On January 21, at the NSE50 quarterly forum and the macroeconomic situation analysis meeting for the fourth quarter of 2023Yu Yongding, member of the Faculty of the Chinese Academy of Social Sciences and former member of the Monetary Policy Committee of the Central BankGave a speech with the following main points:
Can China's economic growth rate achieve a growth rate of 5%? Yu Yongding's idea is that it can, but it needs to meet some prerequisites: first, the liquidity crisis of real estate companies will not turn into a debt crisis; Second, there is a sufficient project reserve. Projects such as high-speed rail and highways may be saturated, but in sponge citiesGreen energyThere is still considerable room for increasing investment in large aircraft, medical care and pension fields.
2. If we expand fiscal spending, increase the issuance of treasury bonds, support infrastructure investment, supplemented by expansionary monetary policy, support the issuance of treasury bonds through measures such as interest rate cuts, and increase property income while increasing wage income, it is entirely possible for China to achieve a growth rate of 5% in 2024, of course, many non-macro factors are equally important, or even more important.
Yu Yongding (Member of the Faculty of the Chinese Academy of Social Sciences, former member of the Monetary Policy Committee of the Central Bank).
The full text is as follows:
The issues I want to talk about this time are more specificIt is the prospect of China's economic growth in 2024 and the necessary conditions for achieving the economic growth target in 2024.
First of all, we can briefly review China's macroeconomic operations and policies before 2012. From the reform and opening up until 2012, the basic characteristics of China's macroeconomy were alternating between hot and cold, and rapid growth amid fluctuations. The basic feature of China's economic policy is "counter-cyclical" or "headwind" adjustment, and I personally don't like to use the word "counter-cyclical", because China's macroeconomic fluctuations can hardly be said to be cyclical, and I prefer to use the term "headwind".
Since the 90s, China's economy has been in a state of "partial or overcooling" many times, such as in 1990-1993, 1997-2004, and 2009-2010. During these periods, China was characterized by low inflation and low growth. During these periods,** Expansionary fiscal and monetary policy has been implemented. We have also experienced "overheating or overheating" of the economy, such as in 1993-1997, 2004-2008, 2010-2011. During these periods there is high growth and high inflation. During these periods,** Tightened fiscal policy and monetary policy were implemented. Fortunately for China, we have not experienced the "dilemma" of stagflation.
But what has changed the pattern of macroeconomic volatility in China since 2012? That is, the GDP growth rate has been continuous for a long time and has been in a state of low inflation or quasi-deflation for a long time. Since 2012, the current round of economic growth** and prices** has lasted for 12 years, but there is still no clear sign of a reversal.
While the economic growth rate continues, what we see is that the PPI continues to grow negatively, and the CPI hovers on the verge of negative growth. After March 2012, the PPI has been negative for 54 consecutive months, and after June 2019, the PPI has been negative for 23 consecutive months (one of which was positive), and the PPI has remained negative since October 2022.
After May 2012, the CPI broke 3, and the whole year was 26%, and the average growth rate of CPI in the future is about 2%. In recent months, the CPI has been negative several times, and in October it was negative 02%, and the CPI increase in 2023 is 01%, which is basically 0 growth.
Faced with such a situation: on the one hand, the economic growth rate continues to be high, on the other hand, low inflation, and even quasi-deflationIt should be obvious what kind of macroeconomic policy we need to adopt.
The primary issue to be dealt with in macroeconomic policy is to decide the trade-off between growth and inflation, and in the face of a macroeconomic situation with sustained growth rate and low inflation, the direction of the macroeconomy is very easy to judge. Since China's macroeconomic basic situation after 2012 is that the economic growth rate has continued to be the highest and the inflation rate is too low, China should not hesitate to implement expansionary fiscal and monetary policies. I don't think there should be much controversy about this issue today.
It can be compared with other countriesWe often think that U.S. macroeconomic policies are irresponsible. After the outbreak of the global financial crisis, the monetary policy implemented by the United States was zero interest rate + QE. At the same time, from Obama to Trump to Biden, the United States** has successively introduced extremely expansionary fiscal policies to support infrastructure investment. By the end of 2019, the United States had achieved positive growth for 125 consecutive months, and although the growth rate was not high, such a positive growth rate of 125 months was actually the longest positive economic growth since records began in 1850.
Over the past 10 years, we have implemented a "proactive" fiscal policy and a "prudent" monetary policy. Everyone feels this in practice. I think both of these terms indicate that the direction of our macroeconomic policy is not very clear. Our policy might be called the policy of acting on cameras. The actual results of such macroeconomic policies need not be repeated.
