Article/Wang Jian, columnist of Sina Financial Opinion Leader (WeChat official account kopleader)
We believe that after this disaster, private enterprises will still have spring after slowly finding new industries and technologies, but the spring of low-end manufacturing has gone forever.
Wrong attribution
Doctor once told me that it is also two developed provinces. He always thought that Jiangsu's food was better than Zhejiang's. Later, someone reminded him that he grew up in his hometown in rural Zhejiang, went to college and came out of the countryside. Later, he worked in a big city in Jiangsu and ate better than his hometown, not because Jiangsu ate better than Zhejiang, but because urban food was better than rural food (of course, after so many years, rural food is not worse than urban food).
This is a typical error attribution. However, there are too many examples in life. For example, "men become worse when they have money" is a typical wrong attribution. Some men become bad, not because they are rich, but because they themselves are scum, but because they were poor before. A good man will not go bad even if he has money, such as the doctor above.
Then, let's take a look at the private enterprises that have been in deep trouble recently. It is not easy to find the correct attribution for their deep trouble now. At the same time, some state-owned enterprises have been relatively well off before, so it is easy to simply attribute it to the fact that the country advances and the people retreat.
If you ask me, "the country enters and the people retreat" is not a "cause", which only describes the phenomenon, and there is a deeper cause behind it. However, the causes are diverse and not simple. Let's look for them one by one.
Difficulties of private enterprises
I grew up in the central Zhejiang County. About 90% of the total industrial output value of our county comes from private enterprises (2017). Therefore, it is no exaggeration to say that we are raised by private enterprises, and those local bosses who have no culture are more hard-working than ordinary people imagine. They knock out products in Wu style ancient folk houses with black tiles and white walls, and then sleep at stations and on bicycles to sell these things to the whole country, so they send a piece of poor mountains and rivers to the top 100 counties in the country. The government used the taxes paid by these private enterprises to cover the school, so that we can go to school, enter the university and go out of the mountain. Even when our parents were laid off from state-owned enterprises, private enterprise bosses saw their technology and sent employment letters. This is almost a classic case of state-owned enterprises being "reformed" and releasing production factors (skilled labor) to private enterprises to expand output. We have deep feelings for private enterprises and private economy. But I think the best way for me to repay the private enterprises in my hometown is to find the root of the difficulties, rather than just shout for them.
So why are private enterprises so difficult? This is the first problem to be attributed accurately.
As we all know, the Chinese government has never had any document reflecting ownership discrimination, never said that state-owned enterprises have privileges but private enterprises do not, and "private property is inviolable" is also written in the Constitution. However, there is indeed such a transparent glass wall, which makes the situation of private enterprises worse than that of state-owned enterprises. This is more difficult. If there is such a document that causes ownership discrimination, we can discuss and modify it. Now we are facing a transparent wall and can't find the responsible person, which is the most terrible thing.
Therefore, Mr. Yangming, a famous scholar in Zhejiang, said that it is easier to break the mountain than to break the heart.
World Factory Era
It is no coincidence that the 30 years in which Zhejiang private enterprises have taken off coincided with the 30 years when China has acted as the world's factory. To understand this problem, we also need to understand the background of global industrial echelon transfer from a high perspective.
What is the global industrial echelon transfer?
After World War II, in the 1950s, the United States began to develop heavy industries such as automobiles and chemicals, and light industries such as textiles began to shift to Japan and other countries, which lasted about 20 years;
Since the 1960s, especially after the oil crisis in the 1970s, the light industry in Japan and other countries could not continue. The industry was upgraded to electronic information, and the light industry was transferred to the "Four Little Dragons". American industries also continued to upgrade.
After the 1990s, light industry was concentrated and transferred to the mainland of China, and the "four dragons" industry continued to upgrade. After the end of the Cold War, a large number of military information technologies were transferred to civilian use, and the American industry was further upgraded.
Behind the global industrial echelon transfer is that in the process of industrial development in various countries, with the rising costs of land, labor, environment and other aspects, low value-added industries are difficult to sustain and begin to transfer to less developed regions, while upgrading to higher value-added industries. The industrial changes in the world after World War II are almost composed of such a round of industrial echelon transfer, and China is certainly one of them.
