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Central authorities finally have a strategy for reviving the economy – but it's weak sauce.
On Friday, the Central Commission for Financial and Economic Affairs (CCFEA) – the Party’s top economic policymaking body, chaired by Xi Jinping – laid out plans to boost consumption, increase business investment, and improve profitability.
To boost consumption, officials want to develop old-for-new trade-in programs for:
- Automobiles
- Home appliances
- Other durable consumer goods
The CCFEA implied central authorities will provide fiscal support for such programs, saying they will:
- “Link local governments with central financial [resources] to support all links in the supply chain.”
The CCFEA also wants to reduce logistics costs, particularly for transportation, warehousing, and management. Specifically, it wants to:
- Improve connectivity between road freight, rail, and shipping
- Reduce congestion
- Encourage new logistics models that make use of autonomous vehicles and low-altitude transportation
Finally, the CCFEA called for “large-scale” upgrading of equipment to drive investment.
Get smart: This strategy is problematic.
- Encouraging trade-ins will bring forward consumption for a short-term pop, but at the expense of future sales.
- Moreover, if the trade-ins reduce durable good prices, they will reinforce deflationary pressure.
- Meanwhile, factory upgrading could worsen overcapacity problems if old equipment isn’t retired.
Our take: Reviving the economy requires boosting household wealth and income, something China’s leaders clearly aren’t yet ready to do.