Clear goals and firm steps - Key points from the Fourth Plenary Session Communiqué

Core Viewpoints:

On October 23, the Fourth Plenary Session reviewed and approved the draft of the "14th Five-Year Plan" proposal. The "14th Five-Year Plan" period is a critical time for fundamentally achieving socialist modernization and laying a solid foundation for comprehensive efforts. The Fourth Plenary Session has outlined a blueprint for China's economic and social development over the next five years. First, the goals are clear. Anchoring on the goal of basically achieving socialist modernization by 2035, on one hand, it insists on centering economic construction, ensuring reasonable growth in quantity, and building a modern industrial system with advanced manufacturing as the backbone, achieving effective qualitative improvement; on the other hand, it insists on putting people first, investing in people, and solidly promoting common prosperity. Secondly, the pace is steady. Focusing closely on Chinese-style modernization, one hand grasps technology, emphasizing "independent" innovation capabilities, strengthening original innovation and tackling key core technologies, while the other hand expands domestic demand, leading new supply with new demand, optimizing the national economic layout in response to circumstances, and strengthening domestic circulation.

1. Insist on centering economic construction and ensuring reasonable growth in quantity. This Fourth Plenary Session, following the report of the 20th National Congress, once again emphasizes "centering economic construction," which will remain the basic standpoint for formulating various policies during the "14th Five-Year Plan" period. Firstly, unwaveringly insist on centering economic construction. As the world's largest developing country, centering economic construction is essential for national prosperity, and development remains the key to solving all of China's problems. The "14th Five-Year Plan" period is a critical period for the transformation of old and new driving forces, an important stage for China to respond to "two changes and one leap," and to comprehensively shape strategic advantages, ensuring decisive progress in basically achieving socialist modernization. During the "14th Five-Year Plan" period, it is necessary to insist on centering economic construction and achieve significant results in promoting high-quality development. Secondly, the expected economic growth target for the "14th Five-Year Plan" period is around 5%, which aligns with the long-term goal for 2035. On one hand, it is necessary to ensure reasonable growth in quantity, striving for a higher GDP growth rate to provide a solid economic foundation for major power competition. On the other hand, the "14th Five-Year Plan" period is a critical time for laying a solid foundation and making comprehensive efforts to basically achieve socialist modernization, bearing the important responsibility of realizing the long-term goal of modernization by 2035. The Fourth Plenary Session once again emphasized that by 2035, "per capita GDP will reach the level of moderately developed countries." In 2024, China's per capita GDP is expected to be 13,303 USD, and reaching the level of moderately developed countries will still require certain efforts.

2. Build a modern industrial system, highlighting the leadership of advanced manufacturing. The announcement mentioned the need to "build a modern industrial system and consolidate and strengthen the foundation of the real economy." This announcement places "building a modern industrial system" at the top of twelve key tasks, highlighting the leading position of advanced manufacturing. This section releases two major signals: first, the security of the industrial chain has been elevated to an unprecedented strategic height. The meeting mentioned that during the "14th Five-Year Plan" period, "China's development is in a period of both strategic opportunities and risks and challenges, with increasing uncertain and unpredictable factors," and "maintaining a reasonable proportion of manufacturing." Therefore, ensuring the security of the industrial chain and supply chain in manufacturing is an important guarantee for China's development, and it also emphasizes that manufacturing will continue to serve as the ballast for the economy Second, the high-end equipment, commercial aerospace, and low-altitude economy, which are key breakthroughs during the "14th Five-Year Plan" period, have already met the conditions for large-scale development and have become the main battlefield for cultivating new quality productivity in the "15th Five-Year Plan." The announcement added the expression "a strong aerospace nation" based on the "14th Five-Year Plan." The next step will focus policy resources on advanced manufacturing to drive the modernization of the industrial system, achieving a leap from "a major manufacturing country" to "a strong manufacturing country" by maintaining a basically stable proportion of manufacturing, integrating intelligent and green transformations, and tackling shortcomings in equipment and industrial software.

