- 2018-10-08
How to understand China's economic slowdown?
Why is this wheel deceleration so long?
It has been ten years since China’s economic growth rate has fallen from the 14.2% peak in the new century in 2007, and it has also been seven years since the 10.6% decline in 2010. Although the economic growth rate has generally stabilized in the past two years, and 2017 may be less than the previous year. However, the economic operation has not completely shaken off the downward pressure of deceleration. From the perspective of the history of China's macroeconomic cyclical fluctuations, the economic slowdown in recent years is not only the longest downward adjustment in the era of reform and opening up, but also the longest downward adjustment in the history of macroeconomic fluctuations in New China.
The initial motivation for this round of economic slowdown should be relatively clear. At the beginning of the new century, China’s economy witnessed a round of strong economic growth. The average growth rate in the five years from 2003 to 2007 was over 11%. In 2007, the economic growth rate was as high as 14.2%. The rise in CPI was accompanied by the soaring asset prices, and the economy became apparent. Overheating and inflation situation. The government began to implement austerity macro-control policies in the second half of 2007, and the macro economy began to cool down significantly in the first half of 2008.
The US financial crisis and the four trillion stimulus policy temporarily interrupted the above-mentioned tightening adjustment process. However, during the V-shaped economic rebound from 2009 to 2010, the earlier opening of macroeconomic imbalance factors further developed, forcing an early withdrawal from the stimulus policy and returning the macro economy to the adjustment track. After the 18th National Congress of the Communist Party of China, high-level officials put forward the concepts of "three-phase superposition", "new normal", and "supply-side structural reform", and implemented a combination of active adjustment and stable growth policies, as the economy further decelerated and adjusted. It can be seen that the logic of this round of economic slowdown is clearly visible, and is consistent with the general law and experience of macroeconomic expansion-imbalance-adjustment.
The question is why this round of adjustment lasted so long? Since 2016, certain economic indicators have rebounded strongly and the overall macro economy has stabilized and rebounded. Why is it still difficult to push the economy out of the downward adjustment stage and start a new round of endogenous economic growth?
Discussion on the Interpretation of "New Steady State"
There are naturally different interpretations and differences in understanding of this issue. The premise that China's economy is still in the downward adjustment cycle is controversial. The current more popular analytical thinking may be summarized as the "new steady state" view, which generally believes that due to the decline in potential economic growth, China's total economic demand and potential supply are basically adapted, and therefore sustainable and even desirable. Although I haven’t seen an in-depth systematic elaboration on this view, some expressions that are often heard in recent economic discussions, such as the belief that China’s economy will be at the bottom of the “L-shaped” for a long time, and even that this horizontal line extends too far. The longer the better, etc., which have different degrees of overlap with the interpretation of "new steady state".
The rational factors for the understanding of "steady state theory" should be affirmed. It is correct to judge the potential decline in growth rate, and there is a broad consensus in the academic circles, which explains to a certain extent the slowdown in the macro economy in recent years. In terms of policy implications, such views suggest that avoiding the implementation of too radical short-term stimulus measures is also positive. However, by comprehensively observing the objective situation, whether the theory of steady state is accurate in summarizing the current cycle position of China's macro-economy can be explored.
One is how to explain non-neutral macroeconomic policies. Judging the characteristics of a particular macro cycle stage of an economy includes the evaluation of the macro policy orientation and status. The relatively stable growth rate during the economic downturn adjustment period in recent years and the recent stabilization performance have benefited to a certain extent from the effect of countercyclical macro policies. In recent years, the budget deficit size and deficit rate during the adjustment period have repeatedly hit record highs. Taking into account the increase in extra-budgetary government debt, the actual extent of fiscal policy expansion has been greater, highlighting the trend and trend of countercyclical intervention in China's macro policy in recent years. Although the monetary policy is expressed as the principle of prudentness, observing the implementation situation also shows a moderate and loose orientation. In 2017, the senior management emphasized the need to adhere to the prudent and neutral policy stance, reflecting this from one angle. The macro-economy is generally balanced or stable, and logically needs to be independent of countercyclical macro-expansion policies, which is significantly different from the current economic situation. In other words, before the macroeconomic policy withdraws from the obvious expansion orientation, the economic operation is still searching for a new equilibrium state rather than reaching a new steady state.
