There were few surprises from the fourth plenum’s communique. It largely signals a continuation of recent policy priorities (under the umbrella of “high quality development”), with a somewhat greater emphasis on accelerating technological self-reliance and scientific skills.
Much of this will feel like a continuation of the push to upgrade and expand domestic manufacturing capabilities as set out in the “Made in China 2025” blueprint, even if this nametag is unlikely to be refreshed since it aggravated major trading partners.
Policy has recently sought to shore up consumption, but geopolitical pressure is likely to keep priorities biased to the supply-side of the economy, making it harder to shake of deflationary pressures, even if the authorities target sectors with well-known excess capacity problems, such as autos, solar and battery manufacturing.
While China faces many structural challenges over the next five years, we take comfort from the plan to “accelerate the green transition”. Renewable power investment is increasingly being used as a macro-stabilisation lever, which we estimate largely offset the drag from real estate bubble being deflated over 2023 and 2024, and given the need to deal with overcapacity, we expect that power capacity, storage facilities and investment to integrate renewables into the grid will be ramped up.
By Robert Gilhooly, Senior Emerging Markets Economist at Aberdeen Investments
