Zhang Yidong, an analyst at New Wealth Platinum: Around the internal cycle, where are the opportunities in the medium and long term in the future?

Producer | Wang Chenyu

Edit | Zheng Huaizhou

The keynote speaker | New Wealth Analyst Zhang Yidong

Key Notes:

China's economic development framework: adhere to the road of common prosperity, with the internal cycle as the main body

The core of the common prosperity policy: improve efficiency, not kill the rich and help the poor

Lying back to win: the financial industry makes the real economy profitable, and education, real estate, and the Internet adjust the industrial model

In the third part, we return to the medium- and long-term perspective, which is based on China. China looks at the next 3, 5 or even longer years, where is the opportunity? Then this is the "geographical advantage".

"Geographical advantage" is actually the road of common prosperity, geographical advantage is around the internal cycle, everything is based on the domestic cycle as the main body, so that the economic development pattern can become healthier, more stable, more sustainable. How does the development path of common prosperity have an impact on industrial policy, and how can it drive or differentiate the development of industries?

After February 2016, the core assets we mentioned at that time emphasized more on being large and strong, which is the characteristic of the core assets brought about by supply-side reforms: winners take all and winners are king, small companies die, and large companies share the cake. No matter what kind of financial real estate, steel, coal, nonferrous metals, cement, and even this kind of consumption and the Internet show the characteristics of the leading premium, the development of leading companies will snowball. Rethinking the supply-side reform that began in 2016, it emphasizes solving problems and improving efficiency.

A lot has happened in the last three years since 2020, especially 18, 19, 20. In 2020, some of the events in the epidemic have shown the superiority of our socialist system, and we have become excellent students in the world in the fight against the epidemic, taking the lead in resuming work and production in the world, once again highlighting China's irreplaceable role as the world's factory, exporting materials to the world, especially anti-epidemic materials. In 2019, some political disturbances in Hong Kong have made us think even more (is) that if efficiency does not bring fairness or efficiency affects fairness, or if the economy is K-shaped, then this society is unstable. In 2018, there were trade frictions between China and the United States.

The experience of the past three years has shifted our thinking on economic development to the socialist road of ultimately common prosperity. It must safeguard the interests of the broad masses of the people and not represent the interests of certain interests, interest groups, certain powerful strata, and certain elite classes.

The road to common prosperity is not to equalize the rich and the poor, not to kill the rich and help the poor, but to change the K-type disease of Western society, which can enable all people to move towards common prosperity together after the comprehensive well-off, and at the same time there are differences. In places of high efficiency, where the state wants to vigorously develop and encourage development, where it can bring about an increase in the country's total factor labor productivity, where it can defend the internal circulation, these areas are still encouraged, and then the wealth effect will still emerge in an endless stream.

Figure 1

But conversely, in other areas, the industrial development model may be significantly adjusted or even subverted. In general, whether it is medical care, education, housing, including but not limited to even you, for example, some Internet, and even consumer areas, if they have been a win-win model in the past, relying on policy arbitrage, we believe that under the guidance of common prosperity, their profits will be compressed.

Let's take a few examples, after the education double reduction policy came out, many people were very panicked. When I shared it with a lot of overseas investors, I said you have to understand this matter, but it is actually equivalent to the government implementing ESG on behalf of the broad masses of the people. For the third-, fourth- and fifth-tier cities, it is indeed very effective in solving the problem of difficulty and high schooling.

But now it is clear that discipline education, education involving ideology will withdraw from industrialization, and emphasize public welfare and non-profit. On the contrary, we believe that there is still room for the industrialization of quality education such as sports, golf, painting, painting, cello, and art. In addition, there is still room for vocational education such as cooking and excavators, and the policy is not very extreme one-size-fits-all, but it will change the business model and competitive pattern of the development of the entire industry.

Let's take another example, real estate. From 1998 to 2018, in the 20 years, you can see our development model, after 98 years we are taking the Hong Kong model, when the house was because of speculation, the financial attributes were very strong, so the model at that time was three high models: high gross profit, high leverage, high turnover.

For real estate, the rent is not speculated, in fact, it has changed the previous "three highs" model, and it has become a low gross profit model. There may be purchase restrictions on most new houses, and even the price of new houses is regulated to a certain extent, so it will bring about changes in its business model, which will be divided into two types, most of which are the first model: low gross profit, low cost, high turnover. The second model is actually the rent collection model, which belongs to low turnover, and then rent collection, relying on rent, cash cows, and then occasionally developing this real estate, resulting in low turnover and high gross profit, but at this time its profit model has changed.

Looking at finance, then the previous finance was gold three fat, banks in 06, 07 years, each quarter's profit growth rate is in seventy or eighty percent, when people PB (price-to-book ratio) and the current PE (price-to-earnings ratio) is a state, then PB can be 6 to 8 times, now PE may not be so high, so I talk about the times to create heroes, now finance for the real economy to make profits, especially banks for the real economy to make profits has been the norm.

In contrast, asset management and wealth management conform to the decisive role played by the capital market in the allocation of resources, and are allocated to these areas of scientific and technological innovation, which is more efficient than indirect financing and more able to stimulate the chemical reaction of the entire entrepreneur and social resources.

Therefore, if the past two or three decades have been the golden age of banking and insurance, then what follows is a period of better development opportunities for asset management, financial management, or some securities industries with core competitiveness, which is also differentiation.

Under the common prosperity, the Internet that everyone cares about also has differentiation. We think it is absolutely impossible to fight with one blow, but it regulates, especially for the media, and for the financial aspect, to prevent capital from expanding, it must be constrained.

I think the advantage of the Internet lies in data, in the fact that it can empower the real economy, so the future industrial Internet, the industrial Internet and intelligent manufacturing like this, including intelligent driving, these areas with scientific and technological content, will develop new space.

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