Keep realistic expectations: ex-officials on China's economy
All eyes are now on how swiftly the policy rollouts can translate into momentum
China Friday released Q3 GDP growth of 4.6%, just one day after its Housing and Urban-Rural Development Ministry held a press conference to stabilize the real estate market, completing the final piece of the puzzle for China’s comprehensive package of incremental policies introduced in late September.
Today’s newsletter brings you an interview with Dong Yu董煜 , a “Scholar-Official” who has worked in state apparatus for 20 years, including the Second Economic Bureau of the Office of the Central Financial and Economic Affairs Commission and now serves as the executive vice-president of the China Institute for Development Planning at Tsinghua University.
It is fair to say the past month has seen China’s most intense policy push in a decade: the world’s second-largest economy held 2 key meetings, 5 press conferences and passed 1 new law - an unprecedented blitz in its macroeconomic playbook.
*2 meetings: the Politburo meeting on September 26 and the State Council executive meeting on September 29
5 press conference: the financial regulators on September 24, the National Development and Reform Commission on October 8, the Ministry of Finance on October 12, State Administration for Market Regulation on October 14 and the Ministry of Housing and Urban-Rural Development on October 17
1 new law: the Private Economy Promotion Law
In the context of this unprecedented flurry of policy moves, Dong Yu never hesitates to share his views - naturally, we have little reason to doubt him, given his supposed close involvement and observation of China’s economic decision-making. Last week, he published two articles urging the public to stay informed and confident about incremental policies, which you can find on Pekingnology.
Today’s interview marks his third exhortation on October 15, titled “Maintain reasonable expectations regarding the current economic situation.”
In the interview, Dong outlined the five-pronged “package of incremental policies” and the policy logic: the National Development and Reform Commission (NDRC) spearheads the overall framework at the macro level, with relevant departments detailing the specific measures through press conferences.
Dong stated that the key strength of these policies is their direct approach, tackling the core issues of local government debt, real estate, and the financial market, aiming to stabilize growth while mitigating risks.
He also pointed out that while the “incremental policies” focus on immediate challenges, they are equally geared towards longer-term structural adjustments. For instance, the push to boost domestic demand and support private enterprises reflects the broader strategy to enhance economic resilience.
Looking ahead, the impact of these policies won’t be instantaneous across all sectors. Some measures, particularly those addressing local government debt and real estate, will require time to fully play out. But Dong stressed that the groundwork is being laid for a more sustainable recovery, with the real test being how quickly confidence can be rebuilt, especially in the private sector and capital markets.
The fourth quarter will be pivotal, and as Dong underscored, the stakes are high: achieving the year’s economic goals hinges on these policies taking root and delivering tangible results. All eyes are now on how swiftly the policy rollouts can translate into momentum.
对当前经济形势要有合理的预期
Maintain reasonable expectations regarding the current economic situation
A Timely Conference
Q: How to understand the current buzzword "incremental policy"?
Dong Yu: The term "incremental policy" is a new concept based on the current economic situation. The economy performed well in Q1, but some indicators fluctuated in Q2. Therefore, the meeting on April 30 already emphasized "front-loading efforts." The Q2 meeting was held on July 30, and in light of the economic situation at that time, the meeting already brought up the concept of "incremental policy."
Many people think the "incremental policy" was introduced in September, but it was actually in July, just after the Third Plenary Session of the 20th Central Committee of the CPC, when there was a need to implement the spirit of the meeting. After tasks were assigned in July, various departments began studying how to implement them. So the "incremental policy" we see now had already been under discussion months ago.
The meeting on September 26 was indeed somewhat "unexpected," as it broke from the usual practice of not holding economic review meetings in the third quarter. If such a meeting were to occur, it would typically be scheduled for October. The fact that this meeting took place before the release of Q3 data indicates that the timing was right.
As such, this meeting, held before the National Day holiday, was meant to outline the general framework for the "incremental policy."
Q: How to understand the general framework of the "incremental policy"?
Dong Yu: The general framework involves making a comprehensive plan and setting overarching requirements, while leaving the specific implementation to various departments. First, the overall requirements for the "incremental policy" were proposed. Then, on September 29, the State Council convened to outline the deployment, instructing the relevant departments to ensure implementation.
