It was suddenly revealed that back in November, an invitation was extended to President Xi Jinping to attend the U.S. presidential inauguration next year. Unsurprisingly, today the media reports that Xi is unlikely to attend. President Xi Jinping would never come to play second fiddle. To him, such an invitation would be seen as an insult.
$Trip.com Group Limited(TCOM)$
This article is written by Shernice, if you like my article please hit the like button or do a repost.
Domestically, there’s a clear sign of his displeasure—no one in China is allowed to mention this matter, and the Ministry of Foreign Affairs is refusing to comment. This speaks volumes. Also, let’s not forget that January in Washington, D.C., is freezing. Considering President Xi’s fragile health, there’s no way he’d endure sitting outdoors in such harsh winter conditions.
This entire situation feels like a showdown brewing between Trump and President Xi. Trump is pushing hard to assert dominance, while Xi seems agitated yet unwilling to fully retaliate. This tension leaves me wondering how the trade war might escalate next year.
Meanwhile, back in China, Xi has been busy with a flurry of meetings this week. The Politburo meeting just concluded, followed closely by the Central Economic Work Conference. These gatherings have essentially set the tone for next year’s economic policies. Ironically, as soon as the Central Economic Work Conference wrapped up on the 12th, the stock market took a dive. The Shanghai Composite Index dropped 2%, signaling disappointment in the capital markets once again.
Xi believes the common folk have money but are unwilling to spend it, while the people assume the CCP still has some grand moves left to play. The day comes when the Xi calls a meeting, and the public remains indifferent—no market frenzy, no hopeful speculations filling the air. That’s when it will finally dawn on everyone: neither side has anything left to offer.
The stock market’s pattern is predictable these days. If the Shanghai Composite falls below 3,300 points, the "national team" will step in to prop it up. But when it nears 3,500 points, they’ll consider it overpriced and cut it down. This volatility isn’t entirely the conference’s fault.
So, how should we interpret this Central Economic Work Conference? What specific economic measures can we expect next year? Let’s analyze. In fact, the recent Politburo meeting already laid the groundwork for next year’s macroeconomic policies. The Central Economic Work Conference simply provided additional details.
For example, one key feature of this conference is identifying the nation’s current challenges. At the end of 2021, the conference summarized the "threefold pressure" on the economy: shrinking demand, supply chain shocks, and weakened expectations. This year, however, a new phrase was added: "some enterprises are facing operational difficulties, and people are under pressure to find jobs and increase income."
At first glance, it might seem like progress to acknowledge these income challenges. But when you look at the proposed solutions, it’s disappointing. If you’re aware of these struggles, what practical measures are you offering for next year? That remains unclear.
Let’s start with fiscal policy. In the recent Politburo meeting, fiscal policy was described with a more proactive tone. The Central Economic Work Conference added specific details to this, such as increasing fiscal spending efficiency, issuing more ultra-long-term special bonds, expanding local government special bond issuance, and optimizing fiscal expenditure structures.
However, none of this increased government debt is directed toward raising people’s incomes. For instance, the additional issuance of ultra-long-term special bonds was explicitly stated to support the "two types of projects" and the "two-star policies," just like this year. In 2023, China issued 1 trillion yuan in ultra-long-term bonds, with 700 billion allocated for the two types of projects and 300 billion for equipment upgrades and the replacement of old consumer goods.
Next year, they might issue 1.5 trillion yuan in ultra-long-term bonds, with 900 billion for the two types of projects and 600 billion for consumer goods replacements. On top of that, the Ministry of Finance has already signaled plans to issue another 1 trillion yuan in ultra-long-term bonds, primarily to inject capital into state-owned banks. Since there’s been no action on this front yet, it’s likely this issuance will roll over into next year. This could bring the total ultra-long-term bond issuance in 2024 to 2.5 trillion yuan.
There’s also the expansion of local government special bonds. The purpose? As clarified in the conference, some funds will be directed toward real estate, and some will go into injecting capital into small and medium-sized local banks. How much will they issue next year? This year’s cap was 3.9 trillion yuan. If we’re optimistic, it might increase to 4.7 trillion yuan. Why this guess? The Ministry of Finance’s earlier 12 trillion yuan debt resolution plan mentioned allocating 800 billion yuan annually for replacing bank debt, which might be added to the local bond quota.
Apart from ultra-long-term bonds and local special bonds, what’s left is the fiscal deficit budget. There might be a small portion for public welfare, but keep your expectations low. The fiscal deficit rate will likely stay at or below 4%—perhaps only 3.5%. Why? Because the phrase “strengthen extraordinary counter-cyclical adjustments,” used in the Politburo meeting, was removed from the Central Economic Work Conference. This indicates that President Xi Jinping deemed it too aggressive, opting instead to temper expectations.
This cautious stance shows that next year’s fiscal deficit is unlikely to be high, leaving limited room for spending on public welfare. The only mention of public welfare spending in the conference summary was under the section on boosting domestic consumption. It included modest measures like increasing basic pensions for retirees, raising urban and rural residents’ basic pension levels, and slightly improving fiscal subsidies for medical insurance.
