2021 is coming to an end. As far as the global economy and society are concerned, if we want to set the tone for 2021, I think it can be described by the word "chaos" or even "quite chaotic".
When the new crown epidemic just struck in early 2020, China used its national strength to nip the new crown virus epidemic in the bud and achieved effective prevention and control. However, due to the contempt given to the epidemic by developed countries in the West, especially in countries such as the United States and the United Kingdom, the epidemic has broken out on a large scale around the world. Through the joint efforts of all mankind, just when the epidemic is about to be contained at the end of 2020, in 2021, the virus has mutated. The mutated Delta and Obikerjong strains have plunged the world into the haze of epidemics again and again. According to the latest statistics of Johns Hopkins University in the United States, as of 7:22 Beijing time on the 26th, the global cumulative number of confirmed cases of new crown pneumonia reached 279434888, and the cumulative number of deaths was 5396263. According to agency France-Presse on the 25th, according to the data of the flight tracking website, affected by the spread of the Olmikron strain, nearly 6,000 flights were cancelled and thousands of flights were delayed in western countries this Christmas.
With the frequent outbreak of the epidemic, some countries have experienced inflation, and even people's livelihood difficulties have emerged, and some national residents have even become a luxury to eat meat. According to CCTV, in South Korea's large supermarkets, pork is priced at 34,000 won (about 185 yuan) per kilogram, and beef prices are 200,000 won (about 1,090 yuan) per kilogram; in the United States, Faststop, a fast food restaurant known for "fried chicken wings" in the United States, has to develop new chicken thigh products as an alternative because chicken wings are out of stock; in the United Kingdom, there are serious shortages of bread, beef, etc., resulting in no stock on supermarket shelves.
At the same time, some countries have had to burn and dump food because of excessive food production. At one point, britain destroyed more than 100,000 hogs a week; some dairy farmers were forced to dump fresh milk.
In China, because the meat price is too low, there was a situation where the price of pork cabbage and cabbage pork once appeared.
The same chaos, on a global scale, not only in food, but also in various fields such as energy and manufacturing.
The situation between China and the United States seems to be completely opposite.
China's deflation
In 2021, for Chinese residents, the most intuitive feeling is that the price is cheaper than last year. Now, we can still remember very clearly that in 2020, pork prices have soared all the way. The doubling of pork prices has affected the quality of life and happiness of the people; after entering 2021, the price of live pigs has opened a downward and downward pattern, and even the abnormal phenomenon of "vegetables are more expensive than meat".
In 2021, the price of pork, chicken and other meats has been significantly lower than the price of previous years. On October 28, the pig price system monitoring data released by China Pig Network showed that on that day, the price of foreign three-yuan pigs was 8 yuan a catty, compared with the previous day, a catty fell by 0.14 yuan. Although it is said that since the National Day, the price of pork across the country has increased slightly, but from the perspective of the development of the entire pork market, the downward cycle of pork will not end for a while and a half. Industry insiders revealed: As of now, the supply of China's pork market is still oversupplied. 8 months have been reduced by 90%. Moreover, pork prices continue to fall, and the downward price cycle continues.
This situation, for pig farmers, has caused a lot of impact, the most intuitive is the pig farm "rotten tail", piglets can not sell. Many piglet farmers said that because the downward cycle of pork prices has not ended, pig farmers will not think of supplementing the piglets, and this has directly led to the continuous downturn in piglet shipments. Some piglet farmers said that the same is a 20-pound piglet, the price at the beginning of the year was 1500 yuan; today, the price of 150 yuan is not wanted. And that cycle continues.
According to the data of A-share listed companies in the first three quarters of 2021, the cumulative loss of 10 listed pig companies reached 14.7 billion yuan. Among them, Zhengbang Technology has the largest loss among the 10 listed pig companies, reaching 6.02 billion yuan. Even Makihara shares, which were barely profitable in the first half of 2021, are difficult to resist the impact of the continuous decline in pork prices, and the company is expected to lose 5 billion yuan in the first three quarters of 2021.