Three, accelerate high-level self-reliance and self-improvement in technology, and comprehensively enhance independent innovation capabilities. In the field of technology, the communiqué first emphasizes "seizing the historical opportunity of a new round of technological revolution and industrial transformation," indicating that technology fields represented by artificial intelligence will be a key support during the "15th Five-Year Plan." Deeply integrating technological innovation and industrial innovation as the main direction is the only way for China to achieve technological breakthroughs, cultivate new quality productivity, and solidify the foundation of manufacturing during the "15th Five-Year Plan." Second, it clearly requires "strengthening original innovation and tackling key core technologies" for the first time, meaning that the "15th Five-Year Plan" technology policy will simultaneously strengthen both ends: on one hand, the proportion of basic research funding is expected to increase from the current 6%; on the other hand, it will vigorously implement iterative tackling of "bottleneck" issues, focusing on key technological areas such as semiconductors, industrial software, high-end scientific instruments, and aircraft engines, providing dual support of source technology and safety baseline for constructing new quality productivity.

Four, strengthen domestic circulation and further highlight the role of domestic demand. The Fourth Plenary Session of the 20th Central Committee upgraded the expression and positioning of "domestic demand" and "domestic circulation." First, it emphasizes demand leadership more strongly, promoting supply-demand balance. The relationship between supply and demand has shifted from "innovation-driven, high-quality supply leading and creating new demand" in the "14th Five-Year Plan" to "new demand leading new supply, and new supply creating new demand." In the face of new situations such as slowing external demand, an aging population, and persistent insufficient domestic demand, it emphasizes the leading role of the demand side in the economy even more. Additionally, it aims to orderly eliminate backward production capacity as an important measure against involution, promoting supply-demand balance to achieve a state of "virtuous interaction between supply and demand." Second, the construction of domestic large circulation has entered a new stage, with the nationwide unified market as an important main line. Compared to the "smooth domestic large circulation" during the "14th Five-Year Plan," this plenary session first proposed "enhancing the endogenous motivation and reliability of domestic large circulation," marking a new stage in the construction of domestic large circulation from "unblocking circulation" to "strengthening circulation," focusing more on enhancing the resilience of the internal circulation, forming a self-reinforcing mechanism, ensuring stability in the system, stronger momentum, and more sustainable growth. On one hand, it is necessary to actively promote the expansion of domestic demand to enhance "endogenous motivation," improving the pulling effect of domestic demand on economic growth through measures such as enhancing residents' consumption capacity, improving the income distribution mechanism, and stimulating corporate vitality; on the other hand, it is necessary to enhance "reliability" through the construction of a nationwide unified market, emphasizing the need to "resolutely eliminate the bottlenecks and obstacles hindering the construction of a nationwide unified market" in the context of a complex and changeable external environment, and to build a more secure, controllable, and resilient industrial chain and domestic large market V. Adhere to the concept of win-win cooperation and actively expand autonomous openness. The communiqué emphasizes in the general outline that it is necessary to "coordinate the two overall situations of domestic and international," meaning that when formulating national strategies, one must not only focus on domestic development stages but also look at global changes. In the complex and changing international environment, we should seek progress while maintaining stability and take proactive actions, reflecting our firm belief in win-win cooperation. The communiqué mentions in the section on expanding high-level openness that we must maintain the multilateral trading system and expand international circulation. This year, the U.S. has disrupted the global trade order with its excessive tariff policies. Our country has consistently supported and maintained the multilateral trading system, such as implementing zero tariffs on 100% of tariff items for the least developed countries that have established diplomatic relations with us, and actively promoting the implementation of zero tariffs on 100% of tariff items for 53 African countries that have established diplomatic relations with us, among other measures to expand autonomous openness, continuously promoting market diversification to inject certainty and stability into the stability and smoothness of global industrial and supply chains and world economic growth.

