China's Economic Priorities in the Post-Pandemic Era: Insights from the 2022 Chinese Central Economic Work Conference

The annual Central Economic Work Conference (CEWC) is an important meeting where Chinese Communist Party (CCP) leaders announce key economic priorities for the coming year. This year’s meeting, held on December 15^th and 16^th, 2022, came on the heels of a period in which China experienced its slowest economic growth in decades, largely due to the outbreak of Omicron variant and the CCP’s strict “Dynamic Zero-COVID policy,” which hindered economic growth and shook confidence in China’s markets. The Chinese government’s abrupt reversal of the Zero-COVID policy on December 7th, a week before the CEWC, was interpreted as marking the end of the period in which epidemic prevention was the top priority in China. The subsequent CEWC reaffirmed this priority and signaled economic optimism to elevate market expectations, which is essential given the growing concerns about a global recession. President Xi Jinping delivered a speech at the meeting which reviewed the CCP’s 2022 economic policies, analysed the current economic environment, and highlighted economic priorities for 2023. The conference’s messaging expressed strong confidence and determination for an overall economic recovery and improvement in 2023, while acknowledging that contracting demand, supply shocks, and weakened expectations continue to threaten China’s economic progress. Stability remains a top economic priority, but the CEWC added growth as a main objective for the 2023 economic agenda, acknowledging the importance of promoting market confidence to the CCP’s 2023 economic policy.

The conference's optimistic outlook and emphasis on economic growth in 2023 are broadly in line with research forecasts. The International Finance Forum (IFF)’s 2022 Global Finance and Development Report forecasts China’s economy to grow by 4.6% in 2023, outpacing the forecasted global economic growth rate of 2.8%. Similarly, the latest forecasts by the International Monetary Fund and the World Bank predict that China's economy will grow by 4.3% in 2023. The Forecasting Science Research Centre of the Chinese Academy of Sciences’ "2023 China Economic Forecast and Outlook" further predicted that China's annual GDP growth rate will be 6% in 2023. Moreover, while China’s official overall annual growth target is unlikely to be revealed until the “two sessions” of the National People's Congress in March, as of January 2023, 21 provincial governments have set economic growth targets between 5% and 6.5%.

Policy Highlights

• Reviving Growth through Expanding Demand

One of the key themes of the conference was the expansion of domestic demand. This included prioritising the recovery and expansion of private consumption, as well as increasing government investment and policy incentives to stimulate investment. In addition to emphasising the role of exports in supporting economic growth, the conference - for the first time in a decade - proposed encouraging private capital to participate in major national projects. The CEWC also highlighted home improvement, new energy vehicles and services for the elderly as key target industries for driving domestic consumption and sustainable growth.

Impacted by Omicron and Zero-COVID policy, retail sales plunged in 2022. China's month-on-month retail sales growth was mostly negative in 2022, reaching a two-year record low of -2.17% in March, and marking 2022 as the longest continuous month-on-month decline in total retail sales in the last five years. Moreover, retail sales fell by 11.1% year-on-year in April 2022 - China’s second-lowest recorded level in ten years. The country's economic policymakers have made it clear that the revival of economic growth now depends more than ever on increasing private consumption. The emphasis on domestic demand is a proactive response by the Chinese government in the context of the long-term trend towards de-globalisation. It is also in line with the CCP’s long-standing efforts to promote a shift in China's economic structure from an investment-and-export-driven economy to a more sustainable economic model driven by domestic consumption.

• Supporting Private Sector Development

The CEWC pledged to support and encourage the development and growth of private enterprises and to make “legal and institutional arrangements” to “ensure the equal treatment of private enterprises and state-owned enterprises (SOEs).”  Although the importance of the private sector, especially small-and-medium-enterprises (SMEs), has been frequently mentioned in the CEWC since 2018, this is the first time that the CEWC has explicitly promoted equal treatment for the private and state sectors. This demonstrates the increased importance that the government attaches to the private sector and potentially signals a more positive attitude toward the private sector moving forward. Additionally, it was noted in the CEWC that "the property rights of private enterprises and the interests of entrepreneurs will be protected by law" which likely aims to restore and encourage confidence in the private sector. 

The Chinese private sector has been hit especially hard by the pandemic and Zero-COVID policy. According to a report issued by the Peterson Institute for International Economics (PIIE), the private sector’s[1] share of market capitalization among the 100 largest publicly traded Chinese companies declined from 55.4% in mid-2021 to 44.5% in mid-2022.  Among all Chinese companies in the Fortune Global 500 rankings, the share of the private sector in the number of companies, profits, revenue, and total assets experienced a sharp decline in 2021, reversing a three-year positive trend since 2018. Nevertheless, the private sector’s share of market capitalization has quadrupled since the end of 2012, and with its share exceeding 15% among all Chinese companies in the Fortune 500, the private sector's contribution to employment continued to grow in 2021. The CEWC’s emphasis on the role of the private sector and rule of law in China’s post-pandemic economic recovery and development should encourage some optimism regarding private sector growth in 2023 and the centrality of the private sector to the Chinese government’s growth strategy moving forward. However, the lingering effects of crack downs on the high tech and property sectors as recent as last year may pose a challenge to restore business confidence. 

