This article first appeared on Global Times on Dec 21, 2023.

Guan Tao is global chief economist at BOC International under Bank of China.

The recent Central Economic Work Conference affirmed that Chinese economy is steadily recovering and making solid progress toward high-quality development. The conference highlighted several key areas of focus for China's economic work in 2024, including the need to improve public expectations.

In a market economy, confidence is more important than gold. So improving public expectations will be a central job of next year's economic work.

This was the third mention of public expectations at the annual Central Economic Work Conference. The 2021 meeting noted that China's economic development faced the triple pressures of shrinking demand, disrupted supply lines and weakening expectations. The 2022 conference maintained the important judgment of 'weakening expectations,' and this year's conference reiterated the 'weak social expectation' challenge.

Although this statement is less forceful than 'weakening expectations,' it indicates a certain deviation from the desired level of public expectations. This can be attributed to the obstacles and challenges that must be overcome in order to further promote China's economic recovery and improvement, as highlighted during the meeting.

The conference stated that next year, China should adhere to the principle of seeking progress while maintaining stability, introduce more policies that are beneficial for stabilizing expectations, promote stable growth and ensure stable employment. This provides guidance for handling the relationship between stability and progress.

Stability will be the foundation for any economy, while progress pertains to the economy's driving force. At the same time, policy adjustment and promotion of reforms should go on, averting rushing for quick results.

Only through keeping economic growth stable within a reasonable range, consolidating the positive momentum of recovery and fully guaranteeing employment and people's livelihoods, can a stable development environment be ensured for making sustained progress.

Ample macro policy space is a favorable condition for China's economic development. The meeting called for strengthening countercyclical and cross-cycle adjustments in macro policies, continuing to implement proactive fiscal policies and prudent monetary policies, and enhancing policy tool innovation and coordination.

In November, China's M2 market supply increased by 10 percent year-on-year, significantly higher than the actual GDP growth rate of 5.2 percent in the previous three quarters, but it did not exacerbate inflationary pressures. The M1 year-on-year growth rate declined to 1.3 percent, indicating insufficient liquidity in market circulation.

The formation of public expectations is an adaptive process, and long-term weak inflation may solidify expectations, posing a challenge to monetary policy. If the economy continues to recover without significant inflationary pressures, monetary policy can have more flexibility and reduce the risk of misjudging whether the economy is overheating or insufficiently recovering. This will also help strengthen the expectation that prudent monetary policy won't have disruptive fluctuations.

The conference proposed to plan major initiatives for deepening comprehensive reforms, in order to inject new impetus into promoting high-quality development and accelerating the construction of Chinese modernization. If the highlights of the supply-side structural reforms can further spread and drive employment growth in related industries, and thereby cultivate and expand new types of consumption, coupled with continued exploration of potential demand, the improvement of social expectations is expected to accelerate.

It is worth mentioning that this meeting reaffirmed the importance of enhancing consistency in macroeconomic policies. This is a clear indication that non-economic policies should be included in the evaluation of macroeconomic policy consistency, strengthening policy coordination and ensuring concerted efforts. This is because some non-economic policies can also have significant spillover effects on the economy, which will also affect market expectations.