Stabilizing Market Expectations Now Takes Priority Among Beijing's Policy Objectives
Premier Li Qiang Presides Over State Council's Special Study Session on Market Expectation: What Did He Learn?
After conducting research in Beijing on the domestic sales of foreign trade goods and the revitalization of unsold housing inventory, Premier Li Qiang held the 13th State Council special study session on April 17, with the theme "Strengthening expectation management, coordinating policy implementation and expectation guidance."(加强预期管理，协同推进政策实施和预期引导) Participants include Vice Premier He Lifeng, Zhang Guoqing, and State Councilor Wu Zhenglong.
This is the second special study session of the State Council this year, with the previous one focusing on "boosting domestic demand." The two study sessions since October last year addressed "Standardizing law enforcement methods" and "Strengthening consistency in macroeconomic policy orientation."
In some sense, using an entire study session on market expectations signals that guiding these expectations has been elevated to a new height, sharing a similar (if not the same) priority as expanding domestic demand in policy formulation.
Similar to the Politburo's study sessions, the State Council's special studies also invite experts and scholars in relevant fields to provide explanations. This session featured Gao Peiyong(高培勇), a renowned Chinese economist and fiscal expert who currently serves as a member of the Academic Division of the Chinese Academy of Social Sciences (CASS) and previously held the position of Vice President of CASS. He has long been engaged in research on macroeconomic policies, fiscal and taxation theory, and policy development, with profound expertise and broad influence in public finance, tax reform, and national governance. Dr.Gao has offered many proposals for China's fiscal and taxation system reform. He is recognized as an authoritative expert in the domestic fiscal field and serves as an important think tank contributor to policy formulation.
Below is Li Qiang’s remark after the study session:
Economic development is primarily determined by objective conditions, but also has strong subjective elements. Market expectations significantly influence economic activities—a market economy is largely an expectation-driven economy. Macroeconomic governance must focus not only on balancing supply and demand, but also on managing and guiding expectations to improve regulatory effectiveness and create a virtuous cycle where stable expectations, stronger confidence, and economic stability reinforce one another.
Li Qiang emphasized that expectation management requires a comprehensive approach. All aspects of policy development and government work must incorporate awareness of stabilizing expectations, with policies becoming more targeted and effective as circumstances change. We must identify key policy priorities, address influential benchmark issues with precise solutions and focused measures, and promptly introduce effective policy initiatives. Timing is crucial—policies should be implemented swiftly during critical windows to positively shape expectations. When necessary, we must be bold enough to break from convention, deploying coordinated policy packages that deliver tangible benefits to markets. Effective communication is essential—proactively explaining policies, engaging with markets, and ensuring policies are properly understood and utilized to benefit both individuals and businesses.
Li Qiang stressed that major strategies, reforms, and the broader development environment are vital for stabilizing expectations. We must accelerate implementation of key strategic and reform initiatives—announcing, executing, and completing them systematically—to foster clear, stable market expectations and create positive feedback between reform progress and strengthened outlook. We should cultivate an inclusive atmosphere with a fair, stable, and predictable development environment, proactively helping citizens and businesses overcome challenges, improving administrative enforcement, standardizing the exercise of authority, and robustly protecting the legitimate interests of all market participants. By understanding the fundamental principles of expectation management, continuously refining macroeconomic governance, effectively bolstering market confidence, we can better promote economic and social development.
Since early 2024, Dr.Gao has been a leading voice advocating for a strategic policy shift toward managing market expectations and leveraging their role in stimulating consumption. Today, I’d like to highlight insights from his address at the China and Global Economic Forum, one of his speeches at the China and Global Economic Forum hosted by China Macroeconomy Forum last Jun.
Some highlights:
When we describe today's world as experiencing unprecedented changes, with intensifying geopolitical conflicts and rapid technological disruption creating widespread instability and uncertainty, we must recognize another important consequence: frequent fluctuations in market expectations and confidence are becoming increasingly common and predictable.
