At the end of each year, China’s top economic policymakers get together for the Central Economic Work Conference (CEWC) to discuss their goals for the year ahead.
This year’s CEWC wrapped up on December 11, and in this podcast, Trivium Co-founder Andrew Polk and Dinny McMahon, Head of Markets Research, get together to discuss the ins and outs of the meeting’s official readout.
Warning: The readout from the CEWC is invariably a big-picture policy document that’s frustratingly thin on detail.
Deciphering what the leadership means takes a little bit of reading between the lines.
And that’s exactly what the gents do!
They start off with their 30,000-foot takeaways (TL;DR: Beijing envisions 2026 looking a lot like 2025).
Then they get into:
Where we might expect extra government spending
Whether Beijing will double down on the consumer goods trade-in program
How Beijing intends to boost consumption
Transcript follows:
Andrew Polk:
Hi, everybody, and welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium co-founder Andrew Polk, and I’m joined today once again by Trivium head of markets research, Dinny McMahon. Dinny, how are you doing, dude?
Dinny McMahon:
Doing well. Good to see.
Andrew:
Yeah, great to have you on, as always. In this podcast, we are going to get into the Central Economic Work Conference that just concluded in Beijing on Thursday, and which set out sort of the macroeconomic policy direction for 2026. So, pretty simple, straightforward in terms of what we’re going to talk about today, which is going to be Dinny’s last part of the year as he’s about to head off on vacation for the balance of the year. So, I’m sure he’s ready to wrap this up and get going. Maybe I just did your vibe for you, but, you know, we also have to do the customary vibe check, Dinny. How’s your vibe?
Dinny:
Better than yours, mate. You look like death warmed up.
Andrew:
I feel like death warmed up. Yeah, my vibe is recovering from the flu. My entire family has it now. And I was the tip of the spear for once. Usually, the kids get sick first, and it filters upward. But, somehow, I was the weak link this time.
Dinny:
Typhoid Mary.
Andrew:
Yeah. As always though, we’re going to cut through any negative vibes and any sick vibes and bring some solid energy to this podcast to talk about macroeconomic developments in China — the reason the people come to Trivium. Okay. Before we get into the media that we got to do the housekeeping as well. Quickly, for listeners, I let Dinny off the hook on the last vibe check of the year in case people didn’t clock that.
Dinny:
Like, you still want my vibe?
Andrew:
Yeah.
Dinny:
Dude, I’m doing great. Look, I’m heading back to Australia for Christmas for the first time in 21 years, so I couldn’t be happier. And yeah, my wife is ecstatic about having a warm Christmas, so it’s all good in my household.
Andrew:
Awesome, man. Okay, good. Well, I’m glad you got that in there before we head into the housekeeping here because people need to know the Kevin energy you’re bringing, and you’re bringing like jet fuel energy. You’re getting ready to get out of here.
Dinny:
Yeah, bringing on the to-go energy.
Andrew:
Yeah. All right. Well, we also have to do the housekeeping quickly before we get into the meat of the discussion. First, just a quick reminder, we’re not just a podcast here — Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. That, of course, includes policy towards China and of Western capitals like D.C., London, Brussels, and others. So, if you need help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a conversation about how we can support your business or your fund. Otherwise, if you’re interested in receiving more Trivium content, check out our website, again, triviumchina.com, where we’ve got a bunch of different subscription options you can check out.
We’ve got free options. We’ve got paid options. We’ve got options on tech policy, markets policy, general business developments, and policies that impact the business environment. So, check that out. You’ll definitely find the Chinese policy intelligence option that you need. And finally, please do tell your friends and colleagues about Trivium and about the business and about the podcast — helps us grow our listenership and grow the business so we can continue to put out good, free content like this.
And while you’re downloading the pod, please take a second to just leave us a rating, a quick rating. It helps grow our visibility on the various podcasts apps as well. All right, we’re done with that. Dinny, let’s get into it. So, we’re going to talk about the Central Economic Work Conference. Why don’t you start us off by just telling people what that is and why we care about it.
