China needs to improve bond financing for private enterprise; consumption now the bright spot for economic recovery
What China's top economists are saying on domestic social media as of 12 October, 2023
A round of opinion pieces published by some of China’s top economists on domestic social media as of 12 October, 2023.
Improve the bond financing environment, implement policies to support private enterprise: Zeng Gang
Zeng Gang (曾刚), director of the Shanghai Institution for Finance & Development, points out that "the private economy is a key component of China's socialist market economy," but that "bond financing channels for private enterprises remain blocked."
"At present, the scale of credit bond financing by private enterprise has already hit a historic low, which is related to economic growth and the shock of the pandemic," Zeng writes.
Zeng cites data indicating that from the start of 2023 to mid-August, the amount of credit bonds issued by China's private enterprises totalled 606.4 billion yuan, accounting for 5.05% of total credit bond issuance, and only 1.35% of the total bond market issuance.
“From January to August 2023, the net financing amount of private enterprise credit bonds reached a historical low of -357.3 billion yuan, which is not commensurate with the contribution of the private economy,” he writes.
"Poor financing channels in the bond market have exacerbated the financing difficulties of private enterprises and the instability of funding sources.
“This is not conducive to the direct financing role of a multi-tier bond market, or to the effective transmission of China's monetary policy."
Authorities in Beijing are well aware of this dilemma, prompting the issuance of the "Central Committee and State Council Opinions on Expediting the Development and Strengthening of the Private Economy" (中共中央 国务院关于促进民营经济发展壮大的意见) on 19 July 2023.
Zeng advocates a range of measures to correct these issues including:
Stimulating the bond market to give more support to private enterprises, particularly by means of asset securitisation channels.
Diversifying market participants and establishing a greater number of tiers and participating investors.
Improving market infrastructure, including laws and regulations, information disclosure mechanisms and investor protections.
Household consumption growth is the key driving force:: Yang Delong
Yang Delong (杨德龙), the former chief economist of First Seafront Fund (前海开源基金), points out that a raft of data from China's recent October vacation period indicates that "China's consumption potential is immense and still a powerful domestic demand force."
"Consumption is currently a bright spot for growth of the economy, and an important engine for driving economic recovery," Yang writes.
"Consumption's contribution to GDP has already exceeded 50%, surpassing investment and exports combined. In the first half of this year, consumption growth made a contribution of over 70% to GDP growth."
Given that "consumption growth has already become the number one engine for driving China's economic growth, and an important means for driving domestic demand," Yang expects the Chinese government to unveil more vigorous measures in the fourth quarter to invigorate consumer confidence and consumption propensity.
"In terms of monetary policy, the central bank may continue to cut interest rates and reserve requirement ratios in the fourth quarter, to maintain reasonable and sufficient liquidity and promote economic recovery," he writes.
"At present, it seems that the economy has gradually recovered. July was the month with the lowest growth rate in the whole year on a monthly basis, and it has since begun to pick up. It is expected that the economic recovery in the fourth quarter will be significantly stronger than that in the third quarter.
"From the perspective of industries that will benefit from economic recovery, first of all, the recovery in consumption will bring opportunities in the consumer sector. Companies in the consumer sector, including branded liquor, branded traditional Chinese medicine, and some food and beverages, may benefit and perform better."
The two main growth drivers for stabilising growth and changing models: Liu Shimin
Liu Shimin (刘世锦), the deputy director of the China Development Research Fund and a former deputy chair of the State Council's Development Research Centre, writes that China's economy is still in the transition period from high-speed to medium-speed growth, or from high-speed growth to high-quality development.
"As old methods such as infrastructure, real estate, and exports that drove rapid growth in the past are no longer effective, there is an urgent need to find new methods to stabilize growth," Liu writes.
"To get out of the current stressful situation, the key is to tap new growth potential, including horizontal demand space and the momentum for vertical upgrades."
According to Liu, increasing "horizontal demand space" means narrowing the gap between low- and middle-income groups and middle- and high-income groups in the end demand structure - including consumption and non-productive investment.
"This will enable the consumption level of the middle- and low-income groups to gradually approach that of the middle- and high-income groups, with a focus on the stabilisation of growth," Liu writes.
"Vertical upgrades" refers to improving the technological content and added value of industry, in order to expand the Chinese economy's "upward space".
This includes upgrading the value chain of existing industries, and the creation and development of new industries or "future industries" driven by new technologies.
Liu calls for launching a new round of structural reforms to stabilize growth in the short-term and enhance development momentum in the medium and long term.
This program will include demand-side structural reforms, with a focus on equalizing basic public services for new rural migrants to Chinese cities.
Supply-side structural reforms will focus on "existing pillar industries and stimulating entrepreneurship to promote the development of new leading industries," while balance sheet reform will focus on expanding effective demand, transforming the asset-liability model, and resolving risks.
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