IMF** China's GDP growth rate in 2024 is only 46%。I think the IMF's ** may be on the low sideI think that now, especially at the beginning of the year, we should have an estimate of the growth rate of China's GDP in 2024, the conditions for achieving this growth, and the difficulties that may be encountered. Next, I will talk about my preliminary estimate of China's GDP growth path in 2024.
In my opinion, the GDP growth target for 2024 should be set at 5%. As for why the GDP growth target for 2024 should be set at 5%? There are many reasons for this, but I will not discuss them in detail here due to time constraints. After setting such a goal, we need to judge what are the conditions for achieving this goal, and is there any possibility of achieving this goal? To do this, we should consider the following questions.
First, it is necessary to determine the share of final consumption, capital formation, and **surplus in GDP at the end of 2023. These are things that must be known, otherwise it is difficult to estimate under what conditions China's GDP will grow by 5% in 2024.
Second, it is necessary to predict the growth rate of final consumption capital formation and surplus in 2024Strictly speaking, we need a big model to speculate on the dynamics of final consumption, capital formation, and surplus, but I don't have the ability to do that, so I can only make some very rough and simple estimates, called "the back of the-envelope calculation".
Third, based on the judgment of final consumption, capital formation and surplus growth, it is necessary to estimate what kind of growth rate should be maintained in order to achieve the 5% growth target, and what kind of growth rate should be maintained, as well as the likelihood of maintaining such a growth rate. Of course, for "endogenous variables" that should not be intervened, "endogenous variables" that cannot be intervened should not be intervened. But I want to stress that when the economy is in a state of deflation or quasi-deflation, or what Keynes called a "liquidity trap," there is a role to play. The United States, Japan, and all developed countries have done this, and China is certainly no exception.
Fourth, and finally, it is necessary to estimate the various external shocks that may occur. Of course, black swan events are by definition difficult to predict, but in any case we should consider the possibilities as fully as possible. One of the more obvious questions is whether China's current real estate liquidity crisis will turn into a debt crisis. The occurrence of this crisis will have a very important impact on China's economic growth in 2024, in addition, the local ** debt problem should also be considered. In conclusion, there are a series of issues that we need to consider.
Based on different shocks, we need to re-evaluate the dynamic paths of final consumption, capital formation, and surpluses, and on this basis, re-evaluate what kind of growth rate should be maintained for controllable variables such as infrastructure investment, and whether it is possible to maintain such a growth rate.
If there is a consensus on the implementation of expansionary fiscal and monetary policy – I can't say that we have reached a complete consensus, but I think the consensus seems to be growing more and moreThe issue that we need to discuss and seriously consider is the issue of the "project reserve". That is, whether we have sufficient project reserves to ensure the high quality and efficiency of infrastructure investment.
I believe that the "four trillion" is very successful, without the "four trillion" China cannot escape the negative impact of the impact of the global economic and financial crisis, and the contribution of high-speed rail and many other important projects to China's future economic development should not be underestimated. Therefore, we should divide it into two, not only to affirm the important role of the "four trillion yuan" in China's economic growth, but also to absorb the lessons of the four trillion yuan, and to ensure the high quality and efficiency of infrastructure investment. Of course, what is involved here is not only the issue of macroeconomic regulation and control, but also the issue of the fiscal and financial system, supervision and accountability mechanism.
Now I will try to talk about whether and under what conditions China's GDP growth target of 5% can be achieved in 2024. To answer this question, try both simple math calculus and DSEG models. One of the most unfortunate things for Chinese economists is that we often can't find relevant statistics or get them in a timely manner. In order to answer the question of under what conditions China's GDP can achieve the 5% growth target in 2024, we need to know at least one of the most basic facts:China's final consumption, capital formation, and net exports as a share of GDP at the end of 2023. Without knowing their percentage, it is impossible to deduce how high they should grow to achieve the 5% GDP growth target. Unfortunately, so far I don't have official data on these percentages. These data may be published later, but not now.
Based on the indirect projection of the growth rate of final consumption, capital formation and net exports in 2023, it can be further deduced that the share of final consumption, capital formation and net exports in GDP at the end of 2023 and early 2024 is. 3% and 25%, my calculation may be wrong, many people attending the meeting today are from **, investment banks, you have more data, you are in the prime of life, and there are models, your calculations should be more accurate.
After determining the share of each component of aggregate demand in GDP in 2024, we can answer the question of how high the components of aggregate demand – final consumption, surplus and investment, and capital formation – should grow at 5% in 2024.
