Politburo Meeting: Signals for H2 2021

Politburo Meeting: Signals for H2 2021

Shanshan Li
August 5, 2021

PolitburoMeeting Interpretation: What signals are released by the central economic deployment in the second half of the year?

On July 30th, the Political Bureau of the CPC Central Committee held a meeting to analyze the current economic situation and deploy economic work in the second half of the year. The highlights of this meeting have considerable implications for the economic deployment of regional governments for the rest of the year. This article aims to extract the important contents of the meeting and provide analysis.


The "cross-cycle adjustment" in monetary policy

The meeting pointed out that the macroeconomic task for the second half of the year is to maintain continuity, stability, and sustainability of the macro policy. From the past emphasis on"counter-cyclical" to the current “cross-cyclical policy”, the central government plans to achieve a long-term dynamic balance between stable growth and risk prevention. Counter-cyclical adjustment refers to the easing of macroeconomic policies during economic downturns and the tightening of macroeconomic policies during economic upswings to avoid excessive economic fluctuations. However, a policy framework that reduces the volatility of the traditional short-cycle economy can hardly solve the medium- and long-term problems. Issues such as real estate, implicit debt, economic structure, and demographics require macroeconomic regulation to be designed and regulated across cycles.

Therefore, in the face of downward pressure on the economy, the government will refrain from strong stimulus policies, regulate the overheated real estate market, and focus on supporting the growth of consumption and advanced technology sectors, while resolving debt risk issues arising from past development such as debt risks in real estate, local government, and finance.

Strengthening technological innovation and supply chain

The meeting emphasized the importance of strengthening technology innovation and carrying out special actions to upgrade the supply chain. China's industrial supply chain covers a wide range but lacks specialization. Therefore, the survival and development of SMEs play a necessary role in the supply chain. The next move of the central government is to advocate SMEs to focus on one market segment, use their own unique technology to ensure competitive advantage in the market, and insist on innovation to ensure growth momentum. At the operational level, SMEs should avoid homogenization, instead of anchoring on a differentiated market, accurately assessing their own technology and scale, and developing products with professionalism.

Implementation of the "third-child" policy

The meeting proposed to promote the national coordination of basic pension insurance to implement the "third-child" policy, including the improvement of maternity, parenting, education, and other policy support.

On July 20, the Central Committee of the CPC issued the "Decision” for promoting the long-term balanced development of the population, targeting to implement the third-child policy and reduce the cost of childbirth and education. Then on July 24, the Central Office and the General Office issued the “Double Reduction” policy, which strengthens the role of the main school education forum, deepens the governance of off-campus training institutions, and effectively alleviates parental anxiety.

The key factor behind the emergence of these policies is the data from the seventh population census. 2020 China's total fertility rate for women of childbearing age is 1.3, which is already at a low level. In terms of new births, the number of births drops to 14.65 million in 2019 and further slips to 12 million in 2020. At the same time, the population is aging further and will continue to face the pressure of long-term balanced population development in the period ahead.

Land market and taxation policy of real estate

The meeting pointed out that residential housing is not for speculation, and it is imperative to accelerate the development of rental housing, the implementation of land and taxation policies. The central government will also strictly regulate the order of the real estate market, and not use real estate as a means of short-term economic stimulus.


The political bureau meeting in April this year initially propose to prevent speculation in the name of school district houses. The industry expects that the future school district reform will continue to be the focus of regulation of the real estate market. The central government's recent policies for real estate are more frequent and escalating, which also represents the real estate regulation policy in the second half of the year to continue to tighten the orientation.


Improving the regulatory system for the overseas listing of enterprises 

In response to the issue of overseas listing, regulators have also recently released many signals. Yi Huiman, chairman of China Securities Regulatory Commission, recently said at the Lujiazui Forum that he has an open mind for companies choosing where to list. The relationship between openness and security will be effectively handled, and the prerequisite for enterprises to list abroad is to comply with relevant domestic laws and regulations and regulatory requirements. 


On July 6, the Office of the Central Government issued the<<Opinions on Strictly Cracking Down on Illegal Securities ActivitiesAccording to Law, aiming to improve laws and regulations related to data security, cross-border data flow, and management of confidential information. 


The CAC also issued the "Measures for CybersecurityReviews", requiring operators with personal information of more than one million users to declare their network security review to CAC before going public abroad. In the current political environment, the introduction of these two policies is not unexpected.


Support the accelerated development of new energy vehicles.

Politburo's support for the accelerated development of new energy vehicles is also a major point of this meeting, which further indicates that the development of new energy vehicles is already a national strategy. In the field of high-end chips, China currently does not form its own industrial chain. Therefore, in order to promote the accelerated development, the formation of a completely new energy vehicle supply chain and the construction of industrial ecology is an important goal for the upcoming years.CCA data show that the cumulative sales of new energy vehicles from January to June were 1.206 million units, up 201.5% year-on-year. The market is expected to have more supportive policies and the market outlook is increasingly promising.


Improving efficiency in Fiscal Policy

In the face of downward economic pressure, the government is supporting the economy mainly by issuing standard bonds, while limiting the expansion of implicit debts. The meeting proposed that each regional government should reasonably arrange the budgetary investment and local government bond issuance, and promote the measurement of physical workload at the end of 2021.

In early 2020, Premier Li Keqiang proposed the planning of the construction of new infrastructure, new urbanization, transportation, water conservancy and other major projects in the Government Work Report. However, the efficiency of the use of funds is not satisfactory, and the actual workload has not yet reached the target. Therefore, in this meeting, Politburo released the physical workload standards to enhance policy effectiveness. As its name indicated, the physical workload is the actual workload completed in the reporting period expressed statistically by the value of physical units of measurement (such as the number of square meters of houses built, the number of kilometers of roads built, the number of square kilometers covered in geological surveys). This measurement will have more specific and strictly quantifiable indicators on the efficiency of project arrangement and capital expenditure.