Opinion Leader | Liu Yuanchun
The economic data of the first quarter of this year triggered extensive discussions. In the process of discussing these issues, it is necessary to introduce some new basic analytical frameworks. If we simply follow the traditional troika (i.e. investment, consumption and export) analysis model, it is likely to conflict with the interpretation of some market participants. At present, we are not only facing the impact of the game between China and the United States and the accelerated adjustment of the world pattern, but also experiencing profound structural adjustment, mainly reflected in the accelerated development of new quality productivity and the in-depth adjustment of the real estate market. Based on this background, analyzing and discussing the changes of economic data in the first quarter will help us better grasp the path of China's economy's transition to a new equilibrium in the future. At present, China is in a critical period of moving towards a new equilibrium, which is also a period full of challenges. Under the new analysis framework, we may draw different conclusions from the traditional analysis framework.
1、 A New Perspective of Macroeconomic Analysis
First of all, the overall situation of the macro-economy is good, but there are still many portraits. The real GDP growth rate of 5.3% is higher than expected, not only exceeding market expectations, but also the new high in recent quarters. At the same time, the nominal GDP growth rate in the first quarter was 4.2%, which was 0.4 percentage points lower than the overall nominal growth rate last year. This is consistent with the micro perception of many market players. It should be noted that China's real GDP growth rate was higher than the nominal GDP growth rate in the last five quarters due to the impact of price factors, The GDP deflator continues to be negative, which is not only due to the excessive aggregate supply and insufficient demand, but also due to the price effect during the rapid structural transformation. If we cannot realize that price adjustment is affected by both the aggregate effect and the structural effect, we may overemphasize the aggregate effect and ignore the existence of the structural effect. Due to the rapid improvement of labor production efficiency, a large number of industrial costs have dropped sharply, which has directly brought about a decline in the absolute price level. This impact cannot be ignored. If we pay too much attention to the difference between the real GDP growth rate and the nominal GDP growth rate as well as the price effect, we may simply infer the problems existing in China's economy.
Secondly, the assets, liabilities and liquidity of micro entities are diversified, indicating that there are still some fluctuations in the macro-economy. It mainly includes changes in corporate profits and their balance sheets, changes in residents' incomes and their balance sheets, and changes in government revenues and their balance sheets. In January and February of this year, the profits of industrial enterprises increased by 10.2% year on year. At the same time, the assets and liabilities of enterprises improved. The disposable income of residents increased by 6.4% year on year, which is not only 2.2 percentage points higher than the nominal GDP growth rate, but also outstanding in many economic indicators. This reflects that the government has recently increased its efforts in redistribution policies, which has promoted the continuous improvement of market micro entities and provided a solid micro foundation for further economic growth and recovery. However, from the perspective of the general public budget revenue and fund revenue of the government, the pressure in the first quarter is increasing. Although the positive financial positioning can ensure the operation of the whole year, the quarterly expenditure pace in 2024 will change, and the developed regions and backward regions may reverse their perception of financial pressure.
Third, the external environment is still complex, but there is no need to be pessimistic. The current simultaneous rise in the prices of oil, US dollar and gold shows that the geopolitical risks in the world are rising and non-traditional risks are intensifying. However, whether these factors have a positive or negative impact on China, and how they affect China's national rejuvenation and Chinese style modernization in a century of unprecedented changes, still need in-depth analysis. China's rise and revival will be realized in the environment of major adjustment of the world pattern and overall high risks, rather than in an unchanging and risk-free environment. At present, the further deepening of the Russia Ukraine war, the continuous escalation of the Palestine Israel conflict and the fluctuation of other commodity prices are not entirely detrimental to China's strategic positioning. In fact, politicians from the United States, Russia, Germany and other countries have visited China recently, which reflects that China's rise is regarded as a core marginal force in the current major changes in the global pattern. Therefore, when thinking about these issues, we need to open up new horizons and spaces.
