The global economy is in a downturn, and China and the United States can no longer fight
Guide
In 2023, the international political situation has changed, and the relationship between China and the United States is extremely treacherous. Since the beginning of the year, well-known entrepreneurs have visited China intensively, such as Elon Musk, CEO of Tesla, Tim Cook of Apple, Pat Gelsinger of Intel, and Mary Barra of General Motors, who have injected warmth into Sino-US economic cooperation.
On the other hand, the US government's hardline "hawkish" policy toward China and its sanctions against Chinese companies have frequently been introduced, and US companies have imposed restrictions on their exports to China, which violates the founding spirit of free trade. In this regard, American entrepreneurs have bitter words.
On October 21, the U.S. government imposed export controls on AI chips, and Huang responded that "Nvidia will follow the relevant regulations of the U.S. government", "hopes to have a large market as much as possible, will try to support various market needs, and also supports customers in the Chinese mainland market", and reiterated, "There are also many good technology manufacturers in China, such as Huawei, etc., Nvidia must also strive to compete with the local industry, and then observe the results."
Huang's statement is intriguing. The helplessness of "complying with the regulations", the reluctance to rely on the Chinese mainland market, the respect and attention to outstanding Chinese technology enterprises, and the complex mentality.
In August 2023, Huang showcased NVIDIA's latest GH200 superchip, equipped with 141GB of RAM and a 72-core ARM chip, at a press conference
Previously, news of Huang's visit to Chinese mainland, including meetings with Tencent and Byte executives, has not taken place on social media.
No one values the economy more than entrepreneurs, and no one understands economics better than entrepreneurs. Compared with the aggressive "hawkish" politicians in the United States, American entrepreneurs are more cautious in their judgment of the current economic situation between China and the United States, and have a high degree of goodwill towards economic cooperation and scientific and technological cooperation between China and the United States.
When it comes to economic issues, entrepreneurs are always more accurate than politicians. The global economic system is in the shadow of the "aftermath of the pandemic", and the "symptoms" of China and the United States are diametrically opposed, but highly interrelated. A high degree of cooperation between China and the United States in the economic field can lead the global economy to seek a prescription for "crossing the cycle".
The United States is the source of high inflation in the global economy
The U.S. is currently experiencing significant inflationary pressures, mainly due to the large-scale release of water during the pandemic.
Since the outbreak of the pandemic, almost all of the world's major economies have adopted loose monetary policies to cope with the economic shock caused by the epidemic. However, there are different ways in which money is injected. The EU and Japan are mainly indirect ways for central banks to acquire assets. The United States, on the other hand, has opened its doors and injected money directly into individuals and enterprises by issuing additional U.S. bonds.
In 2019, before the pandemic, the total amount of U.S. Treasury debt was $2.272 billion. As of September 18 this year, the US national debt has exceeded $33 trillion. U.S. debt has climbed faster than the wartime economies of the two world wars.
In September 2017, the scale of U.S. debt exceeded $20 trillion; In February 2022, the size of U.S. debt exceeded $30 trillion. In June 2023, the size of the federal government's debt exceeded $32 trillion, nine years earlier than pre-pandemic projections
From the perspective of the global money supply mechanism, the approach of the United States in the early days of the epidemic is understandable. The U.S. dollar is the central currency of the global monetary system, and the U.S. dollar supply is the source of the global money supply. If the supply of the dollar lags behind, then there