated revival. The macro policy must be maintained stable for the next period of time. If abandoned halfway, their effects may be largely compromised, to the detriment of the economic recovery.

Next year's macro policy can neither change greatly for abnormally large expansion, nor “be satisfied with mediocrity” that could lead to a cliff-like drop. At the same time, due to the high cost of some special policies this year, such as epidemic bailouts and enterprise relief, it is necessary to ensure such "extraordinary means” are withdrawn in an orderly manner while sustaining stable economic recovery. However, this does not mean that next year's macro policy is invariable; instead, on the basis of steady progress and bottom-line thinking, its continuity, stability and sustainability will be grasped.

2. Fiscal deficit is expected to shrink slightly next year compared with this year

Since the reform and opening-up, China's fiscal deficit rate has all along remained below 3%. This year, China's fiscal deficit rate has been set at above 3.6%, an increase of more than 0.8% over last year and topping 3% for the first time in history. The deficit is set at 3.76 trillion yuan, up 1 trillion yuan from last year, the highest in record.

Next year's fiscal policy will also emphasize "quality and efficiency improvement" and "more sustainability". Such a proactive fiscal policy could bring some potential risks, such as hidden debt risks for local governments. A higher deficit ratio is not necessarilybetter. Reasonable expenditure should be maintained while fiscal sustainability also needs to be grasped. Next year's fiscal deficit is likely to shrink slightly compared with this year.

3. Increase financial support for scientific and technological innovation and small and micro enterprises

Keeping a rather robust money supply and scaling up social financing to match the growth rate of nominal economy, will feature prominently in the monetary policy next year. But a robust monetary policy does not mean a notable shrinkage in money supply and social financing. Quite the contrary, based on the aforementioned match, some indicators may rise slightly.

4. Remove some administrative restrictions on consumption and purchase

At present, some institutional and systemic problems are hindering the potential of consumption and investment demands to be fully exploited. Also, supply and demand are poorly balanced and the transaction cost is too high. For example, some medium- and high-end consumer goods cannot be accessed in the domestic market due to regulatory constraints. It was therefore suggested in the meeting that some administrative restrictions on consumption and purchase should be removed in an orderly manner.

5. Expand domestic demand at the institutional level

The meeting has proposed a package of plans for expanding domestic demand at the institutional level, involving both short-term and medium-term consumption, both systemic and institutional problems, both market and public consumption. Expanding consumption, fundamentally speaking, is to promote employment, improve social security, optimize income distribution mix, expand the middle-income community and firmly advance common prosperity. We must combine expanding consumption with improving people's quality of life. In order to eliminate some administrative restrictions on consumption and purchase regulations, fully tap the consumption potential of counties and townships. We should improve the vocational and technical education system to expand higher-quality employment. We should rationally increase public spending and improve its efficiency in education, medical care, elderly care, maternity and children care and so on. We must continue to play a critical role in enhancing investment growth momentum. We should give play to the role of central budget in guiding and leveraging investment in fields with strong spillover and high social benefits. Social investment should also be stimulated. We should vigorously develop the digital economy and increase investment in new-type infrastructure. Investment in equipment upgrade and technological transformation in manufacturing industries should be further expanded. We should continue to upgrade the cities, promote the transformation of old urban districts, and build a modern logistics system. We should strengthen unified planning and macro-guidance, coordinate the development of different industries and avoid redundant construction by emerging industries.