Recently, the report issued by the International Monetary Fund (IMF) gave an optimistic assessment of the recovery of the global economy, and expected a pullback in economic growth in the future, especially for developed countries. It is generally believed that this phenomenon has both positive and negative aspects. Based on current economic data and new perspectives, It can be inferred that China's economy is generally showing a positive trend, and the overall effect, structural effect and micro effect of economic recovery are fully emerging.
2、 Current problems facing China's economy
We need to analyze the current problems facing China, such as the deep adjustment of the real estate market, the high construction of local government debt, and the decline in the performance of some industries, from a dynamic perspective, rather than simply setting the tone.
First, in terms of real estate We need to discuss whether the real estate market has passed the most difficult period, whether it will continue to cause systematic financial turbulence, whether the current policy has accurately grasped the key to the adjustment of the real estate market, and has taken important adjustment measures to stabilize the market. After visiting Zhengzhou last week, Vice Premier He Lifeng conducted a comprehensive review and adjustment of the real estate market and proposed First, we should focus on the liquidity status of real estate development enterprises and provide liquidity support for enterprises listed in the white list 。 This has provided the most direct and critical stabilizing effect on the collapse of the real estate development model, the core of this round of deep adjustment of the real estate market, and the market turbulence caused by the unsustainable liquidity of real estate enterprises, which is conducive to solving the "thunderstorm" event and the "guaranteed housing" problem caused by it, and can also ease residents' concerns about the security of the real estate market. Secondly, the three major projects implemented to reduce the impact of real estate problems on the macro-economy can provide good policy space for the establishment of a long-term mechanism and a new development mechanism of real estate. Finally, the full liberalization and normalization of various purchase and loan restrictions will help restore market demand and basic confidence.
Therefore, based on the above analysis, we need not worry too much about the future of China's real estate market. Goldman Sachs' prediction of China's real estate market based on the real estate market adjustment path of the United States in 2006 and Japan in 1991 was not scientific. Because no real estate adjustment in history has followed the same path, this round of real estate market adjustment in China is essentially the collapse of the real estate development model based on the "three high" model, rather than a simple supply chain interruption or a financial crisis based on real estate products. Therefore, China's real estate market is fundamentally different from the real estate markets in Europe, America and Japan, and it is also inconsistent with the model discussed by Goldman Sachs. We should clearly understand the essential characteristics of this round of adjustment of China's real estate market, and avoid simply equating it with the major crisis or adjustment in the history of Europe and the United States. We need to change the perspective of analysis, and more accurately grasp the actual situation and future trend of China's real estate market.
After changing the perspective of analysis, we can more clearly analyze the future trend of key economic indicators. The real estate industry is a major challenge facing the current Chinese economy. If the real estate industry can stabilize this year, the prosperity of China's economy is expected to be realized rapidly. From the data, the growth rate of investment in the first quarter of this year was 4.5%, which rose to 9.3% excluding the impact of the real estate industry; The growth rate of private investment has changed from negative to positive to 0.5%, and it has risen to about 5% excluding the impact of the real estate industry. The overall investment growth rate of 9.3% and the growth rate of private investment of 5% are normal growth rates. Therefore, we must attach great importance to the plight of the real estate market and take targeted measures to stabilize the market.
Second, in terms of consumption Although many people are disappointed with the consumption growth rate of about 3% in the first quarter, we must realize that Consumption growth is a long-term and slow process. The improvement of consumption level depends on the growth of residents' income and the strength of short-term consumption stimulus policies. From the data of the first quarter, the growth rate of residents' income has significantly exceeded the national income distribution system, which is 2.2 percentage points higher than the nominal GDP growth rate, indicating that the government has increased its efforts in income redistribution policies. At the same time, the government has launched a comprehensive layout of short-term economic stimulus policies, especially the upcoming equipment and consumption trade in policy, which is expected to be implemented on a large scale, involving several trillion yuan.
