Opinion leader: Sun Binbin, Xu Ruixiang, Liao Yijie
Statistics show that since the subprime crisis, only high-income countries (with a per capita GDP of more than US $20000) can obtain sustained and stable low interest rates (within 3% of the average). Low - and middle-income countries may be due to external shocks in an open environment, inflation, debt crisis once economic growth declines, or the above factors may overlap. The result of many problems is that low and middle-income countries do not have a simple stable interest rate state.
Therefore, in many cases, the lower the growth rate of an economy, the lower the interest rate. Instead, the higher the per capita income of an economy, the more able to maintain a low interest rate environment for a long time.
The current macro situation is becoming more and more serious. If we put it in the usual way, we should be bullish on interest rates at this time. However, there are always some problems that have not been understood, so we discuss them with the market 。
Since the subprime crisis, the world has generally entered a state of low interest rates. Therefore, it is easy for the market to conclude that in case of difficulties, the duration should be increased, which is nothing more than the conclusion of Europeanization sooner or later 。
But in fact, there are many basic situations that the market has ignored.
Low interest rates seem to be the welfare of high-income countries
two thousand and ten reach two thousand and nineteen The average interest rate of ten-year government bonds in the global economy was lower than 3% only twenty-two . this twenty-two Three economies are mainly located in Europe and the United States, plus three Asian countries (Japan, South Korea, Singapore). One common feature of these economies is that per capita gross domestic product More than US $20000 (Slovakia and Lithuania are slightly lower than this value, but they both belong to the euro area).
The conclusion is clear, Low interest rate seems to be a long-term trend, but it needs to be based on a certain income level. At present, only high-income countries (per capita GDP2 Above US $10000) can enjoy a sustained stable low interest rate. The market characteristic of these countries is that the worse the economy, the lower the interest rate. Middle income and low-income countries simply cannot enjoy low interest rates, and the absolute interest rate level always seems to have a threshold The limitation may be due to external shocks in an open environment, inflation, debt crisis once economic growth declines, or the combination of the above factors. The result of many problems is that low and middle-income countries do not have a simple state of stable interest rates 。
So in many cases, the lower the growth rate of an economy, the lower the interest rate, but the higher the per capita income of an economy, the more able to maintain a long-term low interest rate environment.
How will the economic downward interest rate decline?
At present, China is facing various complex problems. Whether looking at US debt or Chinese debt, it seems that interest rates are hard to rise, let alone the Chinese economy itself is still on the decline, so it seems right that when economic growth goes down and interest rates go down, you can't get off the bus at any time. But if we go deeper, we should think carefully about the relationship between interest rate and economy?
First of all, it needs to be clear that the so-called economy and interest rate can be compared, and the nominal GDP growth rate is actually more reasonable in terms of indicators.
First, we compare two typical countries that can often be used for reference and comparison, namely, the United States and Japan. In these two economies, what is the relationship between interest rate trend and economic trend in the long run?
It can be clearly seen that since World War II, both the United States and Japan have experienced a long-term economic downturn, and interest rates have indeed declined. But first of all, this economy refers to the nominal growth rate of GDP, not the actual growth rate. Secondly, there are some differences between the nominal GDP growth and interest rate trends in the United States and Japan.
This difference can be simply summarized as follows: the deeper a country's government intervenes in the economy and interest rate, the worse the matching between the economy and interest rate will be. At least, the relationship between the two is not parallel.
After the war, Japan has long implemented the official interest rate policy (government intervention in market pricing), so in the important stage of the economic downturn, although Japan is also gradually promoting the marketization of interest rates, the overall interest rate center downward is slower than the economic growth. Until the 1990s, the two were more consistent 。
Therefore, although the long-term interest rate center moves downward with the economic center, it must be recognized that first of all, this economic center generally refers to the nominal GDP growth, that is, inflation should be considered; Secondly, there are two forces determining the relationship between interest rate and economy. The deeper the government intervention, the weaker the matching relationship between interest rate and economy 。
Where is the interest rate hub in the future?
Taking the United States as an example, the average nominal GDP growth rate of the United States in 2010-2019 was 4%, and the average interest rate of the corresponding 10-year US debt was 2.4%. So where is the center of China's economic growth in the future?
In October 2020, the Fifth Plenary Session of the 19th Central Committee put forward the vision of 2035, which clearly requires that "per capita GDP reach the level of moderately developed countries".
In November 2020, General Secretary Xi mentioned in the Statement of the Central Committee of the Communist Party of China on the Proposal for Formulating the Fourteenth Five Year Plan for National Economic and Social Development and the Vision for the Year 2035 about the "Fourteenth Five Year Plan" and the economic development goals by 2035: "About the" Fourteenth Five Year Plan "and the economic development goals by 2035.
