Author: Li Ke Aobo, Vice Dean of the Institute of Chinese Economic Thought and Practice, Tsinghua University (left);Xu Gao, Chief Economist of Bank of China (right);Lu Ting, Chief Economist of Nomura** China (middle of the figure).
This article is a transcript of a conversation at the 46th Tsinghua University China-World Economic Forum held by the Institute of Chinese Economic Thought and Practice at Tsinghua University on January 8, 2024.
Li Ke Aobo (Vice President, Institute of Chinese Economic Thought and Practice, Tsinghua University):
First of all, I would like to ask Mr. Xu Gao, Chief Economist of Bank of China, what do you think is the biggest risk to China's economy in 2024 and what do you think are the main highlights?
Xu Gao (Chief Economist of Bank of China):
If simply put, the biggest risk is the lack of demand, 23 years to see the pressure of domestic real estate weakening, 23 years, for example, the automobile industry is very good, export competitiveness is very strong, but because the domestic stock is too serious by the policy, so the downward pressure on the economy is still relatively large. So far, although the policy warm wind is blowing frequently, last year's ** economic conference, including the ** financial work conference, actually released a lot of positive signals, but so far, it seems that the real estate market problems are still relatively big, so from this point of view, it should be said that 24 years is still a year of relatively large downside risks. Of course, when we were in the first place, we took into account that the expectations of the current policy were still relatively strongI think the GDP growth rate in '24 is about the same as in '23, which is also 5%. Why is the GDP growth target for 24 years also set at 5%?Although it is all 5%, because the base has risen, the situation in 24 should be better than in 23。You may not only listen to the 24-year economy and policies, but also observe their actions to see if there are any specific measures, so this is a superficial level.
I think at a deeper level, in fact, the problem is quite big, and the problem lies in the **?
First, many people think that China's traditional growth model is no longer good, saying that real estate is no longer good, the peak has passed, and they want to go to real estate. The infrastructure is not working, there is too much debt, we can't do it. But have you ever thought that these models are an important reason for the glory of China's reform and opening up in the past 40 years? Real estate and infrastructure, I have talked on many occasions, just look at real estate, just look at infrastructure, have their own problems, real estate is a real estate bubble, infrastructure is the return on investment is too low, can not cover the cost of financing. Taken together, this is China's unique business model of local ** operating cities, this model is very simple, that is, the local ** borrowing money to engage in infrastructure, the problem of infrastructure is because it has public welfare, the return on investment of the project is very low, it is difficult to cover the financing cost, not only China can not do it, the world can not do it. So the whole world knows that infrastructure is a good thing, it's complicated to do, and it can't be done, when Biden first came to power, he said that the United States was going to build 3 trillion infrastructure, and this number was cut again and again, and then it was gone. Because China's land is owned by the local government, the return on investment of infrastructure can be largely reflected at the social level, bringing about an increase in land prices and housing prices, so the local government can realize the social benefits of infrastructure investment by selling land, and then repay the debt, so the account of infrastructure investment is not even at the project level, and the return on investment cannot cover the financing cost.
But at the ** level, add the land income, and this account may be settled. China's infrastructure + real estate model has been engaged in for 20 years, which is an important magic weapon for us to become the envy of the world's infrastructure madness, I think many people he did not understand, thinking that this thing is a bad thing
Xu Gao, chief economist of Bank of China, spoke at the forum.
Rick Aobo:
This ** economic work conference mentioned that the first to establish and then break, is our decision-makers aware of this problem?
Xu Gao:
I think it's realization, but after realizing it, the real estate part that you see now is too broken, and you have to adjust it, but the policy should be said to be relatively slow so far. And what is the reason for the slow introduction?Because the understanding has not been reversed, there are still many people who think that real estate is a bunch of bad people, infrastructure is Ponzi **, and the policy can only be repaired and repaired, and there is no reverse understanding of what is the real reason for China's success, which is different from the WestChina's economy is very different from what mainstream Western economists say, but the difference does not mean that we are wrong
If we talk about 24 years, if we can correct the deviation in time, then I think the economy will have greater development, otherwise, the policy is just forced under the downward pressure of the economy, squeezing toothpaste out, but counting on how good the economy can be, and even saying that we want to continue the glory of the past 40 years of reform and opening up, I think it is more difficult, so I think this is a deep-seated problem.