The first is the growth rate of final consumption. The main driver of China's economic growth in 2023 is consumption, with a growth rate of 72%, the growth rate of final consumption has not been announced, but it can be inferred that it is higher than the zero growth rate of the society, and it contributes more than 80% of the GDP growth rate, and the consumption growth rate in 2024 should be lower than in 2023. Because there is a low base in 2023, there are various factors such as some kind of retaliatory **. We know that the growth rate of social zero is 72%, and the growth rate of social zero can reach 72% is largely due to the rapid growth of the catering industry. In 2024, due to the already high base, due to the reverse wealth effect and the "cautious motive" that is difficult to reverse for a while, the growth rate of consumption (final consumption or social zero) should decline to a certain extent. I assume that final consumption is 5% in 2024, keeping pace with GDP growth.
Since the growth of the global economy in 2024 is weaker than in 2023, it stands to reason that China's export situation will deteriorate. In 2023, our ** surplus is reduced, and its contribution to GDP growth is -06 percentage points. For simple counting,We can assume that the growth rate of the **surplus in 2024 will be zero.
After assuming that final consumption is 5% and the surplus growth rate is 0%, we can calculate that the contribution of final consumption and net exports to GDP growth will be 273%。In other words, if the GDP growth target for 2024 is 5%, the final consumption growth rate is 5%, and the net export growth rate is 0, the contribution of capital formation to GDP growth should be 5 percentage points to 273 percentage points = 227 percentage points. As a result of the arbitrage, the share of capital formation to GDP at the end of 2023 was 428 per cent, and the growth rate of capital formation must reach 53% to contribute 227 percentage points.
Consumption growth is a very critical assumption. Assuming that consumption growth is 4% and other assumptions remain the same, the contribution of capital formation to GDP growth should be 351 percentage points. For 351 percentage points, the growth rate of capital formation should be 82%。It is not difficult to find that the economic growth rate in 2024 is quite sensitive to the growth rate of consumption. Whether a 5% growth rate can be achieved in 2024 depends largely on the growth rate of final consumption in 2024. If the growth rate of final consumption declines more, the growth rate of capital formation in 2024 will need to increase more sharply (because capital formation as a share of GDP is lower than that of final consumption) to offset the drag on GDP growth from the decline in final consumption growth.
The question now is how to achieve the growth rate of capital formation in 2024. What about 2% or other given values? Due to the lack of statistical data, I am unable to break down the share of infrastructure investment, manufacturing investment, and real estate investment in capital formation according to the definition of capital formation. The concept corresponding to the three components of investment that I just mentioned is fixed asset investment. We have to be flexible and replace the concept of capital formation with the concept of fixed asset investment, and the two concepts are very different, but fortunately, in recent years their growth rates have converged. Many years ago, the gap between capital formation and fixed asset investment in terms of volume and growth rate was very large.
According to data published by the Bureau of Statistics,In 2023, the national investment in fixed assets will increase by 3% year-on-year, and in terms of sectors, infrastructure investment will increase by 59%, manufacturing investment increased by 65%, real estate development investment fell by 96%。
I would like to emphasize in passing that since 2009, the growth rate of China's fixed asset investment has continued to decline, from 33% to 3% in 2023, and according to the theory of economic growth, the impact of the decline in the growth rate of fixed asset investment on China's potential economic growth rate is self-evident. If the growth rate of capital formation continues to decline, China's potential economic growth rate will certainly decline, all other factors being equal. We should pay attention to this point. In the long run, I'm talking about capital formation and the accumulation of capital that results from it as a very important factor of production in the long run, from the point of view of growth theory. Overinvesting is not advisable, but neither is underinvesting. This should not be overlooked.
If we are to estimate how high the growth rate of the various components of fixed assets should be so that the growth rate of capital formation is sufficient to offset the negative impact of lower consumption growth on GDP growth, we need to know the share of manufacturing investment, real estate investment, and infrastructure in capital formation.
The Bureau of Statistics released the figures of national real estate development investment in 2022, and we can calculate that the proportion of real estate development investment in fixed asset investment is 232%。However, the Bureau of Statistics does not disclose the share of manufacturing investment and infrastructure investment in fixed asset investment (or capital formation). I don't quite understand why these numbers can't be published, and if they don't, then we have to do the math. I discussed with many friends in financial institutions, and they gave me a lot of results, but these results were not the same, and there were quite a lot of contradictions.