Not only are meat prices still depressed, but other consumer goods are also in a slump. The economic definition of deflation is that when deflation occurs, the overall price level of the whole society declines, and the price of the company's products naturally falls, and the profit of the enterprise decreases. The decline in corporate profitability has led to a corresponding reduction in the market price of corporate assets. Moreover, the decline in the price level of products makes it difficult for individual companies to sell their products. In order to maintain production, enterprises have to increase their liabilities, and the increase in the debt ratio will further reduce the value of enterprise assets. The decline in the value of corporate assets means a decline in corporate net worth and a decrease in wealth.
Under conditions of deflation, the relative surplus of supply will inevitably lead to the unemployment of many workers. At this time, the oversupply of the labor market will lead to lower wages for workers and less wealth for individuals. Even if wages do not decrease, the increase in the number of unemployed people will lead to a decrease in the overall income of social residents, resulting in a shrinking of individual wealth in society.
China's CPI (Household Consumption Index) already reflects China's consumption deflation in 2021. CPI is based on the prices of goods and services related to the lives of residents, and the price change indicators are usually used as an important indicator to observe the level of inflation or deflation. According to the data released by the National Bureau of Statistics, since the CPI value reached a high of 1.3% in May this year, the data has been in a state of decline for five consecutive months until now. In previous years, the average of this data was generally around 3%. This once again reflects from the side that China's consumer prices are currently in a state of decline.
Inflation in the United States
In 2021, compared with the decline in consumer prices in China, the United States, which is far away from the ocean, has seen an increase in consumer prices. Annual inflation in the United States accelerated to 6.8 percent in November 2021, the highest level since June 1982. This is in line with expectations and is just as important, marking the ninth consecutive month that inflation is above the Fed's 2% target. The underlying cause of this situation is the rise in global commodity prices, including food, housing and energy, increased demand for most commodities, rising wages and the spread of Omicron, which are likely to continue. While the December data is not yet out, it can be expected that this year's Christmas will give a significant boost to inflation.
At the same time, the price of many commodities in the United States is soaring. Steel prices have risen for 15 consecutive months, oil prices have recently risen to a 13-year high, the national average price per gallon of unleaded gasoline is $1.25 higher than a year ago, and natural gas prices are about three times what they were last year.
Usa Today newspaper said Americans' heating bills are expected to soar this winter, potentially ushering in the "most expensive" winter in decades.
The price increase of many goods in the United States is due to bottlenecks that are not usually imaginable, such as: wineries on the east and west coasts of the United States are worried about the shortage of wine bottles, and the glass price of making wine bottles is three times the usual. Due to the shortage of aluminum for the manufacture of canned boxes, canned beer and beverages are becoming more and more expensive. Congestion in U.S. ports is caused not only by a lack of dockers and truck drivers, but also by a lack of chassis trucks for moving containers.
U.S. automakers have cut production due to a lack of microchips, and the price of used cars has soared. The price of solar panels in the United States also rose for the first time in years due to the decline in metal supply and higher prices of polysilicon, the superconducting material.
The tight supply and high prices of pesticides and fertilizers such as herbicides may affect the planting of crops such as soybeans and corn and food prices in the Central and Western regions next year.
According to the economic definition of inflation: inflation is the depreciation of a country's currency that causes prices to rise. The essential difference between inflation and general price increases: general price increases refer to a commodity or commodities, because the imbalance between supply and demand causes temporary, partial and reversible increases in prices, which do not cause currency depreciation;
Previously, although the Fed has been denying the existence of inflation and believing that inflation at this stage is only temporary, from the current performance of the United States, not only is meat rising, oil, copper, aluminum, and even labor costs have risen, it is a most typical performance of inflation, so that the Fed and other relevant parties have to change their mouths, and then admit the danger of inflation, and even form interest rate hikes. According to Bloomberg, inflation in the United States has long since exceeded the comfort zone of monetary policymakers. There is no shortage of industry insiders who believe that inflation in the United States will be more intense and durable than expected. According to the Consumer Price Index (CPI) released by the U.S. Department of Labor, this figure has remained between 5% and 5.4% since the CPI rose to 4.2% in May this year. In previous years, the average of this data was only about 2%. This once again reflects the current inflationary state of the United States.
