Event: on the morning of March 5, 2022, the 2022 government work report was released (hereinafter referred to as the report).
Core conclusion: the full text of the report highlights “stability” and sets the GDP target at about 5.5%. Although it is difficult, we should “strengthen confidence” and “withstand downward pressure”. We believe that China’s macro main line will focus on “counter cyclical and stable growth”, that is, the available financial resources will increase, the monetary policy will be stable and loose, and the reserve requirements and interest rates may be reduced again. Macro policy is stable + policy implementation is effective + mobilize the enthusiasm of all parties and form a joint force in all links. Wide credit has been fulfilled, and the effect of stable growth will gradually appear in the future. In terms of steady growth, we believe that infrastructure with funds and projects will play a leading role, that is, “pull infrastructure”; Micro policies will continue to stimulate the vitality of market players, and the efforts to reduce taxes and fees and reduce costs for real enterprises will be expanded. Low carbon upgrading and high-end manufacturing will drive the growth of manufacturing investment, that is, “support the manufacturing industry”; In addition, affordable housing construction and urban renewal will also play a certain role, namely “stabilizing real estate”. For the capital market, the interest rate is expected to fluctuate in the short term and may rise in the future; In terms of equity, we are still optimistic about the growth of low interest rate environment, science and technology, steady growth of building materials, green investment, high-end manufacturing, etc. In the medium term, we are optimistic about the upward trend of consumption boom and structural price rise under profit transmission.
I. General tone of the policy: take the lead firmly, have difficulties and confidence, and mobilize the enthusiasm of all parties to “do real work”.
1. Difficulties: the report continues the central economic work conference at the end of 2021 that “China’s economic development faces the triple pressure of shrinking demand, supply shock and weakening expectation”, also continues the “economic climbing over the ridge” of the premier’s Symposium in November 2021, and adds the expression “this year’s economic and social development has heavy tasks and many challenges”.
2. Confidence: the report points out that “the more difficult it is, the more we should strengthen our confidence and do solid work”. Focusing on encouraging confidence and mobilizing the enthusiasm of all parties, the report adds that “hundreds of millions of people have a strong desire to pursue a better life, great potential for Entrepreneurship and innovation, and a firm will to overcome difficulties”, “China’s economy will withstand downward pressure and will move steadily and far” “All regions and departments should earnestly shoulder the responsibility of stabilizing the economy and actively launch policies conducive to economic stability”, “work creatively according to local conditions and fully mobilize the entrepreneurial enthusiasm of all officials”, “governments at all levels and their staff must abide by their duties, work diligently for the people, concentrate on development and protect the people’s livelihood”.
3. Strive for stability: the full text has 76 words of “stability” (64 last year), highlighting “stable growth”, “stable employment”, “adhering to the general tone of seeking progress while maintaining stability”, and also continuing the expressions of “six stabilities and six guarantees” and “stabilizing the macro-economic market” since the premier’s Symposium in November, Continue the statements made since the central economic work conference at the end of 2021, such as “taking the lead in stability, seeking progress in stability, being steady and effective, and placing steady growth in a more prominent position”. The new expression “we should coordinate and stabilize growth, adjust structure and promote reform” puts “stable growth” in the first place, and also mentions “accelerating the transformation of development mode and not engaging in extensive development”. In addition, we should mention again that “development is the first priority” (previously mentioned years: 2003, 2004, 2008, 2015 and 2016). Maintain overall social stability and welcome the victory of the 20th CPC National Congress.
2. Economy, employment and prices: the 5.5% economic growth target has three considerations and requires hard work. Historically, most of the goals of the two sessions can be achieved; Do everything possible to stabilize and expand employment; Maintain price stability and pay attention to the problem that the supply of raw materials is still tight.
