event:
The central economic work conference was held from December 8 to 10, 2021. The conference summarized the economic work in 2021, analyzed the current economic situation, and made specific arrangements for the economic work in 2022.
Key investment points:
1) It is proposed for the first time that economic development faces three major problems of “demand contraction, supply shock and weakening expectation”, and the necessity of steady growth in 2022 is prominent. Previous important meetings and speeches set the tone for China’s economic situation as “facing new downward pressure”, which is reflected in the lack of momentum for China’s economic recovery and foreign environmental constraints. This meeting did not excessively describe the constraints of foreign environment, but further expressed China’s economic pressure as “demand contraction, supply shock and weakening expectation”. First of all, compared with the uncertainty of the external environment in the previously released third quarter goods policy report, this meeting focused on the elaboration of China’s economic risks, which means that the formulation of aggregate policy is still “me oriented”, The constraints of the current foreign environment on China’s economic development and policies may be more reflected in “the constraints of the accelerated exit of ultra loose monetary policy on China’s monetary policy space”. Secondly, the pressure of this meeting on China’s economy is reflected in “demand contraction, supply shock and weakening expectation”. Combined with the relevant statements in China’s annual economic conference on December 11, we believe that “demand contraction” is mainly reflected in the current insufficient domestic demand and weak investment; The “supply shock” is reflected in the shortage of production factors of Chinese enterprises, and the problems such as lack of core and power are still prominent. The “expected weakening” is reflected in the great downward pressure on the economy next year. Among them, the operating pressure of small and medium-sized enterprises and financial market risks deserve special attention.
Under the background of “stability” as the policy objective in 2022, we interpret the policy part of this meeting from four aspects: general tone, policy rhythm, implementation subject and main focus.
2) From the perspective of the general tone of the policy, there are 25 words of “stability” in the draft of this meeting, which means that “stability” will become the main line of policy regulation and control in the year of the 20th National Congress of the Communist Party of China. In terms of monetary policy, the tone of “flexible and accurate” in 2021 will be changed to “flexible and appropriate”. “Precision” highlights the role of “precision drip irrigation” of structural policy, and “moderation” expands the operation space of monetary policy. Recalling the statement on the tone of monetary policy in the central economic work conference over the past decade, “flexibility and moderation” mostly occurs in years with great downward pressure on the economy, such as 2014, 2015, 2018 and 2019. Next year, on the basis of ensuring the continuous development of structural monetary policy tools such as refinancing, targeted RRR reduction and carbon emission reduction support tools, it is expected to continue to reduce RRR and even interest rates. In terms of fiscal policy, the statement of “improving efficiency and paying more attention to accuracy and sustainability” was continued, and “the implementation of new tax reduction and fee reduction policies” was emphasized. We believe that the previous large-scale tax reduction and fee reduction policy may come to an end, and the structural tax reduction and fee reduction will become the focus of implementation in the next stage. The new combined tax reduction and fee reduction policy will focus on small, medium-sized and micro enterprises, individual industrial and commercial households and other economic entities with operating difficulties.
3) From the perspective of policy rhythm, the addition of “appropriate forward policy force” in the statement of this meeting means that compared with the overall slow policy rhythm of this year, the steady growth policy may be introduced successively at the end of the year and the first quarter of next year, and the forward intention of macro policy in 2022 is obvious. In terms of monetary policy, with the easing of high inflation constraints and negative profits of industrial enterprises, interest rate cuts may be expected in the first quarter of next year; In terms of fiscal policy, the rhythm forward signal is more obvious. Considering that the revenue of fiscal and government funds increased by 14.7% year-on-year in the first three quarters of 2021, and the year-on-year growth rate of expenditure decreased, under the policy attitudes of “accelerating expenditure progress” and “moderately ahead of infrastructure investment”, it is expected that fiscal expenditure will increase rapidly from the first quarter of next year, among which, Infrastructure will play a more prominent role in underpinning the economy.
4) From the perspective of the main body of policy implementation, the meeting pointed out that “all regions and departments should shoulder the responsibility of stabilizing the macro economy and actively launch policies conducive to economic stability”, combined with the statement made by Han Wenxiu, director of the central finance and Economic Commission at the China economic annual meeting on the 11th that “at present, stable growth is not only an economic issue, but also a political issue”, It means that the introduction of the steady growth policy next year will involve all sectors and fields.