Although the financial sector was the first to hold a press conference, this was merely to signal the start, and its content aligned with the broader framework. Later, we saw the five aspects of the "package of incremental policies," which were likely prepared and adjusted in accordance with the meeting's requirements during the National Day holiday, following the typical format of a news conference.
Who announced it? In fact, it was the National Development and Reform Commission (NDRC). At the press conference on October 8, the NDRC unveiled the five aspects of the "package of incremental policies": increasing countercyclical macro policy adjustments, expanding effective domestic demand, strengthening support for enterprises, stabilizing the real estate market, and boosting the capital market.
It’s important to understand that the NDRC’s press conference primarily presented the overall plan from a macro-level perspective, rather than focusing on the specialized work of any single department. Instead, it outlined a comprehensive pathway for implementation from a holistic standpoint. As the department responsible for macroeconomic regulation, the NDRC plays a coordinating role.
At the same time, during this press conference, the NDRC also elaborated on the responsibilities it will perform.
Among the five aspects of the "package of incremental policies," the NDRC is responsible for overall coordination in "increasing countercyclical macro policy adjustments." For the other four aspects, such as "expanding effective domestic demand," the NDRC also plays a leading role. The NDRC mentioned many specific measures during the press conference, including drafting the Promotion Law for the Private Economy and promoting investment.
Of course, some responsibilities overlap. For instance, in macroeconomic regulation, fiscal and monetary policies are also crucial. For policies concerning the private economy, the market regulatory authorities will play a significant role. These will be detailed and implemented through subsequent press conferences.
Q: How to understand the "increment" in "incremental policy"?
Dong Yu: "Increment" means adding to something, essentially doing more in economic work. What is being increased are policy measures and the intensity of those policies. In some cases, new measures are proposed; in others, existing measures are strengthened.
The theme of the press conference on October 14 was to introduce increased support for enterprises. So far, one aspect of the five-part "package of incremental policies" is still pending. Thus, the housing and urban-rural development authorities will hold another press conference to explain relevant policy measures, specifically addressing the "stabilizing the real estate market" aspect.
The key lies in whether confidence can truly be established.
Q: There has been some discussion in the market regarding the Ministry of Finance's press conference on the 12th. How to understand it correctly?
Dong Yu: The financial sector primarily focuses on two aspects. First, monetary and financial matters within macroeconomic regulation. Second, boosting the capital market. Fiscal policy, on the other hand, spans various areas and acts as a support - essentially, all five key aspects of the "package of incremental policies" require the backing of fiscal policy.
Therefore, there are four areas worth paying attention to in this press conference: first is the strength of the fiscal policy itself, second is the key directions for funding, third is the specific proposals made to support private enterprises, and fourth is the concrete measures for real estate.
As for the capital market, it is mainly the responsibility of the financial regulators. Therefore, when looking at the overall picture, each department is working from its own responsibilities, but all are connected to the five key aspects.
Q: The National Bureau of Statistics is about to release the third-quarter economic data. How should we assess the current economic situation?
Dong Yu: During the formulation of the incremental policies, their content and intensity were certainly considered in tandem with the evolving economic situation. The upcoming data reflects the situation before the incremental policies were introduced. Given information from various sources, it’s possible that some indicators will show fluctuations, and we should view the data objectively and calmly.
It’s important to maintain reasonable expectations about the current economic situation. For instance, the decline in export growth in September indicates that the impact of external demand contraction is becoming evident. Likewise, the Q3 data on consumption and real estate may also be less than ideal, and various sectors are already somewhat prepared for this.
In such circumstances, the forward-looking, targeted, and significant nature of the "package of incremental policies" becomes even more evident. I believe the relevant departments have already comprehensively assessed the situation, and one of the key objectives of the incremental policies is to shift the short-term economic trajectory. Following the intensive policy rollouts at the end of September and the beginning of October, the signals from macroeconomic regulation should inject confidence and provide substantial support to various sectors. To achieve the year's economic and social development goals, I am confident that the strength of policy implementation in Q4 will be robust, and there is no need for any doubt about this.
Q: The most noticeable impact of the "incremental policies" that people have observed so far is on the stock market.
Dong Yu: The goal of macroeconomic regulation is focused on driving a sustained recovery and improvement of the economic fundamentals over the long term. It is not solely about the stock market, but there will certainly be an impact on the stock market. The key to whether confidence in the stock market can truly be established and sustained lies in whether we can address the prominent issues within the economy.