Secondly, a series of reforms around the consumer side indicate that the strategic measures to expand domestic demand will be further strengthened. At present, the problems and risks we are facing are not just short-term phenomena, but a combination of long-term, cyclical, structural and institutional problems. Solving these problems is not an overnight task, but requires years of continuous efforts. Therefore, the most critical task for current data analysis is to accurately grasp whether the nature of the problem has worsened and whether effective solutions have been found. In addition, it is also necessary to consider whether the views of market micro players on these problems have further worsened. At present, we have found solutions to these core problems, and the expectations of micro subjects are in continuous improvement, which indicates that the process of problem solving has started.
Third, we still need to attach great importance to the imbalance and structural problems in the current economy. The data of the first quarter of this year shows that the growth rate of the supply side is still faster than that of the demand side, which means that the demand side should continue to be the focus of policy making, and the supply side is a supporting factor. The rapid recovery of the supply side may lead to unsustainable economic recovery. Therefore, in the current economic situation, demand generation is still leading, fundamental and strategic.
Secondly, the recovery speed of the secondary industry is faster than that of the tertiary industry, which requires us to attach great importance to the investment in the tertiary industry and the improvement of service consumption. At present, the growth rate of manufacturing investment has reached 9.9%, and the growth rate is still close to 10% on the basis of such a huge industrial scale, which deserves our attention.
Finally, the employment situation of low-end industries is better than that of high-end industries At present, the deterioration of the employment market is more obvious in high-end industries, especially the structural employment problem caused by the performance changes in high-tech enterprises and the financial industry. As high-end employment groups play a decisive role in the formation of market expectations, this issue has an important impact on market expectations and supply. At the same time, we also note that the recovery of the non real estate industry is in line with expectations, indicating that the basic trend of recovery is stable. However, how to achieve a more balanced structural change in the recovery process remains a key challenge.
3、 Future policy options
At the policy formulation level, first of all, we need to pay full attention to the endogenous effect of the real estate sector on liquidity in both theoretical and practical dimensions. At present, a number of loan growth data of social financing scale have dropped significantly, leading to structural changes in financing costs. Most of these changes are closely related to the real estate market, especially the real estate mortgage. China is a mortgage credit. The establishment of credit is based on reliable security asset collateral. The lack of such collateral will lead to an unexpected contraction of finance. Therefore, the monetary authority needs to pay close attention to how to effectively hedge the endogeneity beyond expectations, and pay close attention to the adjustment of real interest rate, rather than simply focusing on the change of nominal interest rate. For enterprises, the change of real interest rate has a more significant impact on operating costs and financial decisions. Although the nominal interest rate shows a downward trend and the financing cost has also decreased, the PPI is close to - 3% at present, and the pressure faced by enterprises is still great. Therefore, under the background of significant adjustment of economic structure and real estate market, it is particularly important to reassess and re recognize the sound monetary policy in theory and practice.
In the field of fiscal policy, the fiscal revenue pressure faced by the grass-roots government has increased compared with the past few years, because the potential financial resources excavated in the past have been gradually exhausted, resulting in a shortage of actually available financial funds this year. Under the background of increasing financial pressure, especially the decline of fiscal revenue expectations, many local governments may have to adopt austerity fiscal strategies, which may lead to changes in the pace of fiscal expenditure. In the past, the priority of financial expenditure was to guarantee current expenditure. However, the current fiscal tightening may lead local governments to give priority to annual balance, that is, to tighten spending first to overcome difficulties. This reverse adjustment may have an impact on the economic recovery in the first half of the year. In view of this, we need to make strategic adjustments to the intensity and pace of new financial fund allocation. Otherwise, we may face an imbalance between the shortage of financial funds in the first half of the year and the centralized release of financial expenditure in the second half of the year.
In addition, the formulation and implementation of exchange rate policy also need to be promoted to a higher strategic level. The change of exchange rate should not only be based on the consideration of interest margin or economic fundamentals, but also should take more account of non-traditional risk factors and the impact of macroeconomic structural changes, which requires us to have a more macro and forward-looking perspective when formulating exchange rate policies.
The above views are summarized from Liu Yuanchun's speech at the CMF monthly macroeconomic data analysis meeting (April 2024)
(The author of this article introduces: President of Shanghai University of Finance and Economics, Deputy Secretary of the Party Committee, Doctor of Economics, Professor)