But let’s face it—these measures seem more like benefits for those within the system. Most of the pension increases go to retirees from within the state system. Those outside the system get little, and rural residents fare the worst. This year, rural retirees saw a meager monthly increase of 20 yuan, bringing their monthly pension to just 123 yuan. Even if it increases by another 20 yuan next year, it will only reach 143 yuan—a sum still inadequate for basic living expenses.
Once again, the Communist Party acknowledges income challenges but offers no real solutions. It’s frustrating. If you recognize the problem, why not propose actionable steps? The entire report is devoid of concrete answers, making it feel like another round of empty promises.
What we mean by "domestic demand" and what President Xi understands as "domestic demand" are entirely different. This discrepancy is clear in the nine key tasks for next year outlined in the conference summary.
The first priority outlined in the Central Economic Work Conference is boosting domestic consumption and comprehensively expanding domestic demand. But the method for achieving this reveals President Xi Jinping’s true approach: “stimulating social investment through effective government investment.”
In simple terms, his idea of expanding domestic demand is to drive consumption through investment, not by increasing people’s income and empowering them to spend. This is a fundamental difference. Using investment to drive consumption is akin to this year’s "trade-in for new consumer goods" campaign. The central government allocated 150 billion yuan to stimulate consumption data. Subsidies were offered for purchases like home appliances and cars.
The Ministry of Commerce even prepared celebratory reports, claiming this 150 billion yuan injection led to a direct increase of 1 trillion yuan in consumption, equating to 6.7 yuan of consumption for every yuan invested. However, despite this effort, total retail sales of consumer goods only increased by 1.3 trillion yuan year-over-year as of October, with 1 trillion yuan coming from these government-boosted figures. The rate of natural consumption decline is alarming.
Assuming the government allocates 300 billion yuan next year for similar initiatives, with the same 6.7x multiplier, that would generate 2 trillion yuan in additional consumption—still less than half the year-over-year increase seen in 2023. The contribution to GDP would remain minimal. This approach isn’t sustainable; the government can't keep doubling subsidies indefinitely. Moreover, big-ticket items like home appliances and cars were already targeted this year, so what’s next?
The conference signals a shift in focus from goods to services, emphasizing areas such as "first-launch economies," winter sports, and the "silver economy." For example, Shenzhen has already initiated subsidies aimed at boosting elderly-related consumption, and tourism may also benefit from similar incentives next year. Companies like Trip.com could stand to gain from these policies. However, the silver economy in China raises concerns about potential exploitation, with risks of fraudulent schemes involving dubious health products, medical devices, or overpriced items like mattresses marketed with false claims of curing chronic illnesses.
In essence, the government plans to spend money in two main ways next year: subsidizing consumption to inflate economic data and investing in major technology projects under the guise of a “Great Leap Forward” in science. While these policies might seem looser than this year’s, structurally, they’re nearly identical. Welfare improvements, such as increasing people’s income, remain empty promises. Even the fertility subsidies proposed in September’s Politburo meeting have yet to materialize.
Turning to monetary policy, fiscal measures are underwhelming, so monetary tools will take on more responsibility. The policy tone remains "moderately loose," just as stated in the Politburo meeting. While the central bank had hinted at another reserve requirement ratio (RRR) cut by year-end, it has yet to happen, possibly rolling into next year. If a cut happens, it would mark three reductions this year, bringing major banks' RRR to 7.5%.
Given next year’s “looser” tone, there might be up to four RRR cuts, potentially lowering the rate to 5.5% by year-end. However, this leaves no room for cuts in subsequent years, making such an aggressive pace unlikely. Instead, the central bank may rely on innovative financial tools and mechanisms to release liquidity, such as bond purchases, rather than traditional RRR and interest rate cuts.
The central bank faces immense pressure: stabilizing the bond, stock, and currency markets while ensuring systemic financial stability and providing sufficient liquidity to stimulate the economy. Achieving all these goals simultaneously seems nearly impossible. If sacrifices must be made, stability in bonds, stocks, or currency markets might be deprioritized. For instance, next year could see bond yields drop further, the stock market hover above 3,000 points, and the exchange rate settle around 7.5 to the dollar.
Ultimately, the Central Economic Work Conference provided no indication of a shift in priorities from the Politburo meeting. While it acknowledged people’s income challenges, it offered no actionable solutions. The 2024 macroeconomic structure remains government-led, with no meaningful welfare or income support for the public—just more consumption subsidies and data padding.
It’s disappointing that even modest proposals, like fertility subsidies, haven’t been implemented. Many ordinary citizens would be content with even the smallest welfare improvements, which would lift expectations and morale. Yet, the government remains rigidly focused on GDP metrics, leading to a worsening economic cycle of declining growth and mounting debt.
This year’s economic stance suggests that even in the face of severe downturns, President Xi Jinping will not make concessions to improve public welfare. If this mindset persists, the outlook for the next few years remains bleak.
@Tiger_comments @Daily_Discussion @TigerPM @TigerClub @TigerObserver
Comments