China’s Politburo Focuses on Consumer Demand and Real Estate Crisis

Chinese leaders pledged to boost domestic consumer demand and tackle the country’s real estate crisis following a key meeting that laid out next year’s economic priorities.

Under a new slogan pledging to achieve stability through economic progress, the Politburo, a top decision-making body of the ruling Communist Party, said on Tuesday that it would step up policy adjustments to support an economic recovery in 2024.

The meeting, chaired by President Xi Jinping, came amid growing concerns over the health of China’s economy, which has been hit by the COVID-19 pandemic, a slowing property market, and trade frictions with the United States.

China’s gross domestic product (GDP) grew by 4.5% year on year in the first quarter of 2023, exceeding market expectations, but still lagging behind the pre-pandemic levels. The recovery was partly driven by a rebound in retail sales and exports, as the lifting of COVID restrictions in December 2022 boosted domestic and global demand.

However, the recovery also exposed some structural weaknesses in China’s economy, such as the overdependence on investment, especially in the real estate sector, which accounts for about a quarter of GDP. The property market has been cooling down since the second half of 2022, as the government tightened credit and regulatory policies to curb speculation and debt risks.

The slowdown in the property sector has spilled over to other industries, such as construction, steel, cement, and furniture, and has dampened consumer confidence and spending. The producer price index (PPI), a gauge of factory-gate inflation, rose by 9.8% year on year in November 2023, the highest level since 1996, reflecting the rising costs of raw materials and energy. The consumer price index (CPI), a measure of consumer inflation, increased by 2.3% year on year in November 2023, the highest level since January 2020, driven by higher food and fuel prices.

To address these challenges, the Politburo said it would spur domestic demand and consolidate and enhance the economic recovery in 2024. It also said it would maintain the continuity, stability, and sustainability of macroeconomic policies, and make them more targeted, flexible, and effective.

The Politburo did not specify what kind of policy adjustments it would make, but analysts expect that the government will ease some of the monetary and fiscal tightening measures that were implemented earlier to prevent overheating and leverage. For example, the government may lower the reserve requirement ratio (RRR) for banks, which determines how much money they must hold in reserve, to increase liquidity and lending in the economy. The government may also increase the quota for local government special bonds, which are used to fund infrastructure projects, to stimulate investment and create jobs.

The Politburo also said it would actively and steadily resolve the risks and problems in the real estate sector, and promote the healthy and stable development of the housing market. It reiterated its stance that “houses are for living, not for speculation”, and that it would not use the property market as a short-term stimulus for the economy.

The Politburo’s statement signaled that the government is not willing to bail out the troubled property developers, such as Evergrande, which is facing a debt crisis and has defaulted on some of its bond payments. Instead, the government is likely to adopt a case-by-case approach, and let the market play a bigger role in the restructuring and deleveraging of the sector.

The Politburo also said it would deepen the reform and opening-up of the economy, and enhance the innovation and competitiveness of the industrial system. It said it would accelerate the development of strategic emerging industries, such as information technology, biotechnology, new energy, and new materials, and foster new growth drivers for the economy.

In addition, the Politburo said it would improve the quality and efficiency of the green and low-carbon transition, and implement the national carbon emission trading system. China has pledged to peak its carbon emissions by 2030, and achieve carbon neutrality by 2060.

The Politburo’s meeting set the tone for the annual Central Economic Work Conference, which is expected to be held later this month, and will outline the detailed economic policies and targets for 2024. The meeting will also mark the start of the implementation of the 14th Five-Year Plan (2021-2025), which aims to achieve high-quality development and modernization of the economy.