After the founding of the People's Republic of China, in the era of planned economy, industry was artificially laid out. As the frontier of coastal defense, Zhejiang and Fujian coasts did not lay out any heavy industry. When Northeasterners received high wages in state-owned enterprises and factories, farmers in Zhejiang and Fujian were still working hard in the barren mountains. After the reform and opening up, the economic structure began to adjust. After the gradual introduction of the market mechanism, state-owned enterprises began to run into difficulties. Until 1993, the first round of state-owned enterprise reform was launched. The Premier said that "we should focus on the big and let go of the small", and integrate the big and sell the small. Since Zhejiang and Fujian have no large-scale state-owned enterprises, only some small state-owned enterprises have become the part of "letting the small down", so they have been sold out completely, forming an economic structure in which private enterprises account for an absolute proportion. Moreover, on the whole, private enterprises are smaller and more dynamic than individual state-owned enterprises, but have weak anti risk ability, Small and medium-sized private enterprises will suffer first if there is any disturbance (such as macro-control in 2004 and 2011).
Just at this time, the global industrial echelon transfer just entered a new link, that is, Japan, the Asian four dragons and other economies began to transfer low-end manufacturing to the mainland of China. The vast number of private enterprises along the southeast coast seized this opportunity to develop vigorously. The national economy is growing at a high speed, with strong domestic and external demand. These private enterprises are engaged in some low-end manufacturing industries, producing some light industrial products, and both production and sales are booming. As a result, the economy of coastal areas has taken off. Especially after China's entry into WTO in 2003, the industrial transfer has been further accelerated.
The low cost of various production factors in China has created the premise for the world factory. The population advantage of the vast hinterland provides cheap labor for the world's factories; The green mountains and green waters polluted by industry also provide cheap environmental costs; In order to participate in the GDP competition and protect private enterprises, local governments also try to give preferential treatment in taxation and supervision. In its heyday, small factories everywhere were in full swing. Wenzhou, a corner of the mountain and the sea, had 450000 small enterprises in the city, one for every 20 people.
We are the beneficiaries of this era. When our laid-off parents received higher wages than the state-owned enterprises when they were re employed in private enterprises, the parents of Northeast students were not so lucky and formed the urban poor class.
We are also victims of this era. Our father or mother who died of cancer in the pollution of the world factory era did not wait until the hometown of Jiangnan reappeared after the Five Rivers Treatment.
At the curtain call
The subprime crisis at the end of 2007 basically sounded the alarm bell for this era. Especially after 2010, the mainland of China also began to enter a period of unsustainable low value-added industries. With the rising cost of land, labor, environment, etc. in China (which is almost inevitable and reasonable, otherwise it is impossible for you to stipulate that the wages of migrant workers are not allowed to increase, or continue to discharge pollutants?), the profit space of low-end manufacturing industry is rapidly compressed. Some industries are transferred to the mainland, while others are transferred to Southeast Asia, continuing the story of global industrial echelon transfer. The rest of the private enterprises that can barely maintain a meager profit, maintaining a meager profit of a few cents per product, will have to close down once they encounter strict taxation (in the past, many private enterprises have evaded taxes and evaded taxes). When profits (expressed in ROA) are too thin, some enterprises also increase leverage to keep ROE. As a result, once financial deleveraging occurs, they also close
In other words, it is a low-end manufacturing industry originally built on the basis of low factor costs. Because of the increase of various factor costs, it has itself reached a period of no profit. Previously, they lived by evading taxes and evading taxes for a while, but now with the strict collection, it is also ended. What we can see is that a large number of small and medium-sized private enterprises engaged in low-end manufacturing began to close down, and the number of small and medium-sized enterprises according to the statistics department declined rapidly (data: WIND). In fact, the number of large enterprises is also declining, just because the number itself is small, so the decline is also small.
However, if classified by ownership, it is found that the number of various enterprises is declining (data: WIND): The large enterprises among them, due to their economies of scale, have low costs and have a higher probability of survival. As a result, many industries are characterized by "headedness". This phenomenon has not only appeared in the past two years, but has actually lasted for several years, and the "supply side reform" in recent years has artificially boosted this process. The act of administrative intervention in the market has been controversial. In fact, without such intervention, the market will naturally clear up (it may also be that some enterprises with "soft budget constraints" cannot naturally clear up and have to be forced to do so by the administration).
Even if we are reluctant to give up, the world factory era that has nurtured us for 30 years has finally come to its end. We would like to call it "glorious retirement" to express our gratitude for the great achievements of low-end manufacturing industry in creating China's economic miracle.
The retirement of low-end manufacturing industry is an objective law, which is inevitable. Instead of considering how to resist, we should consider how to deal with it.