Dinny:
So, the Central Economic Work Conference is an annual meeting. It’s usually held in the middle of December each year, and it’s an opportunity for all the senior leaders and policymakers, regulators relating to the economy and the financial system, they all get together. So Xi Jinping’s office thing, Li Qiang’s at this thing, the central bank governor’s at this thing, they all get together. And for a couple of days, they talk about what they want from the economy in the coming year. And then at the end of it, after two days, they put out a bit of a readout, sort of summarizing what they spoke about. Now, the readout itself is always pretty thin on details. You know, we’re working out and trying to get to grips with what they decided on.
Always requires a little bit of reading between the lines. But over the next few weeks, over the next few months, we tend to get a little more clarity, both because those details get fleshed out with, so fleshed out with real policies, and also you kind of start seeing people being quoted like Xi Jinping’s speech to the CEWC gets quoted here and there, and then those comments don’t turn up in the readout. So, over time, we’ll find out far more of actually what went down. At the moment, we’re dealing exclusively with a 10-paragraph, 12-paragraph readout that kind of gives you the sort of the top level big picture summary of what they talked about and what they decided on.
Andrew:
Yeah, it’s really kind of a statement of intent, if you will, or as statement of prioritization going into the following year, and much like anyone is going to close out the year by trying to set priorities for the year ahead, kind of make sense. So, on that front, Dinny, what was the big picture this year coming out at the Central Economic Work Conference?
Dinny:
Like I said, taking into account that, as we said, there’s a lot of reading between the lines and trying to work out what they really mean, but our take on what this particular conference, what it was trying to communicate is, firstly, there will be an increase in government spending in 2026, but that spending, you shouldn’t really think of it in terms of stimulus. It’s more about trying to put a floor on the things. So, as far as Beijing’s vision for the economy goes, nothing has changed. I mean, we’ve had so much communication on this over the past year with the preparations for the five year plans and the suggestions of what’s going to go into that. We got a pretty good sense of where Beijing is trying to drive the economy.
And we’ve written about this extensively that the vision is about building an economy that is driven by productivity gains, which are enabled by innovation and industrial credit. That hasn’t changed. That’s the model. Now, what this meeting was all about is while they’re pushing forward on that, how do they manage the economy. And so, in 2026, what they seem to be saying is that they will deploy additional resources, fiscal resources, government resources, whatever, towards putting a floor under the weakest parts of the economy so that they don’t derail the main agenda.
And so, in short, what Beijing seems to have really been talking about over the last few days is that they want to stabilize the economy and the domestic demand in particular by providing support, not stimulus. And so, our best guess about how Beijing envisions the year ahead is that it’s going to very much look like the year that’s almost behind us. It’ll look very much like 2025. We’re going to see things like incremental support for consumption. There’s still going to be aggressive efforts to expand exports, there’ll be sort of this all out driving to innovation and upgrading the industrial plant. There will be a further weakening of housing demand. There’ll be efforts to relieve local government stress, although it still won’t fix the cause.
It’ll be sort of very much the same. So, the goal here is to kind of try and put this new economic model, this economic transformation on a more solid footing, while not all those weak areas of the economy — domestic demand, consumption, housing, local government debt — without letting any of those derail the big picture.
Andrew:
Great. Thanks for kind of laying out the high-level stuff. With that kind of in place, then let’s get into some of the more specifics from the readout. So, we look at the priority list, and Beijing’s main domestic concern within that priority list is looking at “the prominent contradiction between strong supply and weak demand.”
Dinny:
Got to love a contradiction.
Andrew:
Yeah, the Chinese Communist Party does love a contradiction. That is true. But I was going to say you can say that again. I mean, the contradiction between strong supply and weak demand, I mean, we’ve been talking about that for a couple of years now, and it’s the main thing that’s driving the rest of the world crazy and leading to this huge trade surplus from China. So, talk to us about what they’re thinking on this front.