VI. Accelerate the modernization of agriculture and rural areas, and leverage the overlapping effects of regional strategies. Compared to the communiqué of the Fifth Plenary Session of the 19th Central Committee, there are five main focus points on urban-rural and regional issues. First, it is proposed for the first time to promote rural areas to basically have modern living conditions. It is expected that during the "14th Five-Year Plan" period, further improvements will be made in rural living facilities and public services to narrow the urban-rural gap. Second, it emphasizes leveraging the overlapping effects of different strategies such as regional coordinated development strategies. The realization of overlapping effects requires the strategic goals of various strategies to be coordinated, as well as the connection and unification of regional policies. Third, it emphasizes the role of growth poles in key regions. The Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, major economic provinces, and super-large cities have a good foundation for economic and social development and are expected to take on more responsibilities in the national development landscape. Fourth, it focuses on promoting regional coordinated development. The emphasis is on advancing the linkage of factor markets, innovation chains and industrial chains, infrastructure, institutional mechanisms, land space, and regional integration and development, thereby narrowing regional development gaps through coordinated and integrated development. Fifth, it proposes for the first time to strengthen the development, utilization, and protection of the ocean. During the "14th Five-Year Plan" period, the focus may be on developing the marine economy, accelerating the construction of a modern marine industry system, and expanding emerging marine industries such as marine energy, marine biomedicine, and biological products. Hainan, as China's largest economic special zone, largest free trade pilot zone, and the only free trade port in China, contains significant investment opportunities in the marine economy.

VII. Build a culturally strong nation and stimulate cultural innovation and creativity. In the field of cultural construction, the "14th Five-Year Plan" proposes to "stimulate the cultural innovation and creativity of the entire nation and promote the prosperity and development of socialist culture." In the context of globalization and rapid development of information technology, cultural soft power has become increasingly important in the process of a major country's rise. The "14th Five-Year Plan" clarifies that cultural construction plays a strategic role in enhancing national comprehensive strength and international influence, proposing to follow the trend of information technology development, solidly promote the construction of a culturally strong nation, and fully highlight the key position of culture in national development and international competition.

VIII. Adhere to the people-centered approach, place greater emphasis on people's livelihood security, and promote high-quality development of real estate. The communiqué incorporates "adhering to the people-centered approach" into the "six musts," marking this expression as officially upgraded to the "first value anchor" guiding all aspects of reform, development, and stability work in the next five years During the "14th Five-Year Plan" period, China faces simultaneous "tight constraints" such as accelerated aging, local debt risks, and external shocks, and must balance "ensuring growth" with "ensuring people's livelihoods" and "ensuring safety." Writing "people first" into the guiding principles for the next five years establishes a "value circuit breaker": no goal can come at the expense of human life, health, or basic welfare, with greater emphasis on livelihood protection. Additionally, the communiqué mentions "promoting high-quality development of real estate," indicating that real estate is included in the livelihood sector and is no longer considered a risk sector, leading to greater expectations for subsequent real estate support policies.

9. Strengthen bottom-line thinking and resolutely achieve the annual economic and social development goals. This meeting also focused on short-term economic and social development goals. The meeting emphasized "resolutely achieving the annual economic and social development goals," which will boost market expectations for achieving a 5% economic growth target for the entire year of 2025. In the first three quarters of this year, GDP grew by 5.2% year-on-year, and the GDP in the fourth quarter needs to reach around 4.4% to meet the annual 5% target. Due to the high base, achieving the target in the fourth quarter remains challenging, requiring macro policies to "continue to exert force and increase strength at the right time," maintaining a high degree of macro consistency. Recently, a new policy financial tool of 500 billion yuan has been launched, along with a policy to activate an incremental local debt limit of 500 billion yuan. Looking ahead to the end of the year, strengthening "bottom-line thinking," focusing on stabilizing employment, stabilizing enterprises, stabilizing the market, and stabilizing expectations, with greater efforts to prevent and resolve major risks, incremental reserve policies will be timely introduced based on changing circumstances. In terms of fiscal policy, debt reduction efforts are expected to increase, with the issuance of 500 billion yuan in special refinancing bonds for local governments being an important option to improve corporate cash flow and boost corporate expectations; monetary policy will work in coordination with fiscal policy to maintain reasonable liquidity, with a potential interest rate cut expected, possibly in the range of 10-20 basis points.

Author of this article: China Galaxy Macro, Source: China Galaxy Macro, Original Title: "【China Galaxy Macro】Clear Goals, Steady Steps — Key Points from the Fourth Plenary Session Communiqué"

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