1. Steady growth: China’s gross domestic product (GDP) target is set at about 5.5%, which should take into account: first, stabilizing employment, ensuring people’s livelihood and preventing risks requires a certain economic growth; Second, it is consistent with the average economic growth rate in the past two years and the objectives of the 14th five year plan (the average growth rate from 2020 to 2021 is 5.1%, and the potential economic growth rate during the 14th Five Year Plan period calculated by the Academy of Social Sciences and the central bank is 5.8%, 5.6%, 5.4%, 5.3% and 5.2%); Third, this is a medium and high-speed growth on the high base, which is equivalent to the growth rate of 7% – 10% 5-10 years ago. From a local perspective, the average GDP target growth rate of 30 provinces and cities that have held the “two sessions” before is 6.35%, and the targets of Beijing and Shanghai are more than 5% and about 5.5% respectively. We expect that the real GDP growth rate will rise quarter by quarter in 2022. Under the neutral assumption, the annual growth rate is expected to be 5.3% – 5.5% and the nominal growth rate is about 8.0%. It is also understandable that the so-called “hard work is needed to achieve” in the report. Taking history as a mirror, the objectives and tasks of the two sessions at the beginning of the year have been basically completed every year since 2012, which is only slightly lower in 2014. The target of 2014 is about 7.5%, and the actual completion is 7.4%. (refer to figure 1)
2. Stabilizing employment: the report puts forward that more than 11 million new urban jobs will be created (the same as in 2021), and the urban survey unemployment rate will be controlled within 5.5% throughout the year (about 5.5% in 2021), which is also the same as the average target of the provincial two sessions in 2022. The report emphasizes that “the employment priority policy should be improved in quality and strength”, “pay attention to stabilizing employment through stabilizing market players and do everything possible to stabilize and expand employment”, “implement detailed measures to stabilize employment”, including “reducing unemployment and work-related injury insurance rates, strengthening entrepreneurial support and improving flexible employment”.
3. Stabilize prices: set the CPI target at about 3% (the same as the CPI target of the national two sessions last year and the local two sessions in 2022). The main reasons are that the consumption will continue to repair after the epidemic, the price of pigs may rise in the second half of the year, and the transmission of prices to the downstream will be strengthened. We maintain our previous judgment. It is expected that the CPI in 2022 will rise from 0.9% last year to 1% – 2% year-on-year, with the rhythm from low to high; PPI generally tends to decline, from 8.1% last year to 3% – 4%. The rhythm is high before and low after. It has strong resilience in the first half of the year. In addition, it is necessary to pay close attention to the disturbance of pig price, oil price (geopolitical impact) and infrastructure pull on PPI and CPI (refer to the report “strengthened price transmission, the reversal of difficulties is coming?”). In addition, when summarizing the problems and challenges faced, the report also mentioned “high fluctuations in commodity prices and tight supply of energy and raw materials”.
III. macro policies focus on stability, effectiveness and advancement, have space and means, and strengthen counter cyclical and cross cyclical regulation; The actual available financial resources will increase, there are not many carry over funds + broad deficits, and the intensity of tax reduction and fee reduction will increase; Monetary policy is stable and loose. We expect that if there is a need for stable growth, the reserve requirement and interest rate may be reduced again, the loan interest rate will continue to decline, the scale of new loans will increase, and the credit will be gradually widened.
1. General requirements for macro policies: the report requires that “macro policies should be stable and effective, maintain the continuity and enhance the effectiveness of macro policies, properly advance the policy force, and timely use reserve policy tools to ensure the smooth operation of the economy”. The new “macro policies have space and means” is added, Continue the central economic work conference at the end of 2021 to “strengthen counter cyclical and cross cyclical regulation”. We understand that “steady, effective and forward” means that the implementation and implementation of policies may be faster and better; “There is room and means” means that there may be room for further easing in the future, the reserve requirements and interest rates may be cut again, and the fiscal expenditure will also be expanded.
2. Fiscal policy: the general tone continues the formulation of the 1206 Political Bureau meeting and the central economic work conference at the end of 2021, that is, “active fiscal policy should improve efficiency and pay more attention to accuracy and sustainability”. In addition, this report focuses on “improving efficiency”.