Dinny:
Well, on the supply side of this contradiction, there was only really one mention of involution. And they said they’ll thoroughly address involutionary competition, which is, on one level, it’s kind of a surprise. That was it. The only mention of overcapacity was this one involution reference. At the same time, they’ve been talking about it so much, we’ve been seeing sort of incremental efforts to sort of rein in new investment and try and deal with existing overcapacity. So, I don’t think it’s going anywhere. But it got one shout-out in the readout. The demand side of the equation got a lot more airtime. And so, what the readout said is that Beijing would prioritize demand and build a strong domestic market.
Now, in terms of the stuff that they’re going to do on the demand side, probably the biggest new commitments, or the biggest commitment to new spending, was a promise that the central government would step in and support the stabilization and recovery of investment. That by, yeah, and this is a direct quote, “appropriately increasing the scale of budgetary investment in public works or on infrastructure.” Now, that’s really significant for two reasons because, firstly, it’s kind of the first time the central government has really acknowledged that the collapse in fixed asset investment we’ve seen over the last couple of months is a cause for concern or is a problem.
So, in September, fixed asset investments shrank, year on year, by 7%, in October, shrank by 12%. I mean, there’s a bunch of reasons why that’s happening. I mean, it’s because the property sector’s going from bad to worse. It’s because the anti-involutionary efforts have resulted in sort of a halt in a bunch of industries of additional new investment, or at least significant new investment. And so, all that kind of fit into it. But this is Beijing saying, “Okay, we know it’s a problem. We’re going to do something about it.” And the other reason why this is important is because it’s Beijing taking responsibility for counteracting that weak investment and not pushing that fiscal burden onto local governments, which has always been it’s knee jerk reaction in the past.
So, yeah, we don’t know necessarily how it’s going to do that, how much it’ll deploy. But that seems to be the direction of travel. And so, it might not actually be explicitly fiscal. It might not be the government borrowing more. It might be quasi fiscal because that’s something they talked about as well. I mean, they talked about deploying the central banks, deploying new policy based financial instruments, which is really code for having the policy banks do more lending. And that’s something that they did in October when they got the three policy banks to lend, not to lend, but to inject ¥500 billion as effectively seed capital for new infrastructure projects. We’ve had this problem before. For infrastructure projects to get off the ground, they need to be adequately capitalized before they can even start borrowing from the banks, the bond market.
And there’s been a couple of instances in the past where the local governments have just been so financially overstretched, they haven’t had the resources to provide enough seed capital. And so, I think this is the second or third time that Beijing’s mobilized the policy banks to provide that capital. Now, the readout from the Economic Work Conference seemed to be suggesting that it might do a little bit more that, at the very least reserving the right to deploy the policy banks a bit more. But the long and the short of it is that this is clearly an issue for Beijing, that they want to ramp up investment. They know it’s weaker than anyone should be comfortable with. And so, we’re going to see the central government ‘do stuff’ to ensure that there is some real growth in the investment, or at least put a floor under the fall that we’ve seen over the last couple of months.
Andrew:
Yeah. If listeners want to take a deeper dive into what exactly is happening with the investment fall off, we did a really good podcast episode a couple of weeks ago with Joe Peissle, Trivium’s Head of Macro Research, or our lead macro analyst. So, go check that out. It’s definitely worth a listen. And then I was also just going to point out quickly for folks, you just talked about sort of what they want to do on the domestic demand side. People often mistake when they hear domestic demand, they think consumption, they link demand with consumption. And demand is not just consumption. It’s just about what is pulling in resources in the domestic economy. And so, it’s also investment. So, the two big legs of domestic demand are investment consumption. One of the reasons I mean, frankly speaking, that domestic demand has been so weak for several years now is the meltdown or rerendering of the property market.
