Zhongxin Jingwei April 13, 2019 With structural monetary policy to solve the problem of industrial upgrading
Author Ju Jiandong, Tsinghua University, Tsinghua University, Wudaokou School of Finance, Tsinghua University
Sijia Li Is a research specialist at the Center for International Finance and Economics, National Institute of Finance, Tsinghua University
The Central Economic Work Conference held at the end of 2021 pointed out that China's economic development is facing the "triple pressure" of contraction in demand, supply shocks and weak expectations. As for the causes of the "triple pressure" and how to resolve them, recent discussions have focused on boosting demand through more active fiscal policy and the flexible use of a variety of monetary policy tools such as refinancing in a timely manner to better play the dual functions of aggregate and structural. We do need to boost demand to drive economic growth, but in addition to these external shocks that affect demand, the more critical factor is the industrial upgrading shell in China's economic structural transformation.
Ju, Jiandong, Yifu Lin and Yong Wang, "Endowment Structures, Industrial Dynamics and Economic Growth", Journal of Monetary Economics, November 2015 ) When studying the changes in industrial structure under economic growth, it is found that under the macro appearance of economic growth is the continuous upgrading of industrial structure. As Shown in Figure 1, each leading industry has undergone a life cycle of birth, expansion, and culmination, contraction. With the development of the economy, the old leading industries began to shrink, and the new leading industries replaced the old leading industries to enter the market, expand and become the engine of economic growth.
It is generally believed that after 40 years of rapid growth from 1978 to 2018, the industrialization of China's economy has been completed. With 2018 as the watershed, China's economy has entered the era of knowledge from the era of industrialization, and the economic engine must be transformed from manufacturing and assembly to innovation, high-tech services and knowledge services. That is to say, the leading industry of China's economy needs to be converted from industrial manufacturing to knowledge innovation, but the conversion of this leading industry is stuck, which has become a key pain point in the economic downturn.
Lessons from Japan
After World War II, Japan quickly developed into the world's second-largest economic power after the United States, with per capita GDP growing rapidly from $475 in 1960 to $11,577 in 1985. By 1985, the U.S. trade deficit with Japan had reached $50 billion, accounting for one-third of the U.S. trade deficit that year, triggering a U.S.-Japan trade dispute. The United States has suppressed the Japanese government and Japanese companies in the semiconductor industry. Since the 1970s, the Japanese semiconductor industry, especially the five major companies of Hitachi, Mitsubishi, Fujitsu, Toshiba and Nippon Electric, has fiercely competed with IBM, Intel and other companies in the United States under the support of the industrial policy of the Ministry of International Trade and Industry of Japan.
In 1985, the share of the Japanese semiconductor industry in the world market exceeded that of the United States, followed by the outbreak of the "U.S.-Japan Semiconductor War", and Japanese semiconductor components fell from 50.3% of the global market share in 1988 to 10% in 2019, with heavy losses. Japan's development stagnated in the electronics, automobile, steel industry, missed the wave of information and bioengineering industry development, so that Japan from enjoying the high returns brought by high-tech drive, high growth of the virtuous circle into the vicious circle of low capital yield, low growth, low returns, Japan's exports of high-tech products in the manufacturing export share fell from 29% in 2000 to 17% in 2019.
The United States' containment of Japan's high-tech industry has made Japan's industrial upgrading stuck after 1990, and Figure 2 shows the process of Japan's economy from high-speed growth to economic deterioration and growth stagnation. Japan's annual GDP growth rate began to decline year by year from 6.79% in 1988, fell to 0.85% in 1992, and fell from high-speed growth to almost zero growth within four years, and has since embarked on a long road of economic stagnation.
The dilemma of industrial upgrading
The United States has taken almost the same approach as it has contained Japan's high-tech industry to curb technological progress in China's high-tech industry. This kind of containment is not a simple technological blockade, but through the policy environment to guide the international division of labor between Chinese and American enterprises, American enterprises to divide labor into advanced technology, and Chinese enterprises to divide labor to relatively backward technology, so as to keep American technology one to two generations ahead of China, and maintain the monopoly position of the United States in high-tech industries.
