(Report authors: Yuekai Securities analysts Luo Zhiheng, Ma Jiajin)
After more than 40 years of reform and opening up, China's economy has achieved a "growth miracle" that has attracted worldwide attention: its total economic output has leapt to the second place in the world; GDP per capita exceeded $10,000, a historic leap from low-income to upper-middle-income countries; Nearly 800 million people have been lifted out of poverty, winning the battle to lift the largest number of people in human history.
A large improvement in performance usually means a significantly greater difficulty in further progression. At present, China is rapidly approaching from a catch-up economy to frontier countries such as Europe and the United States, the "low-hanging fruits" have basically been picked, the importance of scientific and technological innovation and institutional innovation has become increasingly prominent, and reform and opening up have entered a deep water area.
The new stage of economic development and the great changes in the international and domestic environment have brought about five major changes in the medium- and long-term development logic of China's economy: one is from efficiency to fairness, the second is from first wealth to common prosperity, the third is from speed to security, the fourth is from focusing on capital to protecting labor, and the fifth is from real estate prosperity to science and technology and manufacturing power.
First, shift from efficiency to equity.
At the beginning of reform and opening up, the principle of "efficiency first, taking into account fairness" played a huge role in stimulating the vitality of micro-subjects and achieving rapid economic growth. However, when the economy reaches a certain stage, the importance of fair distribution increases significantly, which can not only release new economic growth potential, but also an important goal of economic development. Equity is not only about income distribution and wealth distribution, but more importantly, about starting point, especially in human capital investment, which requires promoting equalization of basic public services. At present, basic public services such as medical care, education and old-age care have significant gaps between urban and rural areas, regions and industries, especially rural basic education, medical and health care, and old-age services have been relatively weak, and the basic public services of farmers and new citizens need to be strengthened.
Second, shift from first wealth to common prosperity.
Common prosperity is the essential requirement of socialism, the common aspiration of the Chinese people, and the solemn commitment of the Communist Party of China. Since the 80s of the 20th century, the global gap between the rich and the poor has intensified, and China is no exception, and the Gini coefficient once peaked at 0.491 in 2008, and then continued to decline, reaching 0.466 in 2021.
The intensification of the gap between the rich and the poor will have a serious negative impact on economic development: first, reduce the innovation power of micro subjects and weaken the potential growth momentum of the economy; The second is to restrict the consumption capacity of low- and middle-income people and inhibit the expansion of consumption and aggregate demand; Third, it may aggravate social conflicts and contradictions and be detrimental to social stability. This means that achieving common prosperity is no longer just a distant ideal, but an inevitable measure to push the economy to a higher level. Of course, common prosperity is by no means egalitarian, but to make the "cake" bigger in development and optimize the distribution system; Achieving common prosperity and optimizing and reforming the distribution system will not be achieved overnight, let alone alone. In the future, it is more necessary to take an overall perspective and promote the comprehensive reform of the fiscal and taxation system, capital market, real estate, education, pension and other fields, effectively improve the sense of income of residents, and optimize the macro income distribution pattern.
Third, from speed to safety.
On the one hand, the international political and economic pattern has entered a period of turbulence and change, the intensification of the global gap between the rich and the poor has led to the rise of populist thought, economic globalization has encountered adverse currents, and the external environment has been further deteriorated by sudden epidemic disturbances and geopolitical conflicts, and all countries have paid more attention to the security of development.
On the other hand, there is a clear trend of risk aversion among domestic micro subjects. At the local government level, which used to face a single GDP assessment, now faces multiple target assessments, not only economic growth, but also environmental protection, prevention and resolution of major risks, poverty alleviation, common prosperity, rural revitalization, etc., which also means that the probability of local governments being held accountable increases, and every work cannot go wrong. Correspondingly, the rational choice of local governments is to pursue stability, and even to some extent adopt a one-size-fits-all approach.
At the enterprise level, the economic downturn period is superimposed on the policy background to prevent the disorderly expansion of capital, and enterprises have gradually shifted from the past expansion mode to a relative contraction situation, and entrepreneurs' confidence is relatively low. At the household level, the scarring effect of the epidemic has changed the risk appetite of residents, and the household sector has reduced consumption, increased preventive savings, and the average consumption propensity has not returned to the pre-epidemic level.
Fourth, shift from focusing on capital to protecting labor.
The aging of Chinese population has accelerated, the absolute number and proportion of the working-age population have continued to decline, and the scarcity relationship between capital and labor production factors has been reversed. At the beginning of the reform and opening up in 1978, China had a relative surplus of labor and a relative scarcity of capital. In the environment at that time, wealth could be created by those who mastered capital, so various institutional arrangements such as land, social security, and tax systems were tilted in favor of capital, and labor was neglected.
For example, the structure of the tax system is based on production-based taxes rather than consumption-based taxes, which leads to taxes wherever there is capital, rather than taxes where there is population and consumption. The proportion of tax revenue in each province is not related to population and consumption, but to capital, and the natural result is that local governments attract investment and preferential capital, while ignoring the effective supply of basic public services.
Fifth, from a real estate boom to a technology and manufacturing powerhouse.
Real estate contributes to GDP, fiscal taxation, solves employment, drives upstream and downstream industries, and plays an important role in the entire economy. However, the development of real estate has accumulated huge debts, resulting in intertwined fiscal and financial risks. At the same time, the sharp rise in housing prices has led to the gap between the rich and the poor and social anxiety, inhibiting innovation and consumption, and raising the factor cost of manufacturing. On China's path to high-quality development and common prosperity, economic development should shift from extensive debt-driven to more efficient innovation-driven. The real estate boom should be transformed into a strong country in science and technology and manufacturing, and the policy orientation is concentrated in "housing instead of speculation" and supporting the development of scientific and technological innovation. Since "housing is not speculation", housing prices have stabilized.