The fundamentals of the economy must improve. If the fundamentals do not improve, many other problems cannot even be addressed. This policy package is essentially a response to some of the deeper economic issues that the market is most concerned about. For example, in recent years, when officials summarize the problems in economic operations, the first issue they mention is the lack of effective demand. This is why the NDRC’s press conference dedicated so much time to discussing the "two new" (promoting a new wave of large-scale equipment upgrades and a trade-in program for consumer goods) and "two keys" (support the construction of the nation's major strategic projects and to enhance security capabilities in key sectors), aiming to solve the problem of effective demand.
Q: The problem of insufficient demand involves both investment demand and consumption demand.
Dong Yu: These policies address both consumption and investment, with corresponding measures in place. However, the root of the issue lies in expectations. The main focus of these expectations is private enterprises. Therefore, the third task of the "package of incremental policies" is to "assist enterprises," which means addressing the challenges faced by private enterprises.
Some of these are specific issues, which were covered in the October 14 press conference and will be handled by the market regulators. Others relate to the overall business environment, which is why we see the draft law on promoting the private economy being introduced for public consultation so quickly.
The best aspect of this policy is that it does not avoid the issues.
Q: You once wrote that the significance of the Law on Promoting the Private Economy is no less than that of the "X trillion yuan" stimulus package. How to understand this?
Dong Yu: Some people say that the content of the law is rather basic, and the people who drafted these provisions certainly understand that as well. However, these basics are precisely what haven't been fully implemented at the execution level, or they haven't been done well enough.
Although these are basic concepts, the significance of the law lies in turning these basics into enforceable rules that everyone can follow. Ensuring that common-sense principles are solidified in legal form is exactly where its value lies. When real issues arise, the law can provide support.
Then there's the enforcement aspect, which I believe shows a stronger policy force compared to the past. Especially in correcting "illegal cross-regional law enforcement" and regulating cross-regional law enforcement actions, these are all addressed. There's also a mention of "promptly issuing warnings to regions where fine and forfeiture revenue growth is abnormally high and conducting inspections when necessary."
I suggest that if similar situations arise in the future, they should be treated as cautionary examples and the individuals involved should be handled seriously. Refunds should be made, notices should be issued, and apologies should be given. This will help create a positive cycle of accountability.
Q: What economic issues are the five aspects of the "package of incremental policies" meant to address?
Dong Yu: On one hand, there's insufficient effective demand. On the other hand, there are three major risks: local government debt, the real estate sector, and the financial market. This is why this is a combination of measures, aimed at resolving these risks and addressing the issues.
If the problems aren't resolved, how can the fundamentals improve? We can see that this time, the policy truly does not shy away from these issues. The best part about this policy is that it directly faces the problems and aims to solve them.
Q: How long will it take for the five-part "incremental policy" to solve the current economic problems?
Dong Yu: Some will show results quickly, while others may not yield visible effects this year. For example, with investment, what can be done is to accelerate the progress and advance the workload. However, in terms of its impact on economic growth, it will take some time to see the results.
Debt resolution will follow legal procedures, and then it will take time for local governments to implement.
Regarding the real estate sector, since some policies have already been introduced, and the current guidance is relatively clear, we hope to see the pace of progress accelerate in the near term.
As for the stock market, I believe its fluctuations mainly depend on the fundamentals and expectations - whether people believe that some measures will truly be effective. In the long term, it’s about making investors confident that no issue is unsolvable, and the key factors are determination and policy strength. On this point, we are confident.
Q: Of the five aspects of the "package of incremental policies," which is the most important?
Dong Yu: The issues are all interconnected. One of the characteristics of these policies is that the measures taken by different departments are not just focused on a single issue. Each issue involves several departments working together, and they are all moving in the same direction. This reflects the systematic, comprehensive, and integrated nature of the policies.
No single issue is addressed in isolation by one department. Instead, several departments join forces to solve the problem together. Additionally, in the process of addressing these problems, not only must the connections between issues be assessed, but the order of resolution must also be considered - determining what should be tackled first and what should follow.
"Uncommon, But Not Unprecedented in the History of Macroeconomic Regulation"
Q: You mentioned that this is the period with the most concentrated policy intensity in the past decade. How to understand this?
Dong Yu: The determination to solve the current issues is very clear, otherwise, we wouldn’t be seeing so many policies being introduced.
