China’s Communist Party has published a communique after wrapping up its four-day closed-door third plenum for 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 little in the way of details, the communique outlined China’s broad reform package over the medium and longer term, focusing on technology innovation, the new-quality productive force, risk control and supply-chain security. The words and policy framework are very consistent with what top policymakers emphasised before the high-stakes gathering.
Still, the stock market was let down in its search for short-term fixes, as benchmark indexes declined in Shanghai, Shenzhen and Hong Kong after the communique. The renminbi extended its depreciation against the US dollar.
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One bright spot of the plenum was the government’s specific reference to China’s 2024 economic growth target, pegged at about 5 per cent, raising speculations that a raft of policies to support and stimulate the economy will be released. A meeting of the party’s all-powerful political bureau scheduled in late July may be the occasion for the policy details.
Here are the takes from the world’s major investment banks and asset managers on the third plenum:
Goldman Sachs’ analysts led by Lisheng Wang and Hui Shan:
“We view the readout as largely in line regarding long-term reform direction, but slightly more positive in terms of near-term macro policy stance. We believe more demand-side easing measures – especially on the fiscal and housing fronts – are necessary to secure the full-year “around 5 per cent” real GDP growth target, and view the July Politburo meeting (around month-end) as a potential window for more easing rhetoric and measures.”
HSBC Holdings’ Greater China Chief Economist Liu Jing:
“China will turn increasingly towards supporting advanced technology development to increase productivity while improving people’s livelihoods, [which] should help to fuel more consumption-led growth. Fiscal reforms and the management of ongoing risks such as local government debt and the property sector should help free up more resources for higher productivity areas. While China’s transition will still need time, we think further reforms can help to unlock more productivity gains along the way.
The communique’s emphasis on “opening up as a distinctive feature of China’s modernisation” is worth noting. We expect the government to prioritise reforms that will facilitate foreign investments.”
Moody’s Analytics’ Economist Harry Murphy Cruise:
“Although the communique lacked detail, as is typical, China should, in coming weeks, publish a comprehensive document outlining the decisions. For now, the communique says most of the right things.
Ahead of the four-day meeting, we called for reforms around property, tax, and local government debt, as well as support for private firms and investment, all of which got a mention. The reference to support for domestic consumption is also a positive development.
There is still tension between expanding the supply side of the economy and boosting household spending. As expected, there was little in the way of policy for the here and now. Third plenums generally take a longer-term view, but this was still a missed opportunity. Mention of the Central Committee being ‘firmly committed to accomplishing the goals for this year’s economic and social development’-an unusually short-term and forthright goal-suggests more support is on its way to ensure China achieves its [2024] growth target.
The communique reads from the existing playbook. It reinforces the desire to shift the economy away from real estate and building-led growth and towards advanced technologies such as artificial intelligence, semiconductors and green technologies. National security and supply-chain resilience also feature strongly.”
Citigroup’s China equity strategist Pierre Lau:
“The communique included a comprehensive set of goals with key targets set for 2029 and 2035. Since most directions mentioned are familiar, we see the outcome reflecting high policy continuity from China’s leadership, with consistent status quo approaches. Hence: no big change in our sector and stock recommendations.
From a strategy standpoint, we maintain our preference for global-economy-driven sectors such as exporters and commodity names (especially gold) rather than domestic-oriented consumption or property names amid economic weakness which might persist in the second half of 2024.”
JPMorgan Asset Management’s fixed-income portfolio manager Andrea Yang:
“We do not see significant change in the policymakers’ stance in pursuing the new growth model in the medium-long term. Hence, the real estate sector is expected to focus on managing downside risks rather than bazooka style stimulus. A similar approach applies to local government debt management.
The Plenum did mention that authorities are committed to meeting the growth target for this year. We think [the growth target of] about 5 per cent remains intact and expect incremental policy support in the second half, particularly from fiscal targeting manufacturing/infrastructure fixed asset investment, and goods trade-in programme.
We maintain a range-trading view on Chinese government bonds, as the lack of a [policy] bazooka limits the upside of CGB yields, while the People’s Bank of China intervention caps the downside. On foreign exchange, policymakers are likely to prefer a stable currency, although there may be more flexibility for a weaker yuan against the US dollar as Fed’s cut becomes more concrete and trade tensions heighten.”
DBS analysts:
“The key reform tasks are consistent with current policy framework, with high-quality development and advancing technology at the centre of the stage. We are pleased to see that the top leaders vow to improve market mechanism to ensure a smooth economic circulation and boost internal vitality, which have been concerns among investors.
The Third Plenum also discussed recent economic development and reaffirmed 2024 GDP target. We believe this requires more policy supports such as accelerating local government special bonds issuance and interest rate cut. Expectation of further policy support will serve as one of market moving catalysts in the second half.”
Societe Generale’s economists Yao Wei and Michelle Lam:
“The communique does not provide significant new information, aligning with the low expectations before the event. It reaffirms the commitment to meet this year’s economic and development goals by actively increasing domestic demand and developing new-quality productivity forces, same as from the April Politburo meeting.”
With additional reporting by Mia Castagnone and Jiaxing Li.
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