The second is how to understand the unfolding pattern of the business cycle law. The law of macrocycles means that, under normal circumstances, after economic growth has experienced a sustained and large decline and adjustment, it will be accompanied by a bottoming out of the economy and a new cycle stage. The interpretation of the steady state theory includes the understanding of the smooth convergence of the old and the new cycles, which implies the law of the business cycle. The form thus interrupts the meaning. The economics community has put forward explanatory views on the performance of the business cycle law from different perspectives such as technology, policy, and investment. Although there is no consensus view, it is generally believed that the business cycle and its phase transitions objectively exist. After entering the new century, the US and Europe’s views on cycle disappearance and major reconciliation for a period of performance were finally proved to be incorrect by facts. During the reform period, China’s macro economy has experienced downward trends many times, all under the action of necessary institutional policy reforms and cyclical adjustment mechanisms, and the subsequent faster endogenous growth has been linked to form a cyclical transition process.
The third is how to treat the abnormal performance of the economy in recent years. An important feature of the economic stabilization and recovery in the past two years is that certain macro-influencing sectors have experienced inadequate supply response and abnormal price surges due to imperfect institutional policies in the new environment of quietly evolving market demand and macro-environment. This kind of phenomenon called "quasi-stagflation" by market analysts reflects that the potential growth capacity of some important areas of the Chinese economy has not been released in an orderly manner. If the system and mechanism contradictions in related fields can be focused and effectively resolved, the endogenous growth momentum of China's economy should be significantly improved, and the economic operation is expected to exit the downward adjustment stage soon, otherwise the economic growth pattern in recent years will be difficult to sustain.
How to treat the influence of external factors?
Even if the phenomenon of this round of economic downturn adjustment is accepted as a characteristic fact, there are still differences in understanding of the specific analysis of its root causes. One of the problems is how to treat the impact of changes in the external environment. The downward adjustment of China's economy has been carried out simultaneously with the global adjustment. After the financial crisis, the economic trends of different countries have shown a state of divergence, but the overall decline has been. For example, the global economic growth rate dropped from 5.6% in 2007 and 5.4% in 2010 to 3.2% in 2016. The average growth rate of the United States and the European Union in 2006-2007 was 2.3% and 3.4%, and in 2010 they were 2.5% and 2.1%, respectively. By 2016, they had dropped to 1.49% and 1.98% respectively, and the economic growth of major emerging economies also declined to varying degrees during the same period. These will all have an impact on China's economy, but whether the view that the external environment is the main source of China's economic slowdown needs to be explored.
First, under the impact of the financial crisis, China’s implementation of a package of stimulus policies drove the economy to rebound first, and became a major country in the world’s major economies that reproduced the pressure of overheating and asset bubbles earlier. Afterwards, through the implementation of the "Chinese-style exit" austerity policy, the overall macroeconomic situation in recent years Economic trends have a self-explanatory internal logic and empirical basis.
Second, China has contributed the most to global economic growth over the past ten years, and is still the economy with the highest national savings rate and the strongest potential investment capacity. Since China's economy is the most important engine of global economic growth and the most dynamic and proactive rising power, the reasons for the domestic economic slowdown should be analyzed mainly from domestic factors.
Third, from the historical perspective of China's macroeconomic fluctuations, the evolution of the previous economic cycles is mainly affected by domestic economic and political forces, and changes in the external environment have only a relatively secondary explanatory role. Whether it is actively implementing the Bazi adjustment policy at the beginning of the reform, or implementing a severe tightening adjustment policy to curb domestic hyperinflation in the late 1980s, or implementing inflation control and implementing structural reforms in the late 1990s accompanied by economic downward adjustments, interactions can be mainly based on domestic economic and political variables. To explain.
