Visual China.
2023 is coming to an end. Recently, the Politburo held a meeting to analyze and study the economic work in 2024, and the meeting proposed that it is necessary to effectively enhance economic vitality, prevent and resolve risks, improve social expectations, consolidate and enhance the economic recovery trend, and continue to promote the economy to achieve effective qualitative and quantitative growth.
Looking back, this year, what is the expected "report card" of China's national economy and what challenges are we facing?How to unleash growth potential in the medium to long term?What kind of "combination punch" of fiscal policy and monetary policy is needed next year to help stabilize economic growth?
On this occasion, Blue Whale Finance has launched a series of articles on economic review and outlook, inviting macroeconomic research experts to discuss the "shape" and "potential" of the economy and explore the new momentum of economic growth. In this issue, the Blue Whale Financial Reporter has an exclusive conversation with Lu Zhengwei, Chief Economist of Industrial Bank.
Photo courtesy of the interviewee.
The annual GDP growth rate is expected to exceed 5%, successfully achieving the economic growth target set at the beginning of the year. ”
Our economy still faces a number of challenges. For example, companies are still constrained by insufficient demand;There is a risk of relocation of some industries;The continued decline in real estate requires more new momentum to make up for the growth gap it has left behindLocal debt pressure affects investment momentum. ”
In 2024, the coordination of fiscal policy and monetary policy will be the key, and the relationship between existing debt and incremental debt should be properly handled, and the quasi-fiscal function of policy finance should be considered to be given full play. ”
Political Commissar Lu pointed out that China's economy has shifted from a high-speed growth stage to a high-quality development stage, and it is necessary to further improve the policy target system, link monetary policy, fiscal policy, industrial policy with diversified goals such as unemployment rate, prices, and financial stability, and improve the stability and continuity of policies through clear policy rules to stabilize market expectations. In terms of fiscal policy, it is necessary to implement more proactive policy measures to maintain the deficit ratio above 3% in 2024, continue to promote the replacement of high-interest debt in urban investment stocks, and improve debt sustainability. In terms of monetary policy, there is room for RRR and interest rate cuts, deepening the market-oriented reform of deposit interest rates, guiding deposit interest rates to further decline, and easing the trend of deposit regularization, which will also be the focus of next year.
Political Commissar Lu believes that the core of the "new kinetic energy" of economic growth is to realize China's industrial upgrading through continuous improvement of scientific and technological innovation capabilities. At present, China is experiencing a new round of capacity optimization and structural upgrading. However, unlike the previous industrial structure switching, this round of industrial structure upgrading is largely manifested in the upgrading of the industry, and the "new forces" within the industry characterized by digitalization and greening are rising and gradually becoming the main force leading the growth.
The full-year growth target of 5% is expected to be achieved
Blue Whale Finance: 2023 is coming to an end. In retrospect, China's economy as a whole exceeded expectations in the first quarter, the recovery rate slowed down in the second and third quarters, and the momentum of economic recovery declined. What is your assessment of the current economic situation in China and what are the outstanding challenges?Can the economic growth rate for the whole year reach the expected target of 5%?
Political Commissar Lu:At present, China's economic situation is generally showing a trend of recovery, but the recovery process is also characterized by waves and twists and turns. There have been many structural bright spots in economic growth this year. First, since August, the profits of industrial enterprises have returned to positive growth year-on-year. In the third quarter of 2023, the earnings of A-share listed companies bottomed out, and the year-on-year growth rate of net profit attributable to the parent company of all A-shares in a single quarter turned from negative to positive. The second is the rapid recovery of service consumption after the smooth transition of epidemic prevention and control, and China's retail sales of services increased by 19% year-on-year from January to October this year0%, 12 higher than the total retail sales of consumer goods1 percentage point. Third, the unemployment rate in urban areas has steadily declined. The surveyed urban unemployment rate fell to 5 in October0%, which is already lower than the average of 2019 before the epidemic.