So, one can't help but ask, in the context of globalization, why is there such a strange separation between China and the United States?
Cathie Wood's deflationary theory and Michael Burry's inflation theory
Michael Burry, the prototype of the big bear in the movie "Big Short", has been warning the world of inflation after entering 2021. Michael Bailey said the U.S. was gradually moving into 1970 — a state of sharp currency depreciation and continued to rise in prices. Michael Bailey believes that with the spread of vaccines and the restoration of a universal socio-economic order, global people mobility and economic data will recover significantly. At this time, stimulated by monetary and fiscal policies, the speed of currency circulation will also rise rapidly. When demand outweighs supply, inflation expectations emerge. As mentioned earlier, the October CPI data released by the United States was higher than market expectations, up 6.2% year-on-year, the largest year-on-year increase since November 1990, that is, a new high in the past 31 years.
Stills from the movie "The Big Short"
At a time when the market is bullish on inflation, Cathie Wood, founder and CEO of Ark Investment Management, believes that what the market should worry about now is not inflation but deflation. Katie Wood argues that current inflation is temporary, and that with the advancement of technology, factories will be far more efficient than ever, leading to an increase in the number of commodities; and when supply is higher than demand, it will indirectly lead to lower prices of commodities. Now, due to uncontrollable factors brought about by the epidemic, businesses are increasing orders to meet the needs of the recovery, and eventually, there will be an oversupply after the holiday season, which will lead to a decline in prices.
Causes of deflation and inflation
Whether it's Michael Burry's inflation theory or Cathie Wood's deflationary theory, the essence of the problem stems from three points: supply chain; money; and demand. The following is an illustration of inflation:
First, the supply chain. Due to the globalization of the industrial chain, a product that can be produced in a country has changed into a division of labor model produced in multiple countries. When the epidemic was "globalized", all countries adopted the policy of lockdown, and obstacles appeared in the originally smooth industrial chain. When there are obstacles in the industrial chain, all the results will be fed back to the source, which is the main reason why the US resident consumption index remains high. Therefore, as long as the global epidemic is still repeated and cannot be completely resolved, then inflation will be difficult to effectively solve from the perspective of supply chain.
Second, money. According to the economic explanation of the direct cause of inflation, the amount of money in circulation in a country is greater than the total amount of the economy in force in the country. As the world's main circulating and trading currency, when the supply of the US dollar increases rapidly in a short period of time, it will naturally indirectly affect the price of commodities such as oil denominated in US dollars. When the epidemic broke out, the Federal Reserve led by Powell brutally adopted a "large dose, strong drug" approach to printing dollars. Although this practice of severe medicine seems to "solve" the possible economic crisis in the United States in the short term, in fact, the consequences of this practice - "hyperinflation" have begun to gradually appear.
Third, demand. During the epidemic, Western developed countries have adopted the policy of "government money" or "helicopter money", which indirectly stimulated resident consumption. By creating demand out of thin air, the economy was temporarily saved. In the context of this "surge" in demand, the demand for raw materials has increased significantly. At this time, if the supply can really be met, the price of raw materials may only rise slowly. However, the current background is a sharp increase in demand, while supply continues to fail to keep up due to the epidemic and environmental protection policy restrictions.
As a result, this has been that developed countries on the consumer side continue to suffer from inflation from soaring consumer prices; developing countries on the manufacturing side have struggled to make money and deflation; and exporters on the resource side have made a lot of money this year.
Since joining the WTO in 2001, China has been playing a role in exporting manufactured products to the world. Since 2010, China's manufacturing industry has ranked first in the world for 11 consecutive years. From 2012 to 2020, China's industrial added value increased from 20.9 trillion yuan to 31.3 trillion yuan, of which the added value of manufacturing increased from 16.98 trillion yuan to 26.6 trillion yuan, accounting for nearly 30% of the global proportion from 22.5%.
However, the reality brought about by the new crown pneumonia epidemic has made us realize that we have reached a "fork in history", that is, the current pattern needs to be adjusted, at least in the following two aspects, our country must take precautions and take the initiative. Only with such adjustments will my country be free from the undue influence of the chaos of the global economy and society.