Looking back over the past decade, there were policies during the 2020 pandemic, but the primary focus then was on stabilizing growth. In 2015, the focus was more on the financial markets, mainly to mitigate risks. This year, both stabilizing growth and mitigating risks are being addressed simultaneously.
When I speak of concentration, I’m not referring to the frequency of meetings, but to the wide scope of these policies. They aim to resolve both long-term development and short-term growth stimulation. In fact, this combination of policies is tackling both short-term and long-term issues at the same time, which is indeed quite rare. While not entirely unprecedented in the history of macroeconomic regulation, it remains relatively uncommon.
Q: Is expectation the same as confidence?
Dong Yu: Placing expectation in such an important position within macroeconomic regulation policies is unprecedented. The statements regarding the private economy promotion law and the capital markets are directly tied to expectations. The way the fiscal departments have expressed themselves is also closely related to expectations.
Q: After the Ministry of Finance's press conference, there were discussions in the market about a potential stimulus package of five or six trillion yuan. What is your view on these numbers?
Dong Yu: At this point, all reports on the numbers are purely speculative. I think there's no need to rush, and it’s better to be patient. Don't let emotions fluctuate too much because of various "informal writings" before the actual policies are officially released.
"To Address the Specific Issues Faced by the Private Economy in Practice"
Q: You mentioned the need to look at some key major moves. What impact will these moves have on promoting economic development?
Dong Yu: Actually, since the the release of the "31 measures for the private economy" (namely the Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy) in 2023, efforts have already been made to consciously improve expectations regarding the economic environment, especially focusing on the private economy.
For example, the assessment of the consistency of macro-policy orientation. Its primary aim is to avoid any shock or negative impact on market expectations after policy announcements. There is also a dedicated evaluation for the private economy, meaning that policies related to the private sector undergo a specialized assessment as part of the macro-policy consistency evaluation.
Q: For over 20 years, there have been policies encouraging the development of the private economy. What new changes are we seeing in terms of intensity now?
Dong Yu: In previous years, China emphasized the "two participations" for private enterprises - participating in major projects and major scientific research. However, the document from the Third Plenary Session introduces new changes for both.
For participation in major projects, a new key phrase has been added: "long-term mechanism" - "improving the long-term mechanism by which private enterprises participate in major national projects." For participation in major scientific research, the term "leading" has been added - "supporting capable private enterprises in leading national initiatives to make breakthroughs in major technologies."
In other words, the previous two forms of participation have been expanded. "Leading" means that private enterprises may now directly act as leaders in national scientific and technological projects, which fully demonstrates trust in private enterprises.
In recent years, foreign media have often released so-called "inside information" at critical junctures, targeting private entrepreneurs. For professionals, these reports are absurd and baseless, but due to the use of sensational viewpoints and language, they can be quite misleading to those unfamiliar with policy logic. Such narratives, which deliberately steer public opinion, can induce panic and affect market expectations, making them quite harmful. In the future, it will be crucial to strengthen targeted refutations. I also hope everyone can enhance their ability to critically assess such reports and not be easily swayed by them.
Q: What role will real estate play in the future of the national economy?
Dong Yu: Cultivating new pillar industries does not mean abandoning the original ones. Having multiple pillars is certainly better than relying on just one, and in the future, there will be more pillar industries. The scale of the real estate sector and its role in supporting the national economy are still very significant, and it must be handled with care.
Q: Will some of the specific measures be implemented by December this year?
Dong Yu: The pace is undoubtedly accelerating, and some measures will yield results quickly. However, since there are many policy initiatives, some will depend on local implementation and planning. Local governments have their own unique situations, which need to be taken into account. This "package of incremental policies" will certainly be treated as a top priority and pushed forward from the top down.
Q: If the local debt issue is resolved in a large-scale or one-off manner, what kind of reaction can we expect in the economic sphere?
Dong Yu: Debt resolution forms a chain of influence. By improving the structure of debt, it not only improves the specific debt situation of local governments but also addresses a series of related issues that stem from debt. This, in turn, improves conditions for enterprises along the chain, resulting in a comprehensive effect.
The newsletter is written by Yuzhe He, the founder of Gen-Z Glimpse. The personal newsletter solely reflects his perspectives, NOT those of others.
If you spot any errors or have feedback, please don’t hesitate to respond or send your comments to Yuzhehere # hotmail DOT com.