As China's primary social concerns have evolved, people now prioritize a broader, higher quality of life beyond basic material needs. This shift is most evident in growing demands for democracy, rule of law, fairness, justice, and safety. Economically, this means public attention to and sensitivity about economic conditions have intensified—everyday citizens now routinely discuss economic performance. This creates a feedback loop where public expectations and confidence increasingly influence economic outcomes. Consequently, macroeconomic governance must effectively address public concerns and stabilize social expectations to achieve its objectives.
Below is the full text of his speech: https://mp.weixin.qq.com/s/3rSZ5KWsLNbw9MufQ39h9Q
Check the video: https://mp.weixin.qq.com/s/k7axbvV8xupAFUZlS71_lA
I. China's Main Economic Challenges Are Changing, with Expectations and Confidence Becoming the Focus
Based on experts' analyses of the situation and policy options, my strongest impression is captured by the word "change" - the pattern of economic operation is changing, and the scope and content of policy choices are changing too. Indeed, after three years of pandemic followed by a year and a half of post-pandemic recovery, throughout nearly five years, both macroeconomic experts and ordinary citizens share a common feeling of "change."
Regarding these changes, whether in economic conditions or policy choices, different people can make their own judgments from various perspectives. The key question is: among all these perceived changes, is there one that's most important, most critical, or most central? If so, what is it?
In our economic training as students and university professors, we developed something of a fixed mindset: First, whenever economic fluctuations occur, whether downturns or overheating, we attribute them to supply-demand imbalances. We instinctively look for causes in these imbalances, regardless of whether the fluctuations are cyclical or temporary. Second, after identifying supply-demand imbalance, our reflexive response - almost a muscle memory - is counter-cyclical regulation. "Add water if there's too much flour, add flour if there's too much water" - boost demand when it's insufficient, adjust structure when supply is problematic. This has become our established way of thinking.
The question now is whether this mindset needs adjustment when applied to today's circumstances. While we can still attribute the current economic slowdown to supply-demand imbalances, I worry whether following the same operational approach will yield the same policy effects as before. Over the past five years, we've made substantial efforts in this direction. Macroeconomic policy expansion, both fiscal and monetary, has reached unprecedented levels. However, its effectiveness shows a diminishing trend. Is this simply due to diminishing marginal returns, or might our remedies no longer match the problem? Behind the current economic downturn, we can point to insufficient effective demand. But we should ask: what lies behind this insufficient demand?
In fact, a deeper examination reveals that changes in expectations and confidence underlie the insufficient effective demand. Note that I specifically say "changes" rather than "weakness" or "deterioration." If this assessment is correct, we can immediately conclude that simply applying old methods and old thinking will produce different results than before. Therefore, our understanding of the current situation cannot stop at merely acknowledging increased difficulty or complexity. We need to go deeper and recognize the pattern: the main contradiction in China's current economic operation has increasingly shifted toward changes in confidence and expectations. The principal economic challenges have evolved from fluctuations caused by total supply-demand imbalances to fluctuations driven by changes in expectations and confidence.
II. The Underlying Logic of Macroeconomic Governance is Changing
So, questions follow. If the main contradiction and principal aspect of contradiction in China's current economic operation have changed, and the main challenges we face have changed, what should we do? And what can we do about it?
From a comprehensive perspective, we need to reach consensus. If our identified problems include not only insufficient effective demand but also the expectation and confidence issues behind it, then our entire policy selection must be adjusted accordingly. It's like someone with physical weakness that stems from cardiovascular disease. This clearly requires treating both symptoms and root causes. In this context, what countermeasures should we adopt?
Encouragingly, in the deployment of this year's economic work outlined at the Central Economic Work Conference held at the end of last year and the 2024 National People's Congress, there was one strategically significant adjustment—replacing the original "stabilizing growth, stabilizing employment, stabilizing prices" with "stabilizing expectations, stabilizing growth, stabilizing employment." If we call the original "three stabilizations" the old three, and today's "three stabilizations" the new three, the biggest changes between them are twofold. First, "stabilizing expectations" has replaced "stabilizing prices"—"stabilizing prices" is no longer in the new three, replaced by "stabilizing expectations." Second, "stabilizing expectations" didn't remain in third position but after entering the new three, it moved past "stabilizing employment" and "stabilizing growth" to become first among the new three stabilizations. This adjustment reflects a change in underlying logic, meaning that in the relationship chain formed by "stabilizing expectations, stabilizing growth, stabilizing employment," "stabilizing expectations" is the foundation, the key.
