Summary and Analysis of 2024 China’s Government Work Report-Positive Outlook for Commodities in a Stable Environment
[Preface] The first important meeting of 2024 was held in Beijing, where the Premier presented the government’s annual work report. Drawing from the meeting recap, we discern the overarching macroeconomic trend and the policy impact on the commodity market. Generally, the 5% economic growth target and 3% inflation target remain consistent with 2023 figures. However, in 2024, we target growth building upon the high base of 2023, indicating ambitious growth goals and enhanced quality standards. The economic outlook for 2024 appears promising, with commodities sustaining a positive trend.
Government Work Report 1 | Acknowledging challenges ahead
The government work report underscores the government’s keen awareness of the difficulties and challenges ahead. The external environment is becoming more intricate, severe, and unpredictable. The foundation of China’s economic recovery remains unstable, marked by insufficient effective demand, subdued social expectations, and numerous latent risks. Small and medium-sized enterprises are grappling with operational obstacles, while the employment pressure and structural imbalances persist. Safety vulnerabilities in production cannot be ignored. Governance challenges persist, with formalism and bureaucracy continuing to exist. We must confront these issues and challenges directly, striving to excel in our duties and never betray the people’s expectations and trust!
According to the insights provided by Liu Xinwei of SCI, the economy evaluation at the 2024 Central Economic Work Conference underscores the need to “advance economic recovery and enhancement by surmounting several obstacles and challenges, including inadequate effective demand, overcapacity in certain sectors, subdued social expectations, numerous hidden risks, bottlenecks in domestic circulation, and the escalating complexity, severity, and unpredictability of the external environment.” The government work report aligns with this evaluation but doesn’t mention the “overcapacity in certain industries”.
Government Work Report 2 | GDP is expected to grow 5% in 2024
The 2024 GDP growth target is around 5%, with plans to create over 12 million new urban jobs and keep urban surbeyed unemployment at about 5.5%. Forecasts suggest a 3% increase in the consumer price index, aligning household income growth with economic expansion. Stable international balance of payments is expected, along with a grain output exceeding 1.3 trillion catties. Furthermore, efforts are directed towards reducing energy consumption per unit of GDP by roughly 2.5%, while continuous enhancements in the ecological condition are prioritized.
Liu Xinwei analyzed that historical growth targets set by local governments typically hovered around 5%, with a compound growth target of 5.4%, slightly below the 5.6% mark recorded in 2023. The 2024 government work report sets the growth target at 5%, in line with market expectations. The economy is expected to achieve a growth rate exceeding 5% for the year, akin to the 5.2% seen in 2023. Forecasts suggest a consumer price index increase of approximately 3%, consistent with market expectations and a potential upward price trend in 2024 following a 0.2% increase in 2023.
Government Work Report 3 | Fiscal Policy: The government plans to issue ultra-long special treasury bonds for several consecutive years, commencing with 1 trillion yuan this year.
The government work report emphasizes the effective utilization of fiscal space to optimize policy portfolios, taking into account development needs and fiscal sustainability. The deficit rate is targeted at 3%, with deficits amounting to 4.06 trillion yuan, representing an increase of 1,800 billion yuan from the previous year’s initial budget. To address funding challenges for pivotal projects aimed at enhancing China's overall national strength and advancing the national rejuvenation process, there are intentions to issue ultra-long special treasury bonds for several consecutive years. These bonds will be dedicated to supporting national major strategic initiatives and enhancing security capabilities in key areas. This year, an initial issuance of 1 trillion yuan is scheduled.