Fourth, the economy has shown a recovery trend in the past two years. Exports have rebounded and imports have grown faster. The real relationship is more likely that China's domestic demand rebounds first and the impact of external demand follows. China's economic growth may be more dynamic than we realize. Comparing 2010 and 2016 expenditure-based GDP growth composition data, the contribution of net exports rebounded from -1.3 percentage points to -0.4 percentage points. It can be seen that the contribution of external demand to short-term economic growth in 2016 was significantly better than that in 2010.
In general, China's open economy is facing an environment of internal and external interaction, and it is undoubtedly correct to analyze the macroeconomics to pay attention to external factors. However, China is the main growth engine of the global economy. It is different from a highly open small economy and a resource exporting country with a high proportion of commodity exports. Therefore, the characteristics of China's macroeconomic phases should be mainly based on the domestic environment and conditions. Seek explanations for changes and follow the basic method of understanding that external causes are the conditions for changes and internal causes are the basis for changes.
The relative importance of consumption and investment
As far as domestic demand is concerned, how to view the impact of consumption on the economic slowdown in recent years is an important issue. To analyze the impact of consumption on the economic slowdown, it is necessary to distinguish the different effects of the level of consumption rate and the amount of change in consumption growth. At a certain stage of economic development, China's low consumption rate and high savings rate have been the subject of long-term attention in macroeconomic research. However, as far as we are discussing, the variable that has affected the economic slowdown in recent years is obviously the change in consumption and its growth rate.
The actual growth rates of total consumption and household consumption in China from 2012 to 2016 were about 8.0% and 7.8%, respectively, which were about 0.5 and 0.7 percentage points higher than the actual average annual growth rate of GDP in the same period. The actual growth rate of retail sales during the same period was about 10%, which was nearly 3 percentage points higher than the actual average growth rate of GDP. It can be seen that although the actual decline in consumption growth has a certain effect on the overall economic slowdown, macro data shows that the growth rate of total consumption is still relatively stable and strong.
Similar judgments were obtained from the observation of consumption of some important commodities and labor services. For example, the average annual growth rate of automobile sales in China from 2012 to 2016 was 8.6%, the average annual growth rate of air passenger turnover was 13.1%, and the average annual growth rate of high-speed rail passenger turnover was as high as 34.4%. During the same period, the average annual growth rates of domestic tourist arrivals and expenditures were 11.7% and 15.1%, respectively. The average annual growth rates of outbound tourist arrivals and expenditures from 2014 to 2016 were 16.8% and 17.5%, respectively. The average annual growth rate of consumption during the National Day and Spring Festival holidays in 2012-2017 remained at 13.1% and 14.6%, and the average annual growth rate of movie box office revenue during the same period was as high as 40%. In recent years, the author has visited some places, including northern provinces where economic growth is relatively difficult, and observed that the actual consumption situation in ordinary cities is generally consistent with the above-mentioned data.
Compared with consumption, the decline in investment and its relative importance are greater. The data shows that the actual growth rate of China's fixed asset investment dropped from more than 20% in 2011-2012 to around 15% in 2015-2016, and further fell below 5% in the first half of 2017. As far as investment growth indicators are concerned, in recent years, the situation similar to that of the economic downturn at the turn of the century has been reproduced. Although there are some problems with the accuracy of fixed asset investment data, it should be an objective fact that the investment slowdown in recent years has been relatively large.
From the comparison of the growth rate of fixed asset investment in different sectors, China's manufacturing investment usually accounts for about 30% of the total investment, infrastructure and real estate each account for close to a quarter, and the three together account for more than three quarters. In the past few years, total demand has maintained a certain growth rate. The key reason is that infrastructure investment closely related to macro countercyclical adjustments can still grow rapidly. Infrastructure investment has accelerated from a very low level at the beginning of 2012, bringing the annual growth rate of the year to 13.7%, and since then, it has remained at a fairly high level of 15.7%-21.3% from 2013 to 2016. Infrastructure investment is financially supported and has the attributes of a policy tool to a certain extent. Comparatively speaking, the lack of growth of private investment, which is mainly driven by the market, is more obvious.