I had to make calculations based on what I thought was more credible. And it turned outAt the end of 2023, the three major components of fixed asset investment, manufacturing, real estate, and infrastructure accounted for 50 percent of fixed asset investment5%，20.4%，29.1%。With these proportions, we can further estimate what kind of growth rate they should maintain in 2024 to enable capital formation or fixed asset investment to be realized, as mentioned in 53% and 82% growth, so that we can achieve our 5% GDP growth target.
Compared with 2022, the proportion of manufacturing is increasing, because the growth rate of manufacturing is relatively fast in 2023. The share of real estate is declining because real estate investment is negative in 2023. The share of infrastructure investment has risen, but the increase has been smaller than that of manufacturing.
The question we now have to answer is how fast infrastructure investment should be to achieve the 5% GDP growth target. In fixed asset investment or capital formation, the investment that can directly affect is infrastructure investment, manufacturing investment is basically determined by the market, and real estate investment is basically the same. However, due to its nature as a public good, infrastructure investment can be used as a policy tool to compensate for the shortfall in aggregate demand and affect economic growth.
So, how high should infrastructure investment be to achieve the 5% GDP growth target? As mentioned earlier, if the growth rate of final consumption is 5% and the growth rate of net exports is zero, then the contribution of capital formation to GDP should be 227 percentage points. Taking into account the share of capital formation in GDP, the growth rate of capital formation should reach 53%。Suppose the growth rate of capital formation is 53%, and assume that the growth rate of manufacturing investment and real estate investment in 2024 will be the same as in 2023 (this is a rather arbitrary assumption, as we are not very clear whether the growth rate of real estate investment will stabilize or continue in 2024**) and now we assume a worst-case scenario in which real estate investment growth will continue to decline sharply as it did in 2023.
In this case, it can be calculated that the contribution of infrastructure investment to the growth rate of fixed asset investment should be 4 percentage points. In order for infrastructure investment to contribute 4 percentage points to capital formation growth, infrastructure investment should grow at double-digit rates。How much exactly? My estimate is that infrastructure investment should grow at double-digit rates. This is a very important result, as it means that the growth rate of infrastructure investment in 2024 should be much higher than in 2023.
We can make different assumptions about the growth rate of final consumption, net exports, manufacturing investment, and real estate investment. Different assumptions can be used to determine how high infrastructure investment should be to achieve the 5% GDP growth target. This is a troublesome process. Therefore, I hope that the young comrades will put more effort into this regard, and they can also use large models or make some rough estimates on stationery.
In the projection process, the first question we ask is: Can final consumption in 2024 maintain the growth rate in 2023? I'm inclined to think that the answer is no. The second question is whether the growth rate of real estate investment will stop falling and stabilize? I find it hard to say. Based on our past experience, after a period of time, as housing prices stabilize, the growth rate of real estate investment will stabilize. As long as we don't turn the current liquidity crisis in real estate into a debt crisis, I believe it will stabilize. However, negative growth will continue for quite some time in 2024. And I'm inclined to think that the real estate downturn will continue for quite some time. The third question is whether the growth rate of net exports will decline further. According to the judgment of the IMF and the World Bank, the global economic situation this year should be worse than last year, and China's export situation should not be particularly optimistic. However, due to the relatively small share of net exports in GDP, even if the growth rate changes greatly, the impact on GDP growth is relatively small.
Will China's economic growth rate be able to achieve a growth rate of 5% in 2024? My idea is that it can, but it needs to meet some prerequisites: first, the liquidity crisis of real estate companies will not turn into a debt crisis; Second, there is a sufficient project reserve. If we have nothing left to invest in, it will be difficult to support infrastructure investment through expansionary fiscal and monetary policy. Whether there is enough project reserve and whether we can find projects that can be completed efficiently and with high quality are issues that we should study. Projects such as high-speed railways and highways may be saturated, but there is still considerable room for increased investment in areas such as sponge cities, green energy, large aircraft, and medical care for the elderly.
We should think very systematically about which projects we should focus on, rather than dividing the pie into various departments, which is inefficient. If we reach a consensus on an expansionary fiscal and monetary policy, the project issue is a decisive factor. If we expand fiscal spending, increase the issuance of treasury bonds, support infrastructure investment, and supplemented by expansionary monetary policy, through measures such as interest rate cuts, support the issuance of treasury bonds, and increase wage income while increasing property incomeIt is entirely possible for China to achieve 5% growth in 2024, although many non-macro factors are just as important, if not more important.
Author: Yu Yongding (Compiled from Yu Yongding's speech at the "NSE50 Quarterly Forum and 2023 Fourth Quarter Macroeconomic Situation Analysis Meeting" on January 21, 2024, without confirmation).
*: NetEase Finance Think Tank.
Editor: Chen Meishan.
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