Wang Yang, institute director assistant of Shenyin & Wanguo Futures, delivered his report of Breakthrough: new quality productive forces drive high-quality development.

First, the report analyzes why China's economy needs breakthrough. The key three reasons are short-term supply and demand gap widening, real estate and fiscal transformation and promoting moderate inflation return. Then Mr. Wang states from three aspects to have an analysis on the current economic situation and policy.

1. Policy breakthrough

Currently, there is a profound transformation in the relationship between real estate and the macroeconomy. We are shifting from the previous model where real estate drove economic growth to a high-quality development model where real estate stabilizes the economy while manufacturing drives economic growth. This shift is a deep-seated reason for the ongoing transformation of our economic structure. On the fiscal policy front, efforts are underway with the issuance of 1 trillion yuan in special national bonds in the fourth quarter of 2023, and plans to continue issuing ultra-long-term special national bonds starting in 2024. Additionally, real estate policies have been adjusted, providing a policy foundation for economic transformation.

2. Theoretical breakthrough

In this section, Mr. Wang elaborates on modern monetary theory and emphasizes the importance of fiscal policies driving consumption to stimulate a positive economic cycle. Given that deposit growth in our country currently outpaces loan growth, the effectiveness of monetary policy in stimulating demand is weakening. Therefore, in the future, it is expected that fiscal policy will lead with monetary policy playing a supportive role in guiding economic improvement. Furthermore, technological innovation will drive industrial innovation, accelerating the formation of new productive forces, such as globally leading new energy industries, rapidly developing aerospace industries, and promising future industries like semiconductor production.

3. Asset breakthrough.

Over the past period, there has been a trend towards clustering funds into risk-free assets, reducing allocations to risk assets. Assets that have shown strong performance include primarily gold, interest-rate bonds, and bulk commodities dominated by non-ferrous metals. Since 2015, bulk commodities have been in a slow bull market driven by structural supply-side factors. The anticipated rate cuts in the United States may mark a turning point towards a downward trend in commodity trends. Moreover, escalating trade tensions between China and the US mean domestic risk assets may face challenges in attracting short-term investments in the near future. Looking ahead, after policy breakthroughs, there is optimism for downstream sectors of manufacturing and real estate, though the real estate turning point depends on effective housing inventory management and vigorous efforts.