Since Huawei has led the United States in fifth-generation mobile communication (5G) technology, the United States has resolutely cracked down on Huawei, banning the sale of 7 nanometer (nm) and 5 nanometer high-end chips. However, in the civilian semiconductor industry, the United States has not completely blocked Chinese companies, but has struck at head companies such as Huawei and opened up a way out for the second echelon of companies that have not challenged their technological hegemony.
Affected by the US embargo, Huawei's mobile phone shipments fell sharply in 2021, and Huawei's market share was divided by Samsung, Apple, Xiaomi, OPPO and VIVO, and the mobile phone shipments of these 5 companies in 2021 have a surprising increase. The United States restricts U.S. companies from providing any 5G components to Huawei, resulting in the degradation of Huawei mobile phones into fourth-generation mobile communications (4G) mobile phones. But the mainstream mobile phones in the high-end market are already 5G mobile phones, and Huawei's 4G mobile phones have lost market demand. Huawei's chip research and development has also encountered great difficulties, and the chip design cannot be converted into sales revenue, nor can it continue to support subsequent research and development.
At present, China's most advanced chip production company SMIC has achieved mass production of 14nm chips at the end of 2019, but the second echelon of mobile phone manufacturing companies use 7nm, 5nm advanced imported mobile phone chips, so the market demand for 14nm chips produced by SMIC is extremely small, and there is no sufficient market demand to support the research and development of more advanced chips.
The mobile phone market in the world (including China) is occupied by manufacturers such as Apple, Samsung, Xiaomi, OPPO and VIVO. Advanced chip technology is manufactured by the United States and its allies-led enterprises Such as Apple, Samsung, Qualcomm, etc., and the relatively backward mobile phone other components and mobile phone processing are produced by Xiaomi, OPPO, VIVO and other Chinese mobile phone companies. Once a Chinese company (such as Huawei) dares to challenge the hegemony of the United States in high-end chip technology, it will be resolutely attacked by the US government, so it has to abandon the design and development of more advanced chips.
In addition, the high-end smartphone market has no market demand for backward domestic mobile phones below 7nm. In such an open market, the technology upgrade path of chip manufacturers such as SMIC from 14nm to 7nm is broken, because the market below 7nm (including China) has been occupied by other Chinese and foreign companies. The core of the United States' containment of China's technological progress is: maintaining the monopoly position of us high-tech and resolutely cracking down on Chinese head enterprises that challenge the US technological monopoly; monopolizing China's core technology market, making China's local technology unable to achieve technological upgrading because there is no market demand.
Anti-international technology monopoly
Without breaking the monopoly of international technology on the Chinese market, China's technological innovation and industrial upgrading will not be realized. For the methods and measures of international technology monopoly, it is essentially necessary to cultivate the competitiveness of local technologies, which requires a certain market share to cultivate and develop. China can explore "anti-international technology monopoly policies" that ensure that foreign technologies do not share more than 70% of the market in China as a solution. That is, foreign economies and enterprises cannot occupy more than 70% of the market share of China's core technology market. For example, the downstream market demand for chips is mobile phones, and any company that sells mobile phones in the Chinese market cannot use the proportion of chips produced in China to be less than 30% of the total number of mobile phones sold in the Chinese market. For example, Apple, Samsung, Huawei, Xiaomi and other mobile phone companies that sell mobile phones in China must use Chinese chips for 30% of the total number of mobile phones sold in the Chinese market.
Take a virtual mobile phone enterprise as an example, such as the "Xiaoguo" mobile phone, in the total shipment of China's "Xiaoguo" mobile phone, if the use of Chinese chip mobile phones does not reach 30% of the total shipments, its behavior can be characterized as from the chip demand side led to the monopoly of international technology in the Chinese market, the Chinese government will impose taxes on the "Xiaoguo" mobile phone, the tax rate is levied according to the proportion of Chinese-produced chips used in the total shipment of mobile phones, the smaller the proportion, the higher the tax rate.