Rick Aobo:
Your views coincide with the reports we have published. This model has indeed accumulated two problems in the past few years, one is high housing prices, and the other is that the debt burden of local ** is relatively heavy
Xu Gao:
First of all, I think this model should be turned aroundChina's economy is like a bicycle, and if it is slow, it will not stand, which is indeed the case. There is no doubt that housing prices in China are indeed high, but what are the reasons for high housing prices?It is necessary to see clearly that this is a problem of land supply, from 2004 real estate called "831 limit", all operational land transfer can only be carried out through bidding, auction and listing, from 05 to the present, the average annual growth rate of the national land is negative, the first-tier cities of Beijing and Shanghai, 05 years of these two cities have built about 30 million square meters of houses a year, and now Shanghai can only repair more than 10 million square meters a year, and Beijing can not repair 10 million square meters of houses a yearSupply has shrunk significantly。You will find that if you look at the growth of China's housing completions, in the past 20 years, even GDP has not run, so we all talk about China's overcapacity, and the real estate market actually has a very big shortcoming. So in this case, why don't house prices go up?I think the very important reason why housing prices have risen has been high is that housing prices were originally a baton, and a thing is expensive, indicating that the supply of this thing is insufficient, and a relatively high ** will trigger more supply, but China's problem is that the land system leads to the inelasticity of land supply, and when housing prices rise fast, land supply may not grow quickly. More than 10 years ago, when regulating housing prices, on the one hand, we had to tighten the monetary roots, on the other hand, we also tightened the roots, housing prices rose fast, and we had to reduce the land **, which made housing prices rise more.
On the other hand, in terms of space, the cities where housing prices are rising relatively fast, such as the cities in the east, the land supply is less, and the land is inclined to the central and western regions. Therefore, it is necessary to grasp the main contradiction of this problem, if we say that the elasticity of the land is made, when the housing price rises relatively fast, more land will be supplied, and more land will be supplied where the housing price rises fast, and the housing price will be completely controlled.
Rick Aobo:
I would like to add two pieces of information, one is that China's first-tier cities have the lowest proportion of residential land in the world, far lower than those of London and New York. Second, before the epidemic, taking Beijing as an example, a land ** plan would be issued at the beginning of each year, which had not been completed in one year for ten consecutive years, and about 60% was sold in many years. What do you think about local debt, do you think it's a risk, or do you want to acknowledge its historical contribution?
Xu Gao:
I think we should engage in local government bonds, which are China's magic weapon。Why?If from the perspective of Western economics, after the subprime mortgage crisis, Western countries have generally fallen into the trap of deflation, in response to deflation, in 2022, former Federal Reserve Chairman Bernanke has already made an important speech, he said that deflation to ensure that it does not happen here, has put forward a four-step unconventional easing roadmap for monetary policy to deal with deflation, the first step is to reduce the short end to the federal interest rate to 0, and the second step is to buy long-term Treasury bonds through QE and push the long-term risk-free interest rate down. In the third step, the central bank will take the risk assets and push the risk premium down. If none of the first three steps work, the fourth step is to run a large-scale fiscal deficit, and then the central bank will demonetize the fiscal deficit. Bernanke said that the fourth step is equivalent to throwing money in the sky, without any deflation, deflation corresponds to insufficient demand, without any deflation, without any demand, this is not possible. So theoretically it's very clear.
We say that Japan has lost 20 years, 30 years, and inflation has risen recently, and the yield curve control policy (YCC) is about to be withdrawn, which is very important because Japan's finances are very strong during the epidemic, including the three arrows that have been ** in the early stage. China's local financing platform, on the one hand, is to create investment projects and create demand. On the other hand, instead of taking money from the central bank, taking money from the financial market, it is actually very similar to what we see in Bernanke's fourth step, because we have ready-made tools, and you don't let him use ready-made tools, and when you find the problem of insufficient demand, the pressure of deflation has risen. So from that point of view, it's actually a very useful tool that other countries don't have, we have.
On the other hand, I think I actually think nowMany people make a big mistake in analyzing the macroeconomy, that is, they analyze the macroeconomy as a micro subject, which is wrong. You must know that the microeconomic subject does not care about enterprises and individuals, he is in an environment that he cannot control, he can only passively accept, and the macroeconomic environment in which he is largely determined by the macroeconomy itself, so it is really necessary to look at the macroeconomic constraints, including the constraints of debt, to increase its production capacity. If a country's domestic demand exceeds its production capacity, then the country's debt is unlikely to be sustainable, and either you will have demand-pull inflation, or you will have a huge ** deficit and the consequent accumulation of external debt. On the other hand, if a country's domestic demand is insufficient, and its supply capacity is excessive, there is no problem with the country's debt accumulation, and even debt accumulation is needed, and in the most extreme case, as Keynes said, ** spend money to hire a bunch of people to dig holes in the ground, so from this point of view, China is obviously an economy with insufficient domestic demand and overcapacity. The problem now in China is that you need to create it domestically, there is a very good ready-made tool, a financing platform, you don't use it, you look at it at the micro level, you look at its micro return on investment and find that it is very low, it can't cover its financing costs, feel that it is Ponzi **, feel that its debt cannot be sustained,This is not to understand China
The financing platform plus real estate itself is a business model, put this business model aside, in an economy like China with insufficient domestic demand and overcapacity, to create demand, you need someone to do investment, if you don't get consumption, you need someone to do investment, even if there is no return on investment in infrastructure investment, you should do it.