Liu Xinwei analyzed that in 2023, the issuance of trillion-yuan ultra-long treasury bonds was aimed at addressing post-disaster reconstruction, disaster prevention, and relief efforts, with the goal of alleviating pressure on local government debt by year-end. The proposal during the Two Sessions to issue ultra-long special treasury bonds for several consecutive years is intended to support national major strategic initiatives and enhance security capabilities in key areas. Moving forward, the country will concentrate on cultivating new productive forces, fostering the development of strategic emerging industries such as artificial intelligence, bio-manufacturing, commercial aerospace, and the low-altitude economy. Additionally, traditional national security priorities including food security, energy security, financial security, and data security may also become focal points of attention. We will stay attentive to authoritative interpretations. The issuance of the trillion-yuan ultra-long special treasury bonds will enhance the foundation for the recovery of the commodity market, setting the stage for positive developments. It’s crucial to highlight that the 1 trillion special treasury bonds issued in 2023 were accounted for in that year’s fiscal deficit, resulting in a deficit ratio of 3.8%. The introduction of trillion-yuan ultra-long special treasury bonds in 2024 will not be incorporated into the fiscal budget for the year, causing a substantial rise in fiscal expenditure in 2024.
According to analyst Liang Xiyue from SCI, as outlined in the “Successful Completion of Local Government Bond Issuance Tasks in 2019”, the Ministry of Finance plans to expand the issuance of ultra-long bonds spanning 15, 20, and 30 years, while continuing to prioritize medium to long-term bonds spanning 3 to 10 years. The ultra-long special treasury bonds mentioned in the government work report are treasury bonds with durations surpassing 10 years, earmarked for specific purposes that do not impact the deficit. These bonds aim to tackle issues like low project returns, prolonged realization periods, and heightened debt repayment pressures linked to special bonds. Additionally, the utilization of funds from these bonds is swifter in comparison to standard bonds. Potential sectors of focus may encompass the “Three Major Projects” (rural vitalization, social housing construction, and building public infrastructure for normal and emergency use), energy security, supply chain security, food security, new urbanization, public service facilities, artificial intelligence, and other industries crucial for national strategic initiatives and security capacities. Since late 2023, multiple provinces have initiated discussions on ultra-long treasury bonds during local assemblies and have established reserves for relevant projects, accelerating the progress of essential infrastructure development this year. This initiative will spur demand in relevant manufacturing sectors, enhancing commodity markets such as energy, chemicals, construction materials, and agriculture. Future attention will be required to monitor the implementation of specific measures targeting industries and workloads that yield substantial achievements.
Government Work Report 4 | Monetary Policy: A prudent monetary policy should be flexible, moderate, precise, and effective.
The government work report states that a prudent monetary policy should be flexible, moderate, precise, and effective. It is crucial to maintain a reasonable and adequate level of liquidity, ensuring that social financing and the money supply are aligned with the expected targets for economic growth and price stability. Enhancing both the overall quantity and structural adjustments, revitalizing existing resources, improving efficiency, and increasing support for major strategic areas, key sectors, and vulnerable links are essential. We will facilitate a stable and progressively decreasing overall social financing cost; establish an efficient transmission mechanism for monetary policy to prevent funds from remaining idle; strengthen the inherent stability of the capital market; sustain the fundamental stability of the exchange rate of Chinese Yuan (RMB) against other currencies at a reasonable and balanced level; actively promote the development of Fintech, green finance, inclusive finance, pension finance, and digital finance; streamline support measures like credit enhancement, risk sharing, and information sharing to more effectively address the financing requirements of small and micro-enterprises.
In Liu Xinwei’s analysis at SCI, the coordination of social financing scale and money supply with economic growth and price level expectations indicates that short-term prices are relatively stable. Adhering strictly to the principle of aligning with nominal economic growth would result in a significantly reduced money supply. Conversely, aligning with economic growth and expected price levels, considering a GDP target of 5% and an inflation target of 3%, could lead to a money supply growth rate of approximately 8%. This strategy reflects a standard in line with the “prudent” traits of China’s monetary policy and is viewed as relatively neutral.