"In the process of soliciting opinions, some local governments and departments proposed to clearly set forth the target of economic growth rate during the 14th Five Year Plan period and the target of doubling the total economic output or per capita income by 2035. After careful study and calculation, the drafting team believed that China's economy is promising and has the potential to maintain long-term and stable development from the perspective of economic development capability and conditions, It is entirely possible to reach the current high income national standards by the end of the 14th Five Year Plan and double the total economic output or per capita income by 2035. At the same time, considering that there are many unstable and uncertain factors in the external environment in the future, there are many risks and hidden dangers that may impact the domestic economic development, the global pandemic of COVID-19 has far-reaching impact, the world economy may continue to be depressed, and the medium - and long-term planning goals should pay more attention to the optimization of economic structure, We should guide all sectors to focus on improving the quality and efficiency of development
The suggestions of the Party Central Committee are mainly to control the general direction and determine the general strategy. Taking all factors into consideration, the proposal draft adopts a qualitative description with quantitative implications for the "14th Five Year Plan" and the economic development goals by 2035. When preparing the Outline of the Plan, corresponding quantitative objectives can be put forward on the basis of careful calculation. "
——Xi Jinping: Statement on the Proposal of the CPC Central Committee on Formulating the Fourteenth Five Year Plan for National Economic and Social Development and the Vision of 2035
According to the latest standards of the World Bank, the standard per capita GNI of high-income countries in 2020 will be US $12695, while that of China in 2020 will be US $10610. Assuming that the population of China remains unchanged:
1、 If it is only necessary to reach the current standard of high-income countries (that is, per capita GNI 12695 dollars) by 2025, the average nominal growth rate during the 14th Five Year Plan period will be only 3.65%.
2、 If it is necessary to meet the standards of high-income countries by 2025, assuming that the average growth rate of per capita GNI of high-income countries during the 14th Five Year Plan period is 3%, then the threshold of per capita GNI of high-income countries at current prices will be about 14717 dollars in 2025, corresponding to the average nominal growth rate of China during the 14th Five Year Plan period of about 6.76%.
If China's population is assumed to remain unchanged in the future, the goal of doubling the total economic output or per capita income by 2035 will mean an average growth rate of 4.73% in the next 15 years.
However, there are several points to note here:
1、 The doubling target uses the actual value, so 4.73% is the average real growth rate, excluding inflation.
2、 Considering that China's potential growth rate will continue to slow down, this means that the economic/per capita income growth requirements in the first few years should be higher than 4.73%, and the last few years will be lower than this value (assuming that there is no economic and financial crisis during this period).
3、 Assuming that China's population will remain unchanged in the future, if China's population will continue to grow (even if the growth is slow) in the next 15 years and the per capita income (≈ GDP per capita) will double, then the average economic growth rate in the total will need to be greater than 4.73%. At this time, it is easier to meet the goal of doubling the economic aggregate than the goal of doubling the per capita income.
Therefore, in combination with the 14th Five Year Plan and the long-term goal of 2035, it is reasonably estimated that China's nominal GDP growth rate in the next five years will not be less than 6%, so where is the corresponding interest rate hub?
By simple comparison, is the one-year MLF interest rate of 2.95% still a relatively acceptable central level?
Summary
There are three points for market reference in thinking about the current interest rate level and the future interest rate hub ：
First, low interest rates are actually the welfare of high-income countries, which may not be available to low-income countries 。
Statistics show that since the subprime crisis, only high-income countries (with a per capita GDP of more than US $20000) can obtain sustained and stable low interest rates (within 3% of the average). Middle and low income countries may be due to external shocks in an open environment, inflation, debt crisis once economic growth declines, or the above factors may overlap. The result of many problems is that there is no simple stable low interest rate state in middle and low income countries 。
So in many cases, the lower the growth rate of an economy, the lower the interest rate, but the higher the per capita income of an economy, the more able to maintain a long-term low interest rate environment 。
Second, the interest rate may not match the economic downturn 。
Although in the long run, the interest rate center will move down with the economic center moving down, it must be recognized that first of all, this economic center generally refers to the nominal GDP growth, that is, inflation should be considered; Secondly, there are two forces determining the relationship between interest rate and economy. The deeper the government intervention, the weaker the matching relationship between interest rate and economy. It can be seen from the experience of the United States and Japan after World War II 。
Third, the interest rate hub may still be around 2.95 in the future 。
Taking the United States as an example, the average nominal GDP growth rate of the United States in 2010-2019 was 4%, and the average interest rate of the corresponding 10-year US debt was 2.4%. In combination with the 14th Five Year Plan and the long-term goal of 2035, it is reasonably estimated that China's nominal GDP growth rate in the next five years will not be less than 6%, so where is the corresponding interest rate hub? By simple comparison, whether the one-year MLF interest rate of 2.95% is still a relatively reasonable central level ？
(About the author: Sun Binbin, chief fixed income analyst of Tianfeng Securities)