Rick Aobo:
Your suggestion is that the liabilities should be indebted by the *** department?
Xu Gao:
First of all, there should be debt, infrastructure is public welfare, corresponding to public funds, China's characteristics are the debt structure of the first problem, the vast majority of the world's national debt, most of the debt. Looking at the data given by the IMF, the proportion of these countries' debt to total debt is more than 90% on average, and China's proportion and debt proportion are estimated in various calibers, about 20-40%, which is particularly low. Therefore, it has led to some problems, local ** borrowing, non-standardized, non-transparent, even the total number is not clear, and there are thousands of financing platforms borrowing, and the financing cost is relatively high, so a series of problems have been derived. So this thing should be done, but there are all kinds of good ways to do it, that isIssuing bonds, issuing government bonds for infrastructure, financing costs are relatively low, and they are clear and transparent, which should make this model more sustainable. Even if the government bonds are not issued, the model itself is sustainable.
Rick Aobo:
Many of our scholars agree on this point. The next question is for Mr. Lu Ting of Nomura, there are many new turning points after the economic work conference, do you agree, do you think what are the biggest attractions and risks in 2024?
Lu Ting (Chief Economist of Nomura China):
I'll start with the risks, in general, we are now facing a very big problem, which is the lack of demand, and the lack of confidence, maybe the problem of supply, but also the problem of demand. Specifically, first of all, we will face the problem of consumption in 2024, and the main part of the economy will support our 5% economic growth in 2023, and the main piece in the middle will come from the recovery of consumption after the epidemic, which can even be said to be a retaliatory consumption**. In 2024, a year after the end of the epidemic, a lot of revenge consumption** will be gone, and the base will be high, plus we will not have obvious income growth in 2023, and there is also a problem that our wealth, whether it is real estate and **, there is no growth in wealth, and it may even shrink, from this point of view, it will have a certain negative effect on consumption. This is the first aspect.
The second aspect is real estate, now real estate is still very obviously hovering at a bottom, the next time we may face the real estate situation further aggravated, I think this risk can not be underestimated, especially after the epidemic almost a year, the problem of guaranteed delivery of housing in many third, fourth and fifth tier cities is still a more serious problem, if this problem is not solved, off-plan housing is a main body of the entire Chinese real estate market, this aspect will also be affected to a certain extent, which has also caused some downward spiral, or negative cycle, especially between the delivery of housing and everyone buys a house, and real estate developers are selling houses and buying land, which eventually led to a downward spiral of some local finances.
The third risk comes from the international environment, although at the beginning of 2023, everyone was relatively unoptimistic about the United States and the economies of developed countries, and even pessimistic, but in fact, in the end of 2023, the U.S. economy and the Japanese economy will grow beyond expectations. 2024 is different, and now it seems that various indicators have shown that many indicators in the market have also told us that the global economic growth rate in 2024, especially in developed countries, is a significant declineU.S. economic growth could halveJapan's economic growth rate may only be about one-third of that in 2023, so in such a context, China's exports may still face pressure, and it is unlikely that the export growth rate will be obvious in the case of negative growth this year.
The last risk, there is another bright spot in China's economy in 2023, which comes from the "new three", large investment in electric vehicles, power batteries and photovoltaics, some high-speed output, and rapid exports in some aspects, and the base is also high. On the other hand, there are also some irrational phenomena in our investment in these areas in many places. In fact, the PV module has fallen by 50% in the past year, and the lithium carbonate has fallen by more than 70%, and we have actually seen some excessive investment in these areas, so these will be our risks.
If we talk about opportunities, it is a year after the epidemic, we have some problems that have actually existed for a long time, especially these problems in real estate, many policies have been released, and some debt problems of local ** have been put in front, and everyone is also deeply aware of the problems in the middle. Therefore, in terms of real estate and local **, it is possible that we will take more effective measures in 2024, especially in real estate, for example, ensuring the delivery of housing is a very critical link2024 will be the year when the world begins to cut interest ratesIf in such a context, China takes the initiative to clear the real estate market, a key sign of clearing is to letThe guaranteed delivery of the house was resolvedAt the same time, to a certain extent, it will alleviate the financial problems of local governments, which is the bright spot of China's economy in 2024.