(1) Adjust the industrial structure and enhance the content of science and technology
For a long time, China's manufacturing industry has been in a low-end position, with insufficient independent innovation capabilities and lack of core competitiveness. Affected by the epidemic, the deterioration of Sino-US relations and other unfavorable international environment drag, coupled with the impact of raw material prices, logistics prices, energy crisis and other factors, enterprises have become more and more difficult, and some companies produce goods that have no high added value, or purely by squeezing labor to make profits, not only profitable, even difficult to survive in a fiercely competitive market. Many manufacturing companies have stopped production and work, or even closed down.
However, there are also many examples of adjustments to get out of trouble. Take Taiwan Province, for example. As the "four tigers" of Asia, Taiwan's manufacturing industry was once dominated by processing. In taiwan's adjusted economy, science and technology account for a large proportion. For example, Taiwan's most core semiconductor industry is very important in the world. The Semiconductor Industry Association of the United States has made an extreme conjecture that if Taiwan's semiconductor foundry is discontinued for a year, then the annual revenue of the global electronics industry will be reduced by $490 billion. Taiwan's proudest company is TSMC. Due to its high-density scientific research investment, its advanced process technology leads the world, producing almost all the most advanced chips in the world, and it is the highest net profit margin among the world's top 500 companies - the net profit margin is as high as 38%, far exceeding Apple's 26%. TSMC's net profit in 2020 increased by 44% year-on-year, and this one has more revenue than the other nine foundries in the world combined; its market capitalization has topped the first place in Asia and it is the only Asian company among the top ten companies in the world by market capitalization.
This shows that as long as they are aware of the power of science and technology, coupled with their efforts, Chinese companies have the ability to make achievements in science and technology, and even surpass the United States.
(2) Expand internal circulation and promote domestic consumption
The world economy has been in recession since 2008. The epidemic has once again made countries around the world realize the importance of the industrial chain for themselves. Therefore, in the time to come, whether countries will set off a "de-Sinicization" industrial chain policy is a question we have to consider. In fact, both Trump and Biden are committed to the return of US-funded enterprises to the United States and strengthen the restructuring of the US manufacturing and industrial chain.
Therefore, in this context, the internal circulation of the economy is extremely important for China's economic development. In essence, the internal cycle is to enhance the innovation ability of enterprises in the macro, in the main areas of the economy to achieve China's independent self-improvement; at the micro level, to expand the domestic market consumer demand and consumption momentum, so that domestic goods can be effectively sold and used in the country. Under the impact of the new crown epidemic, the importance of internal circulation is even more important. If the external circulation model of export foreign exchange earning is an important way for China to go out and develop, then the internal circulation is the inflection point and new driving force for the sustainable development of China's economy.
On August 24, 2020, General Secretary Xi Jinping delivered an important speech at the symposium of experts in the economic and social fields, making a judgment on the new pattern of China's economic development and pointing out the direction for the development of China's economy under the new situation: "We must promote the formation of a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other. This new development pattern is put forward in accordance with the changes in China's development stage, environment and conditions, and is a strategic choice to reshape China's new advantages in international cooperation and competition. In recent years, with the changes in the external environment and the factor endowments of China's development, the momentum of the international large cycle at both ends of the market and resources has weakened significantly, while the potential of China's domestic demand has been continuously released, and the vitality of the domestic large cycle has become increasingly strong, and objectively there is a trend of one or the other. ”
Avenue to Jane. The two adjustments described above by the author are nothing new, and even important contents that most people recognize. However, one step of practical action is more important than a dozen programs. As Marx said: "Without action, no matter how great theory and revolutionism are, in the end, they are just empty talk." Only by implementing it step by step, especially by giving guidance and support in policies, can we finally see results!
Finally, things are always dialectical. Summarizing the chaotic situation of the world economy and society in 2021, it has brought many confusions and problems, but it will also bring some opportunities. Grasp the overall situation and enhance the endogenous driving force, china's economy will come out of a new blue sky and bright prospects!
Let us use the spirit of the recent Central Economic Work Conference to seek steady progress and look forward to a hopeful 2022 with confidence!