For example, when the proportion of Chinese chips used reaches 30%, the tax rate is 0; when the proportion is less than 30% and more than 20%, the tax rate is 20%; when less than 20% is greater than 10%, the tax rate is 50%; when less than 10% is greater than 5%, the tax rate is 100%; when less than 5%, the tax rate is 400%. According to such a policy, there will be two types of "Xiaoguo" mobile phones sold in the Chinese market: one is to use imported chips, called "Xiaoguo A"; the other is to use Chinese chips, called "Xiaoguo B". When China's chip technology has not yet reached the level of imported chip technology, the quality of "small fruit B" will be lower than that of "small fruit A", and the market price of "small fruit B" will even be lower than the cost. In this case, the Chinese government will subsidize the difference between the cost of "Xiaoguo B" and the market price of "Xiaoguo B" according to the cost premium of "Xiaoguo B" to ensure a profit margin of 10% for the "Xiaoguo B" mobile phone.
Through the above "anti-international technology monopoly" policy, China can avoid falling into the "trap" of growth stagnation due to industrial upgrading. The above policy recommendations are very preliminary and there are many deficiencies, but no matter what measures are taken, protecting a certain market share of local technologies through policies is a means that anti-international monopolies cannot bypass.
The county runs a university
The anti-international technology monopoly policy can create market demand for China's technological and industrial upgrading, which also relies on the supply of human capital, and must increase the population educated at or above the college level, thereby improving the supply of knowledge innovation. Compared with developed countries, the total supply of Chinese capital is insufficient and the structure is unbalanced. In 2020, the average number of years of schooling in the United States is 13.4 years, compared with 9.91 years in China. The proportion of the population with a high school degree or above is 30.56% in the mainland and 88.40% in the United States; the proportion of the population with a college degree or above is 15.47% in the mainland and 61.60% in the United States.
In addition, there is a huge gap in the density of Chinese universities compared with developed countries, and the structure of higher education is unbalanced, and universities are almost all concentrated in large cities. However, since the reform and opening up for more than 40 years, with the development of the economy, university education is no longer elite education, and the county economy has a huge demand for human capital above the university level, but almost all talents are cultivated by large cities outside the county. In the process of further promoting urbanization and establishing a modern economic system, as well as the advent of the era of knowledge, the tide of industrial parks and development zones that have swept the county economy over the past 40 years will gradually stabilize, and the wave of "county-run universities" will inevitably come.
The average population of Counties (cities) in China is about 500,000, and a university is needed to provide basic and stable talent needs, including primary and secondary education, medical and health, health care, financial services, news dissemination, culture and art, environmental protection, government management, and of course, more including enterprise development, industrial and agricultural science and technology research and development, industrial upgrading and other economic development talent needs. It is also necessary for strong scientific research and education centers to provide intellectual support for the sustainable development of county-specific industries.
As a key node in knowledge creation and dissemination, county universities can effectively prevent the marginalization of the county economy, and can also become the "think tank brain" for rural revitalization in the new era.
Monetary industry policy
There are two difficulties in running universities in the county: one is the construction of teachers and courses, and the other is the source of funding. In the era of digital economy, the construction of teachers and courses can be realized through the transmission, help and bringing of existing key universities with the help of information technology. Assuming that the construction cycle of each county university is 10 years and requires 1 billion yuan of investment per year, then the 2,000 county universities need 2 trillion yuan of investment per year in the next 10 years.
Similarly, anti-international technology monopolies also need to rapidly increase investment in research and development and industrial upgrading in "card neck" technology to ensure that the market share of domestic core technologies reaches 30%. Assuming that the "anti-international technology monopoly" needs to invest 10,000 to 2 trillion yuan per year in the next 10 years, in order to transform the mainland's economic development from the industrialization stage to the knowledge stage, the anti-international technology monopoly + the two structural transformation policies of running universities in the county need 30,000 to 4 trillion yuan of investment demand every year, where does this money come from? It can be derived from "precise monetary policy" or "monetary industrial policy".
At present, the transformation of monetary policy from macro aggregate policy to structural policy has become the characteristics of monetary policy in developed countries, represented by the Federal Reserve, loose monetary investment is transformed into accurate structural investment in high-tech industries, infrastructure and even low-income household relief and other fields through fiscal policy. In the structural monetary policy instrument, this policy of direct investment in specific industries through monetary issuance can be called "monetary industry policy". It can promote the structural transformation of the economy, and in the period of structural transformation, when the resources are adjusted from the shrinking industry to the expansion industry, it will certainly bring about an increase in total output. Therefore, its policy effect is also more accurate and effective. (Zhongxin Jingwei APP)
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