Lu Ting, chief economist of Nomura** China.
Rick Aobo:
You mentioned consumption as soon as you came up, and last year's data generally showed that consumption contributed a lot to GDP, but everyone's actual feeling and physical consumption ** is not fast. Some time ago, statistics said that the income of 900 million people is less than 2,000 yuan, **It seems that there is a delay in issuing consumption vouchers, what do you think is the reason?My understanding, for example, a car turned off, suddenly a fire, you can turn up, taxes are also high, people's income is also high, economic growth is also up, ** may spend money back, from the epidemic to the epidemic before the weak consumption, we have been reluctant to launch, how do you interpret your judgment?
Lu Ting:
First of all, I think we have missed the best time to issue consumption vouchers, the best time is in the middle of the epidemic, in 2020 or 2022, and after the epidemic, another consumption voucher will be issued, in fact, the benefits it brings may be very limited, and the cost will be relatively high. Why do you say that?First, there is a high administrative cost in issuing consumption vouchers, China is 1.4 billion people, my family is in Hong Kong, Hong Kong only has 7 million people, the issuance of consumption vouchers is relatively simple, even so, Hong Kong directly distributes money is the same for everyone, not that the rich send a little less, the poor send a little more, why is this so?Because the administrative cost is too high, the distribution of 1.4 billion people in China is very different. This is number one.
Second, after the issuance of consumption vouchers, under special circumstances during the epidemic, we issued consumption vouchers or directly gave cash subsidies, which is quite famous. Our current situation is very special, after the first wave of money, when will we send the second wave, when will we send the third wave, after the first wave, if we consume a little, if we don't send the first.
Second, the third wave is not the second reason why the economy will face what economics calls the fiscal cliff.
Third, there are other considerations for not issuing consumption vouchers and not giving cash subsidies to everyone. If we rely heavily on the distribution of cash to stimulate consumption in the middle of this process, we ignore the other serious problems facing the economy, such as the real estate problem we are facing now, the problem of ensuring the delivery of a large number of buildings, and the problem of local finances being very difficult. There are also some problems of confidence in reform and opening up, in which it is possible that our key problems will not be solved and we will rely on printing money. A lot of countries have printed money, and the economy is good, butThere are also many countries that have printed money, and the economy is not good. There are too many bad examples, don't keep staring at the good examples and forget the bad ones
So, in general, I think it should be said that giving money is one thing, and it should be noted that if we really want to send money, we really have to think about what we want to subsidize, who should we subsidize?First of all, there is a retired cadre at the section level, whose retirement salary is 10,000-12,000 yuan a month, and his wife is retired from the enterprise, about 3-4,000 yuan, and another is retired from the enterprise, but because the time from a farmer to a worker is relatively short, it is about 1,500 yuan a month, and the farmer is about 100-300 yuan a month, that is to say, after an ordinary farmer retires and a section-level cadre retires, or after aging, the income difference is about 70-100 times, and the gap is very large。 Take 10,000 yuan, in a small city, the money every month is not enough, but like my family, there is only more than 100 yuan a month, no more than 300 yuan pension, among the elderly in China, there is 1700 million.
I've written about it in the middle of a few articles,If we really want to send money, who should we send it to?First of all, it should be given to those who are owed by us for various reasons, and these people have a higher marginal propensity to spend after they have sent money.
Rick Aobo:
Thank you, Chief Lu,Very warm recommendation。You live in Hong Kong, you work in a foreign investment bank, and last year there was an obvious phenomenon, that is, the US dollar LP funds basically did not invest much in China, how do they view the current Chinese market?
Lu Ting:
Let's talk about the bright side first, I think many people look at the Chinese market, on the one hand, they are envious, the market is too big. Second, China's ** chain is particularly complete, the first thing they think of when they look at China is 1.4 billion people, and on the other hand, they fancy our huge ** chain, so they are very envious and want to come in.
On the other hand, it is also facing various problems, in the context of international geopolitical deterioration, but also because the United States, Europe and some other developed countries restrict these companies from investing in China. We need to look at the current environment that these investors are facing objectively. From these perspectives, especially from our own country, we should do a better job of communication.
In fact, in my opinion, it is a bit of a concern, but in this regard, it is really necessary to do a good job of communication when attracting foreign investment and explaining all aspects, especially after the epidemic.