Right? Property drove a lot of demand for resources in China, and that’s never coming back to the level where it was before. And, as we talked about our podcast with Joe a couple of weeks ago, it’s one of the primary reasons, along with involution and the paying down of local government debt, why investment has kind of fallen off a cliff just in the past six months or so. I just wanted to make that point just quickly because I feel like I hear people make that mistake all the time when they say domestic demand, and we think consumption. But there’s two legs of that stool. I guess that’s not a very sturdy stool if it only has two legs. That’s a digression. But also it does include consumption as well. It’s just not the only thing. So, talk to me a little bit about consumption. And specifically, what do you think the outlook is for basically what’s been their main consumer policy over the past year and a half, which is the consumer goods trade-in program.
Another note there, we always emphasize the consumer goods trade-in program. A lot of people call it the consumer trade in program. We’re not trading in consumers. We’re trading in the goods. You get to stick with me today, Dinny. I’m just trying to help out, just trying to help the people. That since mid 2024, with the consumer goods trade-in program, the central government has been providing subsidies to fund discounts for people who want to buy new furniture, new cars, white goods, personal electronics while trading in, of course, their old possessions and their old goods. Beijing allocated ¥300 billion to the program in 2025. But that money, by this point, has basically run out. So, without new funds, the trading program is going to fall apart, and the sale of especially big ticket consumer items is going to plunge next year. So, Dinny, the EWC said it will optimize that program. We think there’s still some life in the program. Talk to us about what’s going to happen on that front.
Dinny:
Yeah. The frustrating thing about the conference in its readout, and it’s not just this year, it’s every year, it uses words like optimize and standardize. And you kind of left that sort of scratching your head going, are they actually going to do something or are they just throwing everything into this statement? You know, everything that’s important gets a shout out. So, it’ll be optimized or it’ll be standardized, so what does that actually mean? But I think in this case, with regard to the trade-in program and then the subsidies for the trade trade-in program, talking about optimizing it really tells us a lot because at this point, the program is dead. The program is the subsidy. In the the second half of last year, they allocated ¥150 billion to the trading program.
This year, it’s ¥300 billion. When the money runs out, the program is dead. So, if they’re talking about optimizing the trade-in program, that means it still exists. That means that they intend for this thing to continue into the new year. And that implies that there will be new money. I mean, it’s not a sure thing, but it seems pretty clear that the only way you optimize something, the preexisting condition has to be that it still exists. And so that’s what we’re assuming. So, the big question then becomes…
Andrew:
These are the kind of observations that people come to this podcast for, by the way.
Dinny:
Exactly, mate. This is my last thing on my to-do list and then I’m on vacation, and so I’m brining my A game. So, I guess the question then really is how much funding will they allocate to this thing. Will they keep at the same as last year, like another ¥300 billion, or will they increase it? Will they be struggling to maintain sales growth or they just want to prevent sales from falling? I mean, these are really important questions because, I mean, part of the problem with the program is that it was always about bringing forward future demand. So by giving people subsidies, they would buy the dishwasher this year that they probably wouldn’t have bought for another two or three years. So, you’ve brought forward all that future demand.
So, without the subsidies, then there’ll be less demand next year than there otherwise would be, and there’d be less demand the following year than there normally would be because so much of the demand from the next few years is already being consumed in 2025. So, you need the subsidies to keep pulling forward future demand just to maintain sales at the level that they otherwise would be. Now, of course, in a perfect world, demand would have rebound. The domestic economy would be feeling a lot more robust, and it wouldn’t really matter so much. But that hasn’t happened. Household optimism is still really low.
Retail sales growth is really low. So, to make sure that domestic demand for white goods and furniture and all this sort of stuff, to make sure it doesn’t plunge, you’ve got to provide at least a certain amount of money. And the question is to maintain it at last year’s level, it seems to me that the same amount of subsidies as last year won’t be enough. You actually need to increase it just to continue treading water. And so that’s the thing that we’ll be watching for. How big will the subsidies be? And what will Beijing’s goal be? Is it to generate more demand, like to keep sales growing 5%, 3% to 6%, or to just keep things flat? Hopefully, we’ll get some clarity on that in January, but I think that’s a pretty significant question that I think we’ll all be watching for.