This actually conveys a very important message: with the profound changes in the main contradiction and the principal aspect of contradiction in China's economic operation, the well-practiced and even habitual counter-cyclical operations are no longer as suitable as before, or at least no longer as effective as before.
What to do? "Stabilizing expectations" has become the centerpiece in addressing various difficulties and challenges. Moreover, as the focus of macroeconomic governance extends from total supply-demand imbalance to changes in expectations and confidence, total supply-demand imbalance is no longer the sole focus, but extends to changes in expectations and confidence. Obviously, expectations and confidence are closely linked to total supply and demand. Against this backdrop, "stabilizing expectations" is increasingly becoming the centerpiece of macroeconomic governance. The reasoning isn't difficult to understand: only when residents' and enterprises' expectations stabilize and confidence strengthens can the contradictions and problems of insufficient consumption and investment demand be resolved, can the contradictions and problems stemming from both demand and supply be alleviated, and thus can there be a corresponding foundation and guarantee for consolidating and enhancing the upward trend of economic recovery.
III. Focusing on Expectations and Confidence, Strengthening Expectation Management is Key
We must acknowledge that expectation management, or management centered around expectations and confidence issues, is a new challenge for us. This isn't to say that we've never addressed expectation issues in macroeconomic textbooks and related research before, but nevertheless, compared to demand management and supply management, we haven't invested much energy and time in expectation management. Therefore, implementing it isn't as familiar and routine as demand management and supply management.
Under these circumstances, everyone will notice that in the approximately 5,000-word communiqué of the Third Plenary Session of the 20th Central Committee, macroeconomic governance and macroeconomic regulation were mentioned at least twice: once as "improving the macroeconomic governance system," and another time as "perfecting the macroeconomic regulation institutional system." What does this indicate?
We can observe that with changes in the underlying logic of macroeconomic governance and macroeconomic regulation, the significance of improving the macroeconomic governance system and perfecting the macroeconomic regulation institutional system is increasing. Therefore, when we review the work of the first half of 2024 and look ahead to the second half, improving the macroeconomic governance system and perfecting the macroeconomic regulation institutional system are both very important issues.
The question is, where should the focus and emphasis of improving the macroeconomic governance system and perfecting the macroeconomic regulation institutional system be placed? It shouldn't be "improvement and perfection" in a general sense. Such terms have been frequently used in the past, but when discussing this topic today, there should be different emphases and focuses than before. I believe that, at least at present, it can be confirmed that this focus and emphasis cannot be separated from expectations and confidence, or more accurately, from expectation management.
Whether it's macroeconomic governance or macroeconomic regulation systems, it's like a doctor prescribing medicine—targeting the right problem is key. Only by adhering to the right prescription can we achieve the effect of curing the disease. If we prescribe the wrong medicine, causing it to be ineffective for the condition, not only will it fail to cure the disease, but it may also produce side effects. Therefore, when discussing the macroeconomic situation and arranging macroeconomic policies today, we may need to add a question: what measures are not only related to demand and supply but also to expectations and confidence, or more significantly to expectations and confidence. For any issue raised, we must clarify its correlation with expectations and confidence. Regardless of what measures are taken, we must ensure they help stabilize expectations and strengthen confidence; the ultimate goal is always aimed at stabilizing expectations and strengthening confidence. Focusing on expectations and confidence, aiming at strengthening confidence and stabilizing expectations, is probably a point that must be addressed in the current improvement of the macroeconomic governance system and perfection of the macroeconomic regulation institutional system.