5) From the perspective of policy, the importance of expanding domestic demand and investment has increased. In terms of domestic demand, we will release the consumption potential of the central and western regions and rural areas, and develop both basic consumption and upgrading consumption. Since the second half of the year, the expression of “expanding domestic demand” has increased significantly, mainly because China’s export boom is gradually peaking under the repair of overseas production, and the driving force of economic growth will switch to domestic demand next year. The meeting reiterated that “China has great potential for domestic demand and should implement the strategy of expanding domestic demand”. First of all, “great domestic demand potential” mainly refers to the great domestic demand potential in central and Western China and rural areas. Regional development and coordinated development among regions are important support points for expanding domestic demand. Secondly, “implementing the strategy of expanding domestic demand” requires policy guidance in specific areas. We should promote upgraded consumption while consolidating basic consumption. Combined with the relevant statements of some previous high-level meetings, it is expected to further introduce specific measures to expand domestic demand in automobile, household appliances, new urbanization and digital construction in various fields next year. In terms of investment, we will actively expand effective investment and combine expanding short-term demand with long-term growth momentum. High quality economic development means that China can no longer “wear new shoes and follow the old road” in investment and construction, and investment should fully ensure “effectiveness”. Expanding short-term demand highlights that the bottom line of ensuring people’s livelihood remains unchanged. Considering the previous gas pipeline explosion in many places, it is expected to increase the investment expenditure for the benefit of the people, such as the investigation and transformation of urban underground pipe network; Increasing long-term momentum means that investment expenditure in pollution reduction, carbon reduction, new energy, new technology, Shenzhen New Industries Biomedical Engineering Co.Ltd(300832) clusters and other fields will increase, highlighting “quality and efficiency improvement”.
In addition to the economic situation and macro policy analysis, we focus on the interpretation of real estate policy, double carbon policy, debt risk and financial risk.
6) In terms of the real estate market, the policy tone of “housing without speculation” remains unchanged, and healthy development and virtuous circle are the development direction. This meeting reiterated the positioning of “housing without speculation” and followed the expression of “promoting the virtuous cycle and healthy development of the real estate industry” in the meeting of the Political Bureau. It means the trend of “de real estate”. Among them, we need to focus on the new expression of “virtuous circle” in recent important meetings. We can understand the “cycle” as a series of feedback from real estate sales, financing and credit risk. When real estate enterprises have credit risk, it will show a negative cycle of “difficult sales lead to difficult payment collection – limited financing – increased credit risk – more difficult sales – further tightening of financing – increased risk”, The “virtuous circle” of real estate means that by moderately relaxing the mortgage credit policy, supporting and meeting the reasonable housing demand, moderately relaxing the real estate development loan management, meeting the normal liquidity needs of real estate enterprises, reducing the cash flow pressure of real estate enterprises in both directions and promoting the development of good cycle of real estate. In addition, the construction of long-term rental housing and indemnificatory housing will become an important work promoted by the government in the field of real estate next year. Increasing the construction of indemnificatory housing not only reflects the bottom line thinking of ensuring people’s livelihood at present; Secondly, it can hedge the continued downturn in real estate investment since the second half of the year and help steady growth; Thirdly, it can provide high-quality construction projects for special bonds and other funds, and help the policy “improve quality and efficiency”.
7) In terms of dual carbon field, “carbon peak” is not equal to “carbon charge”, and we should strive for progress while maintaining stability in strategy. On the whole, the meeting summarized and prospected the double carbon policy. First, “correctly understanding and grasping the carbon peak and carbon neutralization” means that some local governments have deviated in their understanding of the double carbon goal in the past. Combined with the statement of Lou Jiwei, Minister of finance of the Central Plains at the China annual economic conference, “China’s expression of the double carbon goal is’ strive to achieve carbon peak by 2030 and carbon neutralization by 2060 ‘, and’ strive ‘does not mean to ensure the realization”. It shows that we can not understand the double carbon target as a rigid target and “carbon peak” as a “carbon charge”. Second, the meeting stressed that “the new renewable energy and raw material energy consumption will not be included in the total energy consumption control, and create conditions to realize the transformation from” double control “of energy consumption to” double control “of carbon emission and intensity as soon as possible”, indicating that the double carbon work cannot be simply decomposed layer by layer, and the long-term mechanism of energy conservation and energy efficiency needs to be improved in the future. In addition, the meeting stressed that China’s energy structure is still dominated by coal. First stabilize the stock, and then actively expand the increment. The safety and controllability of new energy is the basis for the exit of traditional energy. In this context, the current energy consumption double control target may be adjusted next year to issue early warning more frequently.