The coping style is not so easy to find. For example, some bosses are determined to finance a huge sum of money to invest in the so-called emerging industries when they can't continue their traditional industries. Unexpectedly, the new industries are not easy to operate. In the end, they lose all their money and become the target of deleveraging. Many typical debt default cases of private enterprises that you have seen recently belong to this type, so we will not name any examples here. However, please note that these private enterprises are not the same group as the previously mentioned unprofitable and eliminated private enterprises, because those eliminated private enterprises have failed in operation and are difficult to borrow a huge sum of money to transform. Most of the emerging industries are technology intensive and knowledge intensive. They are not the same way to play with many capital intensive and human intensive traditional industries. Many bosses cannot control them. We have also seen cases of successful transformation and upgrading of private enterprises in our research. In fact, the premise of transformation and upgrading is investment in scientific research and education, which we still lack.
In this process, state-owned enterprises engaged in low-end manufacturing (there are fewer in Zhejiang, and more in the mainland and the north) are not much better off. Sometimes, we also see in our research that some state-owned enterprises are worse off than private enterprises because they bear a lot of social costs that private enterprises do not have, support a large number of employees and "three supplies and one industry".
However, state-owned enterprises also have a magical "advantage", that is, the government's credit enhancement. When encountering difficulties, they are always stiff and never die. The root cause of this situation is that the government has mastered too many resources and used all kinds of resources to assist the state-owned enterprises in distress (it is natural that the shareholders of private enterprises will also use resources to save private enterprises, but the resources it has mastered are totally different from the state-owned enterprises' shareholders - the government - which is the problem). Therefore, this is the root of the so-called "state advance and people retreat". This is the problem of "soft budget constraint" of state-owned enterprises. The omnipotence of state-owned enterprise shareholders and the high marketization of banks (banks' selection of safe enterprises to do business is in line with the principle of marketization) lead to the mismatch of credit resources. The fundamental solution is to put the government's "visible hand" in a cage and stipulate that the resources used by the government when performing the responsibilities of state-owned enterprise investors must be clearly defined (the government can use unlimited resources when dealing with public affairs). Only by solving this problem can we break the soft budget constraints of state-owned enterprises, effectively clear the troubled state-owned enterprises, and free up the credit, land and other resources occupied. Fortunately, these efforts have also been promoted.
The soft budget constraint may be the "transparent wall" and the "thieves in the heart" we are looking for.
What can we do?
Since the curtain call of low-end manufacturing industry is an inevitable law of global industrial echelon transfer, do we just watch these private enterprises collapse and ignore it?
Of course not. The government should at least do a few things:
(1) Accelerate the cultivation of emerging industries and support technological progress. Many industries in Japan and the "Four Little Dragons" have been upgraded, and many technologies have actually undertaken the downward movement of the more front-end industries in the United States, sometimes even the technologies provided by the United States. Some low-end industries in the United States do not want to do it by themselves. They take the initiative to find these people to do supporting processing for themselves and do more profitable things themselves. However, this time, it is clear that the United States does not intend to transfer technology to us, and even wants to block us. We have to rely on our own efforts. However, the industrial upgrading is obviously beyond the capacity of small private enterprises. They cannot afford to invest so much money (the transformation and upgrading of business model innovation may require less capital investment). They still need large and medium-sized enterprises, as well as government investment in education, scientific research, industrial policies and other aspects. There have been successful cases in Hangzhou, Shenzhen and other cities in China. Low end industries have been eliminated, and industrial upgrading has initially been achieved. A large number of outstanding enterprises in emerging industries have been born - remember, most of these enterprises are private enterprises. Unfortunately, across the country, there are not enough successful examples. We should continue to work hard.
(2) The transformation cannot be completed overnight. Before finding a new pillar industry, we still have to eat. Similarly, it takes time for Southeast Asia to undertake our low-end manufacturing industry, and they are not fully prepared. Therefore, deleveraging and the elimination of old production capacity must also be carried out in an orderly manner, even if necessary, the government will provide some relief (subsidies for structural unemployed people). Otherwise, the new industry is not ready, the old industry is over, and we will starve. Therefore, the government should introduce many policies of "releasing water and raising fish" at this time, reduce taxes and fees, relax regulations, invigorate the market, let these low-end manufacturing industries exit orderly, and develop a large number of tertiary industries (life production related services), Absorb low-end labor force population (China's national conditions are different from those of small economies, there are a large number of low-end labor force to feed, and it is impossible to convert 100% into the so-called high-end industry). After all, food is the most important thing for people.
We believe that after this disaster, private enterprises will still have spring after slowly finding new industries and technologies, but the spring of low-end manufacturing has gone forever.
(The author of this article introduces that he has a master's degree in finance from Renmin University of China, and is a CFA licensee. He once worked for Zheshang Securities and Everbright Securities Research Institute as an analyst in the financial industry. He joined the Oriental Securities Research Institute in July 2015.)