Comparing 2010 and 2016 expenditure-based GDP growth composition data, the contribution of consumption growth decreased from 4.8 percentage points to 4.3 percentage points, and the impact on short-term economic growth was -0.5 percentage points. However, the investment contribution dropped from 7.1 percentage points to 2.8 percentage points, and the impact of investment on the economic slowdown was 5.5 times that of consumption. To sum up, from the perspective of demand, the main reason for the decline in China's economic growth in recent years is domestic demand rather than external demand. The main contradiction of weakening domestic demand is investment rather than consumption.
Institutional Roots of Weak Investment
China's total savings rate has fallen in recent years, but it is still at a high level of 45%. The higher savings rate, which is mainly formed through the role of the market mechanism, is a necessary and favorable condition for a country's economic growth and catch-up. At this time, if investment is weak, it is difficult to use market endogenous forces to convert massive savings into efficient capital in an orderly manner to enhance future social productivity. Whether from the perspective of long-term economic development or short-term economic growth, it is a key issue at the macroeconomic level. China is still in the stage of rapid urbanization. Why has the market investment been relatively weak for many years?
There are many reasons for the deceleration of market investment in recent years. The cyclical factors in the adjustment of overcapacity in some sectors obviously have an explanatory effect. As population growth reaches the turning point and the development stage changes, the reasonable investment growth rate will gradually decline. However, these are not enough to invest in recent years. The sluggish phenomenon provides a reasonable explanation, especially the fact that output and investment have failed to respond flexibly in the context of rapid price recovery in some economic sectors since 2016. Observing the actual situation, the root cause of the sluggish market investment is not entirely on the demand side, but is related to some imperfect institutional and policy factors restricting investment growth.
First, the administrative monopoly land supply system is not conducive to real estate investment. Real estate investment is a realistic way to meet the rapid growth of national housing consumption demand under the background of urbanization, and it is also one of the most important channels for absorbing national savings. Its growth fluctuations have a greater impact on the macro economy. In recent years, under the situation of great downward adjustment pressure on the macro economy, the real estate market demand has fluctuated greatly, and the average annual growth rate has remained above double-digit levels. The problem is that related institutional distortions make it difficult to release the market demand potential in an orderly manner. Under the administrative monopoly land supply system, city governments tend to reduce land supply, increase land prices and increase fiscal revenue. In addition, they frequently implement countercyclical industrial policy interventions in real estate. This has led to the two-way effect of market demand growth and monopoly land supply reduction factors. Housing prices took the lead in soaring in early 2016 and then spread to other big cities. The new round of housing prices has soared. With speculative speculation and illegal financing, the government has to implement unprecedented demand control measures to control risks. System distortions and industry disorder have curbed investment and economic growth potential.
The second is to strictly control the policy orientation of big cities and objectively restrain investment. After entering the new century, the development of China's urbanization presents a more prominent feature of the agglomeration effect of large cities. According to the data of the “Fifth Census” and “Sixth Census” of the population, the urban population of 16 super-large cities (urban populations of more than 5 million in the Sixth Census) increased by about 60% between 2000 and 2010, far exceeding the national urban population during the same period. The total growth rate is 36%. China's urbanization policy has long adhered to the policy of strict control of large cities, and urban development plans generally underestimate the scale of future population growth. Observe the dozens of planning samples drawn up successively in the 16 megacities mentioned above in the historical period. Among them, the underestimation of the population size at the end of the period accounted for
81.7%, the average underestimation deviation was as high as 3.34 million; the population overestimation sample accounted for 18.3%, and the average deviation was 947,000. The general underestimation of the planned population is accompanied by the overall relatively insufficient investment in infrastructure and social services in large cities, which has exacerbated the contradiction between the shortage of public facilities and services and the "big city disease", and further reversed the various regulatory impulses of the city authorities. This kind of policy intervention is objectively not conducive to the reasonable investment required to give full play to the agglomeration effect of big cities.