Government Work Report 5 | Actively cultivating emerging industries and industries of the future
The government work report emphasizes the significance of proactively nurturing emerging and industries of the future. This entails implementing industrial innovation projects, improving industrial ecosystems, expanding application scenarios, and promoting the coordinated development of strategic emerging industries. Efforts will be made to consolidate the competitive edge in sectors like intelligent connected vehicles and new energy vehicles, accelerate the development of pioneering and emerging industries such as hydrogen energy, novel materials, and pharmaceutical innovations, and actively cultivate new drivers of growth in realms such as bio-manufacturing, commercial aerospace, and the low-altitude economy. Plans will be made for the advancement of future-oriented industries, paving the way for new frontiers such as quantum technology and life sciences, while establishing several pilot zones for development of future-oriented industries.
As per analysis conducted by Han Minhua from SCI, China currently stands as the world's biggest producer and consumer of new energy vehicles, with new energy vehicle production and sales in 2023 comprising over 60% of the global market share. Data from industry associations reveals that in 2023, China's production and sales of new energy vehicles reached 9.587 million and 9.495 million units respectively, marking a year-on-year surge of 35.8% and 37.9%, capturing a market share of 31.6%. The increase in production and sales of new energy vehicles significantly drives the growth in lithium-ion battery market. On March 1, the Ministry of Industry and Information Technology revealed that in 2023, China’s total lithium-ion battery production exceeded 940GWh, representing a 25% year-on-year increase, with the industry’s total output surpassing 1.4 trillion yuan. Throughout 2023, China persisted in advancing its dual carbon goals (carbon peaking and neutrality), with a range of national and local policies favoring the production, sales, and consumption of the lithium-ion batteries. Moreover, the prices of crucial raw materials for batteries like cobalt and lithium have decreased, resulting in a notable reduction in the production costs of lithium-ion batteries, thereby benefiting the sustainable growth of the domestic lithium-ion battery and new energy sectors. In 2024, it is anticipated that China’s new energy vehicles market will sustain robust growth, with production and sales figures poised to maintain their global leadership position.
Delving into the hydrogen energy sector, SCI's Liu Yijun explains that hydrogen energy predominantly involves utilizing hydrogen as a secondary energy source. Currently, hydrogen is primarily manufactured from fossil fuels such as coal and natural gas. However, it can also be produced using renewable energy sources like wind and solar power through water electrolysis, known as green hydrogen. Hydrogen finds extensive use in the industrial sector, boasting a wide array of downstream applications. Nonetheless, its predominant application scale remains within the chemical industry, with fewer instances of use as an energy source. When employed as an energy source, hydrogen is chiefly utilized in transportation and power generation, offering near-zero carbon emissions during operation. By utilizing green hydrogen, the entire value chain can achieve low-carbon development and potentially reach net-zero emissions. The future trajectory of hydrogen energy development primarily centers on scaling up green hydrogen production, enhancing cost-effectiveness, and broadening application scenarios. The widespread adoption of hydrogen energy holds profound importance, playing a pivotal role in low-carbon energy transition, energy substitution, energy security, and actively advancing the meeting of dual carbon goals.
Government Work Report 6丨Accelerate the building of new quality productive forces
The government work report emphasizes vigorously advancing the construction of a modern industrial system and fast-tracking the development of new quality productive forces. By fully leveraging the leading role of innovation, and using technological innovation to drive industrial innovation, the report calls for swift advancement towards new-type industrialization. This approach aims to enhance overall productivity, continuously create new drivers and competitive advantages for development, and promote a new leap in social productivity.
According to Liu Xinwei from SCI, the new quality productive forces represent a qualitative leap in productivity, signifying productivity led by "the dominant role of technological innovation." This form of productivity breaks away from traditional growth models and aligns with the demands for high-quality economic development in China. It also embodies the more integrated and innovative nature of productivity in the digital era. New quality productive forces move beyond the traditional economic growth model reliant on extensive inputs of labor materials, labor objects, and laborers. New quality productive forces are driven by disruptive innovations. Currently, we are at the end of a previous long-wave cycle. Innovation-driven commands a pivotal role in the upcoming revolution of factors, which is crucial for the development of longer economic cycles, such as the application of ChatGPT. New quality productive forces will overturn existing technological pathways and bring about transformations in product structures, business models, and application scenarios, like the development of new energy vehicles.