At the same time, however, our economy still faces a number of challenges. First, enterprises are still facing insufficient demand constraints. According to a survey by the China Federation of Logistics and Purchasing, the proportion of enterprises reflecting insufficient market demand rose to 60 in November6%, and after running below 60% for 3 consecutive months, it returns to above 60% again. Second, under the industrial chain strategy of "China + N" in the United States and Europe, China is facing the risk of some industrial relocation. According to data from the State Administration of Foreign Exchange, China's net FDI (Foreign Direct Investment) in the third quarter of this year was US$11.8 billion, turning negative for the first time since statistics were available. Third, the real estate market is in a downward cycle, the real estate market continues to be sluggish, and real estate investment continues to grow negatively. The continued decline in real estate requires more new momentum to make up for the growth gap it has left behindFourth, local debt pressure affects investment momentum. Compared with the end of 2022, in October 2023, only the fixed investment in the eastern region accelerated year-on-year, and the growth rate of fixed investment in the central, western and northeastern regions, where debt pressure is high, all dropped significantly. The investment in water conservancy, environment and public facilities industries, which are highly dependent on local fiscal expenditure, has greater downward pressure.
Looking forward to the GDP growth rate for the whole year, the cumulative GDP growth in the first three quarters was 52%。On the basis of the economic recovery in the first three quarters, the year-on-year GDP growth in the fourth quarter only needs to reach 4More than 4%, you can achieve the annual growth target of 5%. Therefore, I believe that the full-year GDP growth rate is expected to exceed 5%, and the economic growth target set at the beginning of the year will be well met.
The coordination of fiscal and monetary policies will be the key next year
Blue Whale Finance: 2024 is a critical stage for China's economy to consolidate the foundation for recovery and promote structural transformation. A few days ago, the Political Bureau of ** held a meeting to analyze and study the economic work in 2024, and proposed to effectively enhance economic vitality, prevent and resolve risks, improve social expectations, consolidate and enhance the economic recovery trend, and continue to promote the economy to achieve qualitative and effective improvement and reasonable quantitative growth. Do you think the 5% growth target for next year is expected?In the coming period, should we downplay our target expectations for economic growth?
Political Commissar Lu:Setting a 5% growth target would help boost market confidence and push the economy closer to potential. Prices will be generally low in 2023, and the CPI will show negative year-on-year growth for many times, indicating that the economic growth rate may be slightly lower than the potential level, and there is room for improvement. The increase in countercyclical policy intensity can strengthen economic momentum and close the output gap. On the one hand, the issuance of additional special government bonds in the fourth quarter of 2023 is intended to boost economic growth at the end of the year and the beginning of the year. According to our estimates, infrastructure investment could reach around 8% year-on-year in 2023, supported by special government bonds. On the other hand, the in-depth promotion of urban village transformation will ease the downward pressure on real estate investment. The housing area of urban villages in megacities is estimated at 13100 million square meters will bring about 747.1 billion yuan of fixed asset investment every year, which is 56%。
China's economy has shifted from a stage of rapid growth to a stage of high-quality development, and it is necessary to further improve the policy target system, link monetary policy, fiscal policy, and industrial policy with diversified goals such as unemployment rate, commodity prices, and financial stability, and improve the stability and continuity of policies through clear policy rules, stabilize market expectations, and strive to improve the quality and efficiency of development.
Blue Whale Finance: Standing at the current point in time, it can be said that it is quite important to stabilize the fundamentals of economic growth, and what suggestions do you have for the next monetary and fiscal policies to help stabilize economic growth?In other words, what kind of policy measures should we introduce next year?
Political Commissar Lu:In 2024, the coordination of fiscal and monetary policies will be key.
In terms of fiscal policy, there is room for improvement in leverage. Compared with major economies, China's leverage ratio and the proportion of debt scale to sector debt are all at a low level. In 2022, China's leverage ratio will be 214%, the leverage ratio of developed economies such as the United States, the United Kingdom, and France is about 100%, and the leverage ratio of developing economies such as India, Brazil, and South Korea is %. The proportion of China's debt to debt is 425%。This compares between 60% and 100% of the comparison economies.
In terms of monetary policy, there is room for RRR and interest rate cuts. The proportion of debt interest payment expenditure to fiscal expenditure in China is on the rise, and the decline in land transfer income has also affected the ability of localized debt.
In this context, I believe that monetary policy and fiscal policy need to be more closely coordinated: first, continue to replace existing debts at low interest rates, reduce the repayment pressure of existing debts, and help resolve hidden debts;Second, for incremental debt, we will continue to reduce the financing cost of the real economy, maintain reasonable and abundant liquidity, and create a good environment for the issuance of ** bondsThe third is to consider giving full play to the quasi-fiscal function of policy-based finance, including increasing the use of policy-based developmental financial instruments, and at the same time increasing the scale of PSL (Pledged Supplementary Lending). It is worth noting that in the broad-spectrum interest rate, the downward rate of deposit interest rates is relatively slow, and there is a certain degree of inversion between long-term time deposit interest rates and ** bond interest rates, so deepening the market-oriented reform of deposit interest rates, guiding deposit interest rates to further decline, and easing the trend of deposit regularization may also be the focus in 2024.