Andrew:
Well, this is a little bit of a curveball in terms of our map here for the pod. And I know this wasn’t in the readout from the work conference, but how do you think services play into this? Will authorities kind of pivot or widen the aperture of the consumer subsidy program to include services? You’re obviously not going to trade in services, but if there’s only so much demand you can kind of engineer for goods, we’ve talked a lot on the pod about how people are spending more and more of their wallet on services. Do you think that will play in? because then it wouldn’t matter as much if consumer goods demand was off if people were out spending on services. What do you think?
Dinny:
No, I don’t think they will. Look, you might get voucher programs again. I mean, we saw this a lot during the pandemic. Local governments rolled out vouchers to encourage people to go out to restaurants or visit tourist sites. Many will see more of that. But at the same time, I mean, the growth in services consumption has been really quite robust. That hasn’t been a problem. It’s growing a lot faster than retail sales. So, I don’t think there’s necessarily any reason to supercharge that. The other thing to keep in mind is that providing subsidies for services would achieve something radically different from what they were trying to achieve with the subsidies for big ticket consumer items. And I think this is a problem with the way that we refer to this program.
We refer to it as a consumer subsidy program. And by extension, people then go, “Oh, but they were doing this to boost consumption. All they have to do is reallocate the way that those subsidies are allocated to maintain consumption growth.” The problem here is this was never about consumers, right? This was straight up a way of leveraging household consumption to provide a subsidy to manufacturers. And these manufacturers were the ones that were, for the most part, the hardest hit by the collapse in the housing market. Furniture makers, white goods makers, I mean, these were the companies that, you know, their sales were intrinsically tied to the construction of new housing, not the volume of housing sales, but specifically new housing. Because every time you built a new apartment, you had to fill it with a dishwasher, air conditioner, fridge.
Every time you built a new apartment, you had to fill up with furniture. This was new demand for these manufacturers that was created with every new apartment that was built in stock. And so, when construction of that, when demand for new apartments plunged and construction of new apartments plunged, so did demand for these goods. And these goods are really important because, generally speaking, there’s a long supply chain. It’s not just a factory making washing machines, it’s all the various components and materials that went into making it. And so, ultimately, I think that’s what we need to do. We’ve got to stop looking at this program as freely being about consumers. It was about manufacturers. And that’s why the government didn’t turn around and distribute ¥300 billion in cash to households.
“Here’s ¥300 billion, spend it as you will.” That would have been a pro-consumption campaign because it would have given households the discretion to spend money the way they needed to and the way they wanted to. This was explicitly about boosting consumption of manufactured shares that had got walloped by the collapse in the housing market. So, turning around and going, “Well, let’s have another ¥300 billion worth of subsidies year, but we’ll give it to restaurants. It’ll be a subsidy to use in restaurant or it’ll be a subsidy to visit the Forbidden City.” That completely defeats the purpose of the program in the first place.
Andrew:
Yeah, all great points. And I think also it makes sense why it was paired with an equipment upgrading program as well, right? Industrial subsidy as well. So, there is a B2C through the consumer goods trade-in, and there’s the B2B through the equipment upgrading program. So, that makes a lot of sense. And also, as you were talking, I was also thinking that subsidizing service consumption does not do anything to address their primary concern for next year, which is that disconnect between supply and demand. Right? It doesn’t really help you soak up any of the excess supply. So, those are all great points. Anything else in the readout we saw on pro-consumption policies?
Dinny:
Yeah, there was one thing that jumped out at me because they talk a lot about wanting to expand spending on welfare. And we had been seeing incremental stuff like that. I mean, we saw earlier this year more spending on for childcare and preschool pools. This time, one of the only explicit measures that was mentioned in the readout was, we got the direct quote, “expand and improve rehabilitative nursing care and promote long term care insurance.” Now, that’s a really big deal because the cost of providing long term care for sick parents in China has been absolutely crippling for the first generation of people born under the one child policy. Now, they’re in the mid-forties at the moment, which means they themselves have young kids or young child. Meanwhile, if you’ve got a couple that are both only children, then they’re effectively taken care of for parents who are in their 70s to 80s, mid 70s, early 80s at this point.