Third, the access and investment control policies of certain sectors inhibit investment. Another outstanding performance of the macroeconomic operation in the past two years is that some upstream industrial sectors, such as steel and coal, that were facing the pressure of overcapacity earlier, have seen a significant and rapid recovery in demand while their output and supply response capabilities have been significantly weakened, and market prices have soared rapidly. Weak output growth occurred at the same time, forming the so-called "quasi-stagflation" phenomenon. There are multiple reasons behind the above phenomenon: the overcapacity policy restricts output response, the most stringent environmental supervision is required to face the ecological red line, the estimation of potential demand and effective production capacity is biased, and industry capacity investment is restricted or prohibited. It should be affirmed that the transformation of supply and demand in these sectors shows that the overcapacity reduction policy has achieved staged results. The price rebound is of positive significance for the growth of corporate profits in related sectors and the relief of downward adjustment pressure. However, the imbalance between supply and demand cannot be quickly resolved and adjusted through the market mechanism, reflecting related regulations. The adverse impact of policies on investment.
Fourth, the existence of industrial barriers between state-owned and private enterprises is not conducive to releasing effective investment potential. In recent years, China's rate of return on industrial capital investment is about the same as that of the United States. Observing its internal structure, the return on capital of private enterprises in 2016 was 2.4 times that of state-owned enterprises. Comparing the five most profitable sectors of state-owned enterprises and private enterprises, in 2015, the five sectors of state-owned enterprises, including electricity and heating, automobiles, tobacco, oil and gas, and alcohol, created more than 80% of profits, all of which belonged to the basic administrative monopoly or a relatively high degree of monopoly. There is no intersection with the top five sectors (chemicals, agricultural and sideline food, general equipment, etc.) that contribute the most to the profits of private enterprises. It can be seen that private enterprises with higher efficiency still face more administrative controls in terms of investment access, which is not conducive to the orderly release of reasonable investment potential. In addition, the protection of the property rights of private enterprises still needs to be strengthened. In a few places, administrative power damages from time to time infringe on the legal property rights of private enterprises have also had a negative impact on independent market investment.
To meet the new cycle, reform is the key
In the past two years, the economic growth rate has stabilized and the follow-up trend is still facing uncertainty. Instead of seeing it as evidence that China’s macro economy has entered a “new steady state”, it is better to regard China’s economy as the issue of the longest period of slowdown and adjustment in history. Faced with special difficulties.
Facts have shown that China's economy has strong resilience, but the macro countercyclical expansion policy continues for too long to be unsustainable. The Chinese economy is still facing deep pressure from insufficient endogenous growth momentum. How to use market forces to get out of the downward adjustment period is a realistic challenge.
Compared with the deep economic downturn adjustment at the turn of the century, the adjustment in recent years has shown a prominent feature, which is due to the general stability of the labor market and employment situation, the relatively stable growth of residents' income and consumption, and the weak market-driven private investment that puts downward pressure on the economy and steps out of adjustment. Stage difficulties have a greater explanatory effect. There is an interactive relationship between China's economic slowdown and changes in the external economic environment. However, to explain the phased trend characteristics of a super-large economy like China, the inherent contradictory movement characteristics of the domestic economy are obviously the main reason.
The sluggish market investment in recent years has been affected by various conditions, but it is necessary to pay special attention to the imperfect factors of various systems and mechanisms that restrict the effective investment potential that has not been fully released. It is necessary to reform the administrative land supply monopoly system, and through reasonable investment to meet the growth of housing demand in the medium and high growth stage of the economy.
On the basis of summing up historical experience and confronting actual contradictions, it is necessary to reflect on and improve policies and guidelines for strict control of the development of large cities, and orderly release the investment potential released by the orderly advancement of urbanization in large countries. Under the premise of strengthening pollution and environmental protection supervision, it is necessary to relax the access and investment control of relevant government departments in various fields, vigorously break down the hidden investment barriers based on ownership discrimination, and activate the market investment potential contained in non-state-owned enterprises.
To meet the new cycle, reform is the key. To promote the national economy to usher in a new endogenous economic growth under the premise of high-quality and high-efficiency, the key is to deepen reforms in related fields to break through the bottlenecks of institutional mechanisms.