Government Work Report 7丨Increase income, optimize supply, and reduce restrictive measures to unleash consumption potential
The government work report emphasizes promoting stable consumption growth. Specifically, it seeks to stimulate consumer potential through a comprehensive approach, including increasing income, optimizing supply, and reducing restrictive measures. Efforts will be made to foster and expand new types of consumption, as well as develop digital, green, and healthcare consumption. It focuses on nurturing new consumption drivers such as smart homes, entertainment tourism, sports events, and China Chic products. The report also highlights the need to stabilize and expand traditional consumption, promote the replacement of old consumer goods with new ones, and boost spending on big-ticket items such as smart-connected new energy vehicles, and electronic products. It advocates for the expansion and enhancement of services like elderly care, childcare, and domestic help, supporting social forces in providing community services. To optimize the consumer environment, it plans to launch a "Year of Promoting Consumption" campaign, implement a "Confident Consumption Action," strengthen consumer rights protection, and put into effect paid leave systems. It also involves implementing standard enhancement actions and accelerating the building of a standard system that meets the requirements of high-quality development, constantly improving the quality of goods and services to better meet people's needs for an improved lifestyle.
According to Liu Xinwei from SCI, since the second half of 2023, domestic policies have primarily focused on the demand side. The market paid closer attention to the implementation outcomes of earlier policies post-September, with a fluctuating downward trend in prices. Consumption remains a focus in 2024, notably in terms of equipment upgrades and home appliance renewal cycles. However, it is noteworthy that there are restrictions on government spending, as highlighted in the 2023 Central Economic Work Conference, which called for "Strictly controlling general expenditures. Party and government agencies must truly tighten their belt." High-frequency data from the Chinese New Year period show noticeable growth in dining, consumer spending, entertainment, and travel, indicating a positive trend in domestic economic recovery. Boosting consumption is beneficial for stabilizing market confidence and organically creates favorable conditions for bulk commodity demand, thereby supporting an upward trend in bulk commodity prices for 2024.
Government Work Report 8丨Accelerate the building of a new development model for real estate
The government work report states that in response to the trends of new-type urbanization and changes in the supply and demand relationship in the real estate market, it will be essential to quickly foster a new development model for real estate. This involves increasing the construction and supply of affordable housing, improving the fundamental systems related to commercial housing, and meeting the residents' essential housing needs as well as their diverse demands for better housing.
According to Liu Xinwei from SCI, a new development model for real estate has been a recurring topic at Central Economic Work Conferences. It was first introduced in 2021 to explore a new development model for real estate. In 2022, the focus shifted towards promoting a smooth transition to the new model, and in 2023, steps were taken to accelerate the building of the new model, along with the improvement of related fundamental systems. In 2024, the priority will be the construction of affordable housing and public infrastructure for both normal and emergency use, as well as the renovation of villages-in-the-city. It signifies that the new development model for real estate has officially entered the "implementation phase". A recent nationwide meeting on affordable housing construction, convened by the Ministry of Housing and Urban-Rural Development in Xi'an, underscored that the national policy system for affordable housing is fully in place, with the focus now on ensuring effective implementation. The real estate market today comprises three principal parties: local governments, homebuyers, and real estate enterprises. Efforts by the Ministry of Housing and Urban-Rural Development and the Financial Supervision and Regulation Department are underway to actively promote the implementation of a financing coordination mechanism for the urban real estate sector, addressing financing issues for real estate enterprises. For homebuyers, lack of market confidence, insufficient effective demand, and pessimistic societal expectations are the main problems on the consumer side of the real estate market. Real estate enterprises are witnessing a gradual amelioration in financing conditions, and the "whitelist" system will effectively solve financing issues. However, it is important to note that under the new development model for real estate, the traditional profit-driven commercial real estate model is on the decline, and the "infrastructure-ization" of the real estate market will become more pronounced. Although the real estate sector in 2024 continues to grapple with contraction, the overarching market environment is showing signs of improvement, suggesting that the nadir for associated bulk commodities may have already passed.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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