Wu Ge is the Chief Economist of Changjiang and a member of the Board of Directors of the China Chief Economist Forum
Key takeaways:
1.Born to the sun. Intuitively speaking, the price reduction of goods is the result that buyers expect, which helps the market to clear. However, ** is also a signal of economic prosperity, and its continued low level will in turn affect the expectations of household enterprises. **Moderate positive growth is essential for the stable functioning of the macroeconomy.
2.**In the case of continuous negative, the rate of return on cash is prominent, and the micro main asset side advocates "cash is king". At the same time, the lack of "animal spirits" has made the expansion of the debt side weak. In some cases, there is even an "anomaly" in which nominal debt does not increase, but the real debt burden increases after price adjustment.
3.Historical facts show that it is not easy to get rid of the negative cycle by relying only on market forces, and it is often necessary to rely on strong policies and other external forces. Among them, whether the interest cost can be lower than the return on investment of the entity is particularly crucial. Only in this way can the "animal spirit" of micro subjects be stimulated and their active investment and consumption can be promoted.
4.Looking forward to the new year, with the announcement of local and first-class economic growth targets, the pressure to promote its realization objectively exists. Under the baseline assumption that there is no significant improvement in real estate and external demand, it seems that it will be difficult to get rid of the negative growth in the first half of the year. As the countercyclical policy grows stronger from weak, it is expected that there will be a phased positive in the second half of the year.
Body:
The price reduction of goods is the result that buyers expect, and it helps the market to clear. However, ** is also a signal of the degree of economic prosperity, and its continued downturn in turn affects the expected confidence of residents and businesses.
1. Why do you want to become a regular?
**In the case of continuous negative, the rate of return on cash is prominent, and the micro main asset side advocates "cash is king". The willingness to save has increased significantly, and the deposit structure has become regular.
Figure 1* is negative, the asset "cash is king".
**: wind, the author calculates
Note: The cash rate of return is calculated based on the deposit interest rate and the rate of return on wealth management; The return on entities is the ROIC of the listed company. The data excludes trend items.
* Caught in a low-level cycle, the confidence of micro subjects tends to fall, and the "animal spirit" is damaged. There has even been an increase in nominal debt but an increase in the real debt burden. Such a "punitive" mechanism suppresses the expansion of debt and drives prepayment. Although the current interest rate of the existing housing loan is at a low level, the interest rate spread compared with the wealth management yield is still higher than the historical center, and the prepayment of loans by residents is still relatively common.
Figure 2* is negative, and the debt is "passively raised".
**: wind, the author calculates
2. When will it become a regular?
It is not easy to get rid of the negative cycle by relying on market forces alone, and it often requires the help of strong policy external forces. Only in this way can the "animal spirit" of micro subjects be stimulated and investment and consumption promoted. It was only after Japan's interest rates were significantly lower than the rate of return on investment that year that it was able to emerge from its long-term deflation. At present, the interest cost of China's listed companies is still significantly higher than the return on investment by more than 50 basis points.
Figure 3Interest costs need to be lower than the real rate of return
**: wind, the author calculates
Note: The entity rate of return is the ROIC of China's listed companies, and the interest cost is the interest expense of the listed company's interest-bearing liabilities.
The strengthening of external demand and the depreciation of the local currency will also help the country get out of the downturn, but this year's benchmark assumptions may not be the case. In addition, at present, the pace of fiscal development is slightly backward, and the infrastructure in key debt areas is under pressure. The "three major projects" are expected to open up space, but their strength and supporting funds remain to be seen. These will be a challenge to get out of the low.
Figure 4The role of exchange rates
**: wind, the author calculates
III. Basic Conclusions
One isBorn to the sun. **Moderate positive growth is essential for the stable functioning of the economy. **In the case of continuous negative, the micro main asset side advocates "cash is king". The lack of "animal spirits" makes the expansion of the debt side weak, and there will be an "abnormal" phenomenon in which the nominal debt does not increase, but the actual debt burden increases.
The second isHistorical facts show that it is not easy to get rid of the negative cycle by relying only on market forces, and it is often necessary to rely on strong policies and other external forces. Among them, whether the interest cost can be lower than the return on investment of the entity is particularly crucial. Only in this way can the "animal spirit" of micro subjects be stimulated and their active investment and consumption can be promoted.
The third isLooking forward to the new year, with the announcement of local and first-class economic growth targets, the pressure to promote its realization objectively exists. Under the baseline assumption that there is no significant improvement in real estate and external demand, it seems that it will be difficult to get rid of the negative growth in the first half of the year. As the countercyclical policy grows stronger from weak, it is expected that there will be a phased positive in the second half of the year.
[Author].
Wugo: Ph.D., Chief Economist of Changjiang**. He has worked for a long time in the monetary policy department of central banks and as an economist at the International Monetary Organization. He is the winner of the Sun Yefang Economic Science Award, the Pushan Policy Research Award, the Liu Shibai Economics Award, and the Visionary Cup Economic Champion. He is the author of the "Four Steps" of Monetary Economy.
Yu Tao, Cao Haiwei, Gao Tong: Changjiang ** researcher.
Wei Yihui, Yang Qingliu: Intern Researcher.