This year, we lowered the budget deficit ratio to about 2.8%, mainly considering that it is conducive to enhancing fiscal sustainability (2.8%, 3.6%, 3.2% and 2.8% respectively since 2019), and 3.65 trillion local government special bonds (2.15 trillion, 3.75 trillion, 3.65 trillion and 3.65 trillion respectively since 2019). We predict that this year’s actual deficit may be about 7.1 trillion (assuming that the nominal GDP is about 8%, corresponding to the general deficit of 3.5 trillion and the special debt of 3.65 trillion), a slight decrease of 0.1 trillion compared with 2021 (the generalized deficit has been about 8.5 trillion, 7.22 trillion and 7.1 trillion since 2020), The corresponding actual deficit ratio decreased to about 5.8% (the planned deficit in 2020 was 8.4%, and the actual deficit at the end of the year was 6.2%; the planned deficit in 2021 was 6.3%, and the actual deficit at the end of the year was 3.8%; the planned deficit in 2022 was 5.8%). In addition, there are several key points:
First, on the surface, the deficit ratio will decline in 2022, and the special debt will be the same as before, but we think the available financial resources will increase significantly: 1) with the 7.1 trillion broad-based deficit and the 1.28 trillion yuan of carry over funds in 2021, the actual broad-based fiscal expenditure may not be much this year, Equivalent to 8.4 trillion yuan (last year’s planned broad deficit was 7.22 trillion yuan and the actual deficit at the end of the year was 4.4 trillion yuan); 2) The report pointed out that “it is expected that the fiscal revenue will continue to grow this year. In addition, specific state-owned financial institutions and franchise institutions will turn in the remaining profits in recent years according to law and transfer them into the budget stability adjustment fund. The scale of expenditure will expand by more than 2 trillion yuan compared with last year”.
Second, financial investment focuses on sinking the grass-roots level and driving the expansion of effective investment. 1) The government focused on implementing the policies of helping enterprises to relieve poverty, stabilizing employment and ensuring people’s livelihood, promoting consumption and expanding demand. The central government’s transfer payment to local governments increased by 1.5 trillion yuan, with a scale of nearly 9.8 trillion yuan, the largest increase in many years. 2) The expansion of investment mainly focuses on infrastructure. It is required to adhere to the principle of “funds follow the project”, reasonably expand the scope of use, support the follow-up financing of projects under construction, and start a number of qualified major projects, new infrastructure, transformation of old public facilities and other construction projects.
Third, strengthen the support for tax reduction and fee reduction, and combine tax reduction and tax rebate. The report proposes to “implement a new combined tax support policy” (last year was “optimize and implement the tax reduction policy”). Compared with last year, a new “simultaneous tax reduction and tax rebate” was added. First, continue to implement the tax reduction and fee reduction policy to support manufacturing, small and micro enterprises and individual industrial and commercial households; Second, a large-scale tax rebate will be implemented for the retention tax credit, and the increment of stock will be refunded. It is generally expected that the tax rebate and tax reduction for the whole year will be about 2.5 trillion yuan. In terms of industry, we will comprehensively solve the problem of tax rebate for manufacturing, scientific research and technical services, ecological environmental protection, electric power and gas, transportation and other industries.
3. Monetary policy: the overall continuation of the “prudent monetary policy should be flexible and appropriate and maintain reasonable and abundant liquidity” since the central economic work conference at the end of 2021. In addition, it is specially pointed out to “strengthen the implementation of prudent monetary policy” and continue the “give full play to the dual functions of the total amount and structure of monetary policy tools” proposed by the central bank’s monetary policy committee at its 2021q4 regular meeting, Combined with the above “space and means”, we expect that if there is a need for stable growth, we may also reduce the reserve requirement and interest rate, the loan interest rate will continue to decline, the scale of new loans will increase, and the credit will be gradually widened.
First, the expression of broad credit is more positive, and the macro leverage ratio may increase slightly. 21q4 the central bank’s monetary policy report proposes to “guide financial institutions to vigorously expand loan lending”. This report points out that “expand the scale of new loans”. RMB loans will be increased by 20 trillion in 2021. We predict that more than 22 trillion may be increased in 2022. The report continues last year’s statements of “keeping the growth rate of money supply and social financing scale basically matching the economic growth rate, and maintaining the basic stability of macro leverage ratio”. Combined with the 21q4 central bank’s monetary policy implementation report, we pointed out that “China’s macro leverage ratio has decreased steadily, creating space for the financial system to continue to increase its support for the real economy in the future”, It means that China’s macro leverage ratio may rise slightly in 2022 to stabilize growth.