8) In terms of debt risk, the expression of “government implicit debt” was more severe, and “leverage” was not mentioned in the meeting. There were two changes in the expression of government debt at this meeting: first, the emphasis on “resolutely curb new local government implicit debt”, which was more severe than the expression of “pay close attention to the risk resolution of local government implicit debt” in 2020, indicating that the policy has not been relaxed in the resolution of government implicit debt; Second, compared with the expression of “stabilizing leverage” in the central economic work conference in 2019 and 2020, the conference did not mention the word “leverage”. We believe that the change of expression may mean that the government departments will appropriately increase leverage next year, and the resident departments and enterprise departments will still focus on stabilizing leverage. The reasons are as follows: first, it was mentioned in a working paper released by the central bank that since the residents’ debt side is mainly housing mortgage loans, the rise of residents’ leverage ratio has no obvious pulling effect on consumption, but has a squeeze on consumption. Considering the policy of expanding domestic demand next year, The government undertakes more public service functions through appropriate leverage (as mentioned above, increase the construction of long-term rental housing and affordable housing), reduce the pressure on residents to increase leverage and release residents’ consumption potential. Second, considering that the leverage of China’s enterprise sector is mainly composed of the debt of the financing platform of state-owned enterprises, under the constraint of Resolutely Curbing the new implicit debt of the government, the leverage of the enterprise sector is mainly stable.
9) In terms of financial risks, the possibility of covering the risks of some financial enterprises is reduced. The sixth national financial work conference will be held in 2022. There are many statements on financial risks at this conference, focusing on the statements of “accurate bomb removal” and “compacting the main responsibility of enterprise self rescue”. Taking into account the previous Evergrande debt event fermentation, the first bank and the two sessions have said that the risk problems of individual real estate enterprises are mainly due to their own poor management and blind expansion. The relevant statements on financial risks in this meeting may mean that when some enterprises, especially leading enterprises, have problems, the possibility of policy disclosure is decreasing. In the future, more emphasis will be placed on the main responsibility of enterprise subjects in risk prevention, so as to prevent risks and fill loopholes from the source and reduce the occurrence and diffusion of risks.
10) In the stock market, the valuation driven market in 2022 is more obvious. 2021 is a typical performance driven market, which is reflected in high performance growth digesting overvalued values. With the increase of macroeconomic pressure, the performance growth rate of listed companies will fall, the performance driving force will decline, and the valuation driving force will become the main contradiction in the market in 2022. The typical valuation driven market stems from the loose macro policy and the stability of meso industrial policy. 2022 is the year of the 20th National Congress and the political cycle. Stability will become the main line through policy regulation. The flexibility and moderation of monetary policy reserves space for subsequent counter cyclical regulation. The level of industrial policy remains stable, and the market has the basis for periodic valuation. From the perspective of market rhythm, from the economic work conference to the peak economic season in March, the market will interpret “warm winter market” and “spring agitation”. Growth and consumption will be the main line of the market. The consumption field focuses on optional consumption, such as cars, auto parts, small household appliances, and mandatory consumption, such as food and beverage, medicine, agriculture, animal husbandry and fishery. The high boom growth sector focuses on three clues, First, green development, such as wind power, photovoltaic, hydrogen energy, energy storage and circular economy; second, high-end manufacturing, such as semiconductors, national defense and military industry; third, digital economy, big data, cloud computing, Internet of things, etc.
Risk tips: liquidity tightening is higher than expected, economic stall is downward, epidemic situation is worse than expected, overseas tightening is accelerated, etc
