China’s Shanghai Composite Stock Index ($CHSC) fell more than -1% today after Chinese leaders at the annual Central Economic Work Conference vowed to make industrial policy their top economic priority next year, disappointing investors hoping to see more forceful stimulus to boost growth. The conference made building a “model industrial system” its number one goal for 2024, up one place from last year. The priority for 2023 was boosting domestic demand, which fell to second place for 2024.
China’s top leaders at this year’s work conference put greater emphasis next year on developing cutting-edge technology and artificial intelligence. They said little about supporting housing, with no new remedies to offer for the faltering property sector. The subdued market reaction to the annual conference suggests the doom and gloom in Chinese markets may extend into next year. The chief China economist at BNP Paribas SA said, “The measures sound rather traditional, and nothing much was very creative.”
The conference’s emphasis on supporting companies to produce higher-value products versus trying to spur consumer spending means that will be little economic stimulus over the near-term. Standard Chartered Plc said, “We don’t see any signs of large-scale stimulus,” as this year’s annual conference showed that “technology self-reliance is more important” than in previous years.
Compared to last year’s work conference, there was more emphasis on economic problems caused by a supply-side focus. The report also warned that the “complexity, severity, and uncertainty of the external environment is rising,” signaling a reference to geopolitical headwinds. Tensions between the U.S. and China remain high after the U.S. imposed sweeping curbs on China’s access to cutting-edge chips, increasing President Xi Jinping’s focus on homegrown innovation. However, Pantheon Macroeconomics warns that “this strategy carries geopolitical risks.”
The reluctance of China to implement a large stimulus plan to boost its economy might be due to the government’s concern about limiting the build-up of local government debt, which in past crises has led to unfinished projects and industrial overcapacity. Also, Chinese leaders don’t necessarily trust local governments to distribute money efficiently or without corruption. UBS said Chinese leaders see employment as the best way to boost consumption, and they believe the way to do that is through supporting the corporate sector with tax cuts and “targeted” stimulus. The bottom line is that a Chinese economic revival might be a long haul.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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