Second, the loan interest rate will continue to decline. The report points out that “we will promote financial institutions to reduce the real loan interest rate and charges, reduce the comprehensive financing cost, strengthen the effective financial support to the real economy and promote the reduction of enterprise production and operation costs”. We expect that the LPR interest rate may also be reduced again to reduce the real loan interest rate of enterprises. Last year, in order to “further reduce the real loan interest rate and continue to guide the financial system to transfer profits to the real economy, it is necessary to make the financing of small and micro enterprises more convenient and the comprehensive financing cost stable”.
Third, assistance policies should focus on small and micro enterprises, catering, accommodation, retail, tourism, passenger transport and other industries greatly affected by the epidemic.
Based on the above, we continue to propose that the monetary policy is stable and loose, and may further reduce the reserve and interest rates (there is still room for LPR interest rate reduction), as well as the comprehensive use of refinancing, rediscount, direct physical tools, carbon emission reduction and support for clean coal refinancing to increase support for small and micro enterprises, scientific and technological innovation and green development; Meanwhile, the January wide credit has been cashed, and it is expected that it will gradually rise to the high point of the third quarter, and then fall back. (refer to the report “more positive expression of stable credit – Interpretation of the central bank’s 21q4 monetary policy report”, “calculation: is there room for LPR to cut interest rates again?” “Digital reading LPR down”).
IV. how to achieve an economic growth rate of 5.5%? Steady growth is inseparable from investment. We should pay attention to infrastructure, manufacturing upgrading and urban renewal. In addition, we should promote the sustained recovery of consumption.
1. Steady growth is inseparable from investment. Actively expand effective investment, mainly in infrastructure construction, manufacturing upgrading, new urbanization and urban renewal.
1) infrastructure construction: infrastructure construction should be the main starting point for steady growth. The report requires government investment to “strengthen performance orientation, adhere to the principle of” funds follow projects “, start major projects, new infrastructure construction, transformation of old and old facilities, etc.” it continues to point out that “infrastructure investment should be carried out moderately in advance” and focus on key areas, including 102 major projects in the 14th five year plan; Other projects such as water conservancy, transportation, energy, urban gas pipeline, flood control and drainage, underground comprehensive pipe gallery and so on. Combined with the statement of the national two sessions in 2022, in addition to the traditional infrastructure construction such as “railway public base”, the importance of new infrastructure such as 5g base station construction, UHV, intercity high-speed railway and urban rail transit, new energy vehicle charging pile, big data center, artificial intelligence and industrial Internet has been improved, as well as energy, water conservancy, pipeline, municipal administration, ecological environment For other projects such as disaster prevention and reduction, some provinces have given specific planned investment scale. We believe that this year’s infrastructure investment has funds and projects, which may reach a growth rate of more than 6% (refer to the report “Why are we optimistic about infrastructure?”.
2) support the manufacturing industry: enhance the core competitiveness of the manufacturing industry and promote industrial upgrading. The report calls for increasing medium and long-term loans to the manufacturing industry and starting industrial infrastructure reconstruction projects. We believe that it will also promote manufacturing investment related to dual carbon and emerging industries, such as promoting low-carbon upgrading of traditional industries and updating old machinery and equipment.
3) improve the quality of new urbanization, promote urban renewal and strengthen regional coordination. Including strengthening the investigation of old buildings and transforming old communities; Steadily promote the construction of urban agglomeration and metropolitan area; Further implement major regional strategies and regional coordinated development strategies.
2. Promote the sustained recovery of consumption. In addition to increasing income and improving the income distribution system, there are also a variety of means to promote consumption. The report proposes to “promote the increase of residents’ income through multiple channels, improve the income distribution system, and promote the deep integration of Wuxi Online Offline Communication Information Technology Co.Ltd(300959) consumption”. Combined with the deployment of the national and local two sessions in 2022, the main means to promote consumption are: 1) stabilize cars, household appliances and homes