• Proactive Fiscal Policy & Prudent Monetary Policy

The CEWC continued the Chinese government’s emphasis on proactive fiscal policy and prudent monetary policy, however, rather than mentioning tax cuts and fee reductions, the conference stressed fiscal sustainability and controlling local government debt risks. This indicates that the government seeks to promote economic security amid concerns about the imbalance in China's economic development.  

The meeting set the general tone of monetary policy for 2023 as “targeted and effective” (“精准有力”), a change from the previous year's “flexible and moderate”("灵活适度”) and urged financial institutions to provide support for small and micro enterprises, technological innovation, and green development. Echoing the requirement to “maintain sound and sufficient liquidity” carried over from last year, the year-on-year growth rate of monthly M2 reached a three-year record high of 12.23% in August 2022 and stabilised at 11.81% in December 2022. Although the aggregate easing is unlikely to be reversed in the near term, the use of more targeted monetary policy, such as monetary instruments that directly serve the real economy,[2] may increase.

The conference noted that “the exchange rate of the yuan should be kept basically stable at an appropriate and balanced level.” Given that the yuan depreciated by 13.29% against the US dollar in the last three quarters of 2022, stabilising the RMB will not only help to attract foreign capital, but also provide a stable economic environment for China’s international trade. Moreover, the government signalled its intention to implement regulations and protections aimed at further attracting foreign capital investment.

• Accelerating the Building of a Modern Industrial System

In line with the CCP’s prioritization of development and security concerns in its overall industrial policy, the CEWC stressed the importance of “transforming and upgrading of traditional industries and nurturing and growing of emerging strategic industries”, as well as the intention to “shore up the weak links in industrial chains.” “Emission peak” and “carbon neutrality” remain important goals of China’s industrial policy. Specifically, the CEWC called for accelerating development in areas such as new energy, artificial intelligence, bio-manufacturing, green and low-carbon technologies, and quantum computing. The conference proposed a mutually reinforcing model of a “technology, industry and finance” trinity, which may indicate enhanced financial support for high-tech industries.

It is worth noting that the CEWC also proposed to “vigorously develop the digital economy” and to support platform companies in order to create jobs and participate in global competition. This may mark a new phase in Chinese tech sector development, which has endured a tumultuous regulatory environment in recent years, as the CCP targeted major tech companies for violations of antitrust and competition laws, as well as data privacy and security regulations. For example, on 25 July 2022, Alibaba and Ant Group terminated their data-sharing agreement, which had been in place for eight years, in order to comply with the new anti-monopoly laws. Shortly after the conclusion of the CEWC, at a press conference held by the State Council Information Office on 13 January, the deputy director of the Chinese central bank's Financial Market Department noted that the “rectification and reform” of 14 digital platform companies was nearing completion. Moreover, on 16 January, Chinese ride-sharing platform Didi announced the end of an 18-month new user registration ban imposed by Chinese authorities. With a more appropriate and standardised regulatory regime in place, the digital economy could become a key sector in the government's efforts to stimulate domestic consumption.

Conclusion

The 2022 CEWC, the first since China’s 20th Party Congress, provided valuable insight into the Chinese government’s economic priorities and policy plans for the coming year. Compared with last year’s CEWC, which emphasized the “Six Stabilizations” and “Six Protections”, this meeting has streamlined economic policy to focus on "stabilising the economic growth, maintaining price stability and stabilizing the job market" in light of ongoing challenges and risks both at home and abroad. This demonstrates the Chinese government’s determination to restore economic growth in the post-pandemic era.

Overall, the 2022 CEWC underlined the need for China to adapt to a changing global economic environment by focusing on restoring economic growth and building a more sustainable and inclusive economy. Expanding domestic demand, opening up the economy, building a modern industrial system, supporting the development of the tech sector, promoting innovation and entrepreneurship, and strengthening financial supervision and risk prevention are all important steps in this direction. How these policies are implemented and whether they can successfully address the economic challenges facing China, however, will be seen over the course of 2023.

[1] “Private sector” includes firms in which state entities hold an equity stake of less than 10 percent.

[2] Targeted monetary policy uses monetary tools, such as policy loans, to provide liquidity to specific industries or groups of people. In June 2020, China's central bank launched two innovative monetary policy instruments that directly serve the real economy: the Micro, Small and Medium-Sized Enterprises (MSMEs) Loan Extension Support Instrument and the Unsecured Loan Support Scheme for MSMEs. Specifically, the central bank set up special funds and entered into contracts with commercial banks through a special purpose vehicle (SPV) to provide prime rate or capital to local banks to facilitate the roll-over of maturing MSME loans or to issue small unsecured loans.