And so, China traditional hasn’t had long care insurance. It’s nursing homes set up, nursing care, long term rehabilitative care has been awful for the government to kind of go, “Okay, we’re going to have to put more resources into this,” and particularly the insurance aspect of this, that if you are taking care of your parents, the financial cost is crippling to the government to kind of step in and go, “Okay, we’re going to be providing that some support” is hugely important. Now, so often when we talk about wealth redistribution in China, I think everybody always hear Beijing talking about wanting to boost consumption, getting household spending more. We’re always looking for signs that there’s going to be some meaningful wealth redistribution program.
This is wealth redistribution. But I can’t imagine it happening on this scale, certainly not in the short term, that would have a meaningful impact on households’ spending. I think the goal here is to provide much-needed relief for people who are really doing it hard at the moment, particularly the first generation of one-child kids. But I don’t think this is going to be the sort of transformative boost to consumption. Now, at the same time, we also had some, beyond this particular measure, Beijing was talking about its old cyber hobbyhorse, which is like the way we’re going to boost consumption is by unlocking latent demand.
Now, we’ve been talking about that on this podcast for years. I mean, we first started seeing Beijing talk about it in early 2023, coming off the back of the pandemic, the idea that Chinese households want to spend more, and at current income levels, they willing to spend more. It’s just they don’t have access to the things that they want to spend it on. And, originally, the big focus of that was on physical goods. Increasingly, it’s on services. The idea that there’s a real bottleneck to services that people want to spend money on. So, it’s things like, I would buy a car, but it’s not worth doing it in the city because I can’t find a place to park it. Well, the solution is building more parking spaces, right?
You kind of get that idea that this is a roadblock to demand, or when it comes to services that everybody takes a holiday at the same time because of the Golden weeks, and everybody goes to the same half a dozen sites. And so, one of the bottlenecks to people properly enjoying tourism services is that everybody wants to go to the Forbidden City in the first week of October. So, somehow diversifying the available options of vacations and perhaps improving the supply demand for hotels around that time, whatever, I mean, it’s a bottleneck, and it needs to be fixed to kind of meaningfully boost tourism consumption. And that, again, was a theme of this document. The readout said that the authorities would expand the supply of high-quality goods and services, and that it would eliminate unreasonable restrictions on consumption and unleash the potential of service consumption.
It’s all about this idea of unlocking demand, which really, up until this point, hasn’t done much to boost consumption. It may have helped redirect some Chinese consumption away from imports and foreign products to Chinese products. But, for the most part, it hasn’t really had an impact on boosting aggregate demand. It hasn’t really had an impact on boosting household spending.
Andrew:
All right, great stuff. So we’ve gone through the sort of macro policies, fiscal in particular. And then we talked a little bit about investment and consumption. What about another big chunk of the economy — property? Anything to speak up in terms of specific policies on that front?
Dinny:
You know, it was really more of the same. I mean, Beijing is kind of locked into its approach at the moment. The responsibility for fixing this housing down falls on the local governments. It did give a shout out to three specific policies. They’re not really new, but it kind of does give you an idea of where their priorities are, where we might see some additional funding or support. So, it talked about accelerating state-sponsored acquisition of unsold housing and converting that into affordable housing. I mean, this is a program that’s been around for a couple of years already that state firms will step in, buy developers inventory, turn it into affordable housing.