Digitalization and greening are on the rise
Blue Whale Finance: There is a view that after China's economy shifts from a high-speed growth stage to a high-quality development stage, it needs to constantly get rid of the traditional development model that relies on population numbers, low labor costs, and sacrificing resources and the environment, and constantly promotes the switching of new and old kinetic energy, looking for new kinetic energy, cultivating new engines, and building new support. But there is also an opinion that "new kinetic energy" can only be generated on the basis of "old kinetic energy". In your opinion, is it a false proposition to find "new drivers" of economic growth?What are the aspects of the "new driving force" of the economy?
Political Commissar Lu:Finding "new drivers" for economic growth is not a false proposition. The core of the new momentum of economic growth is to realize China's industrial upgrading through continuous improvement of scientific and technological innovation capabilities. At present, China is experiencing a new round of capacity optimization and structural upgrading. However, unlike the previous industrial structure switching, this round of industrial structure upgrading is largely manifested in the upgrading of the industry, and the "new forces" within the industry characterized by digitalization and greening are rising and gradually becoming the main force leading the growth.
Judging from the situation of China's economic sub-industries, since the beginning of this year, the three industries that have continued to have a positive year-on-year growth rate in profits every month, namely electrical machinery, transportation equipment and special equipment, are all closely related to the green wave. From the perspective of China's fixed asset investment, the growth rate of the "iron foundation" of reinforced concrete is getting lower and lower, and the higher growth rate is the investment in the field of artificial intelligence, data room (IDC) investment, new energy equipment manufacturing and power station and other digital and green investment. From the perspective of export structure, the export of green and low-carbon related products has grown rapidly, and from January to October, the exports of the "new three" represented by electric manned vehicles, lithium batteries and solar cells have increased by 31 year-on-year0%, higher than the overall export growth rate of 366 percentage points. The new kinetic energy that is constantly emerging in industrial upgrading is playing an increasingly important role in China's economic growth.
Blue Whale Finance: If we need to find "new momentum", what support needs to be given at the policy level, and what measures can be taken to help achieve economic recovery and climbing?
Political Commissar Lu:As the age population of home buyers gradually peaks, we need to find "new momentum" to relay real estate. First, we can consider realizing the transformation and upgrading of the manufacturing industry by undertaking high value-added manufacturing in developed countries, and provide policy support through land and tax incentives and optimizing the business environment. The second is to enhance the ability of independent research and development and innovation, increase the proportion of science and technology expenditure in fiscal expenditure, and increase support for higher education and science and technology enterprises. The third is to increase support for the consumption of services such as medical services, elderly care and childcare services, and cultural and entertainment services. It is possible to increase the proportion of expenditure on pension and medical care and recreation by adjusting the structure of fiscal expenditure, and to increase the supply of high-quality services by expanding the opening up of the service industry to the outside world.
In addition to implementing cross-cyclical policies to find "new momentum", we also need to expand aggregate demand and stabilize market confidence through counter-cyclical policies. First, the fiscal policy will be more active, maintain the deficit ratio at more than 3% in 2024, continue to promote the replacement of high-interest debt in urban investment stocks, and improve debt sustainability. The second is to speed up the reform of deposit interest rates and promote the continued decline of financing costs in the real economy. Since 2021, the PBOC has continued to deepen the market-oriented reform of deposit interest rates, but the trend of fixed-term deposits for residents and enterprises has weakened the impact of the decline in deposit interest rates to a certain extent, restricting the downside of bond interest rates and loan interest rates. The third is to ease the downward pressure on the real estate market. On the investment side, we will provide low-cost financial support for the construction of the "three major projects" through PSL, and consider increasing the scale of special loans for policy-based development financial institutions to "guarantee the delivery of buildings" to protect the confidence of home buyers. On the consumer side, to adapt to the new trend of changes in the relationship between supply and demand in the real estate market, measures such as purchase and sale restrictions will be further relaxed, the criteria for identifying ordinary residential buildings will be optimized, and residents in more areas will be supported to withdraw their provident funds as a down payment. (Blue Whale Finance, Li Danping, lidanping@lanjinger.)com）