IV. The "Dual Engines" Driving Policy and Reform
For stabilizing expectations and strengthening confidence, there's no ready-made path to follow, or even fully formed theoretical support. But there are several points that should be generally agreed upon:
First, stabilizing expectations and strengthening confidence cannot be separated from the support of macroeconomic policies, as macroeconomic policies are always our standard option. However, we must note one point: once the focus of macroeconomic policy extends beyond compensating for insufficient effective demand and expanding effective demand to the level of expectations and confidence, its effectiveness and limitations coexist. We cannot only see its effectiveness but must also recognize its limitations, because the root cause it targets is different from the past.
Second, regarding stabilizing expectations and strengthening confidence, when we recognize the limitations of macroeconomic policy, we must rely on another system—the reforms emphasized by the Third Plenary Session, using reform and policy as dual engines. What needs to be confirmed is that whether dual engines or a single engine, they are all aimed at addressing expectations and confidence issues, working in both directions. In other words, in the arrangement of policy and reform measures, we cannot expect to use policy to solve demand problems and reform to solve expectation and confidence problems.
Third, when policy and reform dual engines simultaneously address confidence and expectation issues, we must clearly recognize that these two are not equally effective, but have their strengths and weaknesses. Macroeconomic policies are indeed effective in expanding demand, but compared to reform, they play mainly a supporting role in stabilizing expectations and strengthening confidence. Therefore, it can be anticipated that the role of reform will become increasingly prominent, with reform increasingly becoming the main weight and key element in the macroeconomic governance system.
Only through further comprehensive deepening of reform, providing institutional and mechanism guarantees for economic development and strengthening the institutional and mechanism foundation, can we stimulate entrepreneurship, innovation, and creativity throughout society, and inject powerful momentum into promoting high-quality development and accelerating the construction of Chinese-style modernization. In fact, this also aligns with the basic trajectory of China's reform and opening up over the past 46 years. The miracle we've achieved in the economic field over 46 years is rapid economic development. When exploring the reasons for rapid economic development, we should ask, what have we done more than others? And what have we done right? In fact, what we've done more and done right in these 46 years is one thing: continuously deepening reform, continuously providing inexhaustible momentum for economic development through reform.
V. Expectations and Confidence Change Frequently, Requiring Accelerated Improvement of the Macroeconomic Governance System
My central idea today can be summarized in one sentence: Accurately understanding the similarities and differences between expectation management, demand management, and supply management, and avoiding simply equating operations related to stabilizing expectations and strengthening confidence with counter-cyclical regulation operations, is the key to current economic work.
Additionally, two basic facts need special mention: First, when we use "unprecedented changes in the world in a century" to describe today's era characteristics, when we focus on intensifying geopolitical conflicts coupled with a new round of technological revolution and industrial transformation, thus significantly increasing instability, uncertainty, and unpredictability, we should note another result. That is, under these changing background conditions, the resulting frequent changes in expectations and confidence are likely high-probability events. Changes in expectations and confidence are absolutely not limited to temporary or short-term changes. Therefore, how to counteract frequent changes in expectations and confidence through various countermeasures in macroeconomic governance, thereby achieving the goals of stabilizing expectations and strengthening confidence, will increasingly become a key factor in testing the effectiveness of macroeconomic governance.
Second, with the historic changes in China's principal social contradiction, people's needs for a better life at higher levels and broader scopes have replaced past needs for material and cultural life. In this substitution, the most important change is reflected in the spiritual life dimension, with people's growing demands for democracy, rule of law, fairness, justice, and a safe environment. What does this change mean for economic work? Everyone has already experienced that people's attention to and sensitivity toward economic conditions are constantly rising, with ordinary people discussing economic operation issues. There's also an interactive effect, as changes in people's expectations and confidence increasingly become sensitive factors influencing economic conditions. Therefore, how to promptly respond to public concerns, guide and stabilize social expectations through various countermeasures in macroeconomic governance, also greatly affects the effectiveness of macroeconomic governance.
It should be said that China's macroeconomic situation analysis and macroeconomic policy selection practices increasingly require us to accelerate the improvement of China's macroeconomic governance system and the perfection of China's macroeconomic regulation institutional system.