So, maybe when they’re talking about accelerating that there’ll be more money for it. They also talked about expanding home buyers’ access to the Housing Provident Fund, which is kind of like a… it’s a local government-administered savings schemes that people contribute to as part of their, I guess, get paid, you contribute some money into social security, contribute some money into the provident fund. And when you come to buy a house, we can tap that fund and access below-market-rate mortgages. You still need to get a bank loan, but this provides at least some support to buy a house. So, they’re talking about expanding access to that. Now what that means in practice we don’t know. A lot of cities have allowed people to use money borrowed from those funds to pay the down payment on a home.
So, banks require you to make a down payment before they’ll give you a loan. Well, in some places you can actually get money for the down payment from the provident fund. So, maybe we’ll see an expansion of that. Who knows. But that seems to be part of the mix for one of the solutions Beijing’s thinking about. And then there’s this idea of increasing the supply of good housing. So this idea of good housing being it’s comfortable, it’s livable, and that it’s about sort of people who are looking to upgrade their homes. That they’re not first-time buyers, but they’re already at a stage of their life where whatever they’ve got at the moment, they want something better.
And so, Beijing’s like, okay, can we kind of extract more demand from that tier of people? Sure, the population is dropping, but we still got plenty of people who are looking to buy something better. Maybe we can kind of try and stimulate that side of the market. But overall, I mean, as I said, none of this is really new. So, it seems to be that Beijing is just doubling down on its long game. It’s focusing on trying to fix some structural issues rather than trying to juice short-term demand. And so all of these things I just talked about, I mean, none of them all without merit, it’s just that none of them are really going to address the real issue, which is dragging down the market in the short term, which is that people still think prices are going to keep falling.
And if that’s the general consensus in the public, I mean, it’s really difficult to turn this market around anytime soon. And, of course, you know, while we’re talking about the other big issue alongside properties, always local government debt, and it was kind of the same there as well. Beijing is clearly worried. It came out with this new wording that it would prioritize addressing local fiscal difficulties. This recognition that local governments are having fiscal difficulties, it suggests that Beijing is really worried that local government fiscal stress is weighing on growth, and it’s undermining national strategic goals. But at the same time, there really wasn’t anything new by way of remedies for sort of fixing any of this.
Andrew:
Well, one follow up sort of related to the local government debt piece, which is I noted that the issue of resolving and preventing risks in the economy was still on the list of priorities, but was moved down the list pretty substantially. I think it might have been the last one or next to last, whereas last year, it was much higher on the list. Any thoughts on what that might indicate about how authorities are feeling about their progress and resolving and preventing risks in the economy, particularly in the banking system?
Dinny:
Yeah, I think they’re pretty proud of themselves, to be honest. I mean, what? With four, five, almost five years in to the housing process that the market peaked at the beginning of 2021, and prices have fallen precipitously, like, what? 25% to 30%? And yet we haven’t had a banking crisis. We haven’t had a financial crisis. I mean, sure, domestically, the economy’s sluggish. I mean, it’s not like there hasn’t been consequences for this. But, you know, the economy is still growing at 5% because of all this effort that they’ve put into manufacturing. Anywhere else in the world, this sort of adjustment in the property system would have already have had serious… I mean, you would’ve been looking at some sort of financial crisis at this point.
The economy would be in recession. Things would be far worse off than they are in in China. And I think in some ways, they have managed to avoid the worst of things so far. They’ve really managed to sort of cool things out. I mean, that’s kind of very much a function of the system. And clearly, things aren’t perfect by any stretch of the imagination, but they have managed to avoid a crisis. And I think they’ve gone about dealing with risks in the financial system. I started off by taking on the biggest financial institutions first back in, you know, they started in 2019, even before they sort of popped the property bubble, sort of dealt with Hengfeng Bank, they dealt with Baoshang Bank. Throughout the pandemic, they were dealing with the other big city commercial banks, the bank of Guizhou, I think, was one of them. Some of the other big banks, the banks in Liaoning Province that were having problems.
For the most part, they’ve managed to significantly dispose of non-performing loans, recapitalize those banks, significantly overall management of those banks where necessary. They’ve overseen mergers and consolidation. And then over the last couple of years, they’ve been increasingly going after the very smaller banks, the rural collective banks, the commercial banks, the village banks, merging them with larger banks, canceling banking licenses. And so, yeah, there’s been this constant slow-moving clean up of the banking system. Reuters had a story today, sort of saying, you know, these mergers of small banks haven’t been without costs.
Invariably, the newly merged institutions have seen lower capital levels of profit growth in the following years, which doesn’t surprise me. But I think at the end of the day, Beijing sees this, and they’re like, “Well, the reformed institutions are still probably better than the ones that we started off with. So yeah, I think, overall, I think they’ve probably managed the risk reasonably well. And I think moving down the list of priorities, I mean, the fact that it’s still on my list means that they know that they’re not entirely out of the woods, but at the same time, in fact it’s lower down the list reflects the fact that things could be far worse than they actually are, and they’ve done a pretty decent job of dealing with some of it.
Andrew:
Yeah, I agree with all of that analysis. Thanks for laying that up for us. I think we have touched on all the major policy themes really from the Central Economic Work Conference. So, I’ll just have you take us home. Given everything you’ve just laid out and the broader sort of messages from the Central Economic World Conference readout, what do you expect from 2026?
Dinny:
So, I think there’ll definitely be more government spending. I really think that will re-up the consumer subsidies program. I’d be surprised if it was anything less than the 300 billion they rolled out in 2025. For it to be meaningful at all, I think it has to be more than that. There’ll be more support, central government support for infrastructure. I’m not sure whether that will be coming directly from the Ministry of Finance or whether it be quasi fiscal from the policy banks funded by the PBoC. I don’t know. But I think there’ll definitely be more support. I think we’ll see more measures to support investment in consumer-facing industries, whether it be services or retail. There’ll be more subsidies for consumers, whether it be vouchers or something else.
But we’ve seen permutations of pretty much all of this over the past 12 months. We saw interest rates subsidies for interest payments subsidies for consumers. We saw the same thing for consumer-facing services companies. I think we’re just going to see variations on all of these things because the goal here is not to provide stimulus. The goal is to build this new innovative economy, this economic transformation that Beijing envisions, and that the Central Economic Work Conference was like, “Okay, so how do we keep the rest of it from derailing that?
And I think 2026 will look similar to 2025, or at least that’s how they see things at the moment. And the goal will just be about stabilizing the weakest parts of the economy, providing support. But this is not stimulating any of those areas by any stretch of imagination, as we would have previously understood it.
Andrew:
Yeah, so very much a year in 2026 that looks a lot like 2025. I really appreciate you laying all that out for us, Dinny, especially just on your last day or day of the year. I have to thank you. But then I also have to say thank you to the powers that be in China for getting this conference done this week before you leave for holiday because, otherwise, I would have been analyzing this on my own in your stead next week. So, I guess I’ll have to get them some kind of fruit basket for Christmas or something.
Dinny:
It’s very rare that they’re that accommodating. I’m still traumatized by the PBoC specials back in the day, where they dropped something on Christmas Eve, or even Christmas night.
Andrew:
Christmas Day interest rate cuts. Yeah.
Dinny:
Yeah, I still have, because I think it was Christmas night, one year I was sitting, yeah, after Christmas dinner, sitting by side a fireplace with a glass of wine, writing some story about an interest rate cut on my BlackBerry. BlackBerry, for those of you who…
Andrew:
You just aged yourself, my friend.
Dinny:
Indeed.
Andrew:
Well, thankfully, we’re not going to have to deal with that this year, man. Really appreciate you running us through all this. It’s great to see you on this pod today, man.
Dinny:
No worries, mate. Happy to do it.
Andrew:
And thanks, everybody, for listening. We will have at least one more pod in 2025 that will be out next week. We are unsure what the rest of the year will look like, if we’ll be able to pre-record some pods, but at least one more, so stay on the lookout for that. And otherwise, thanks, everybody, for listening. We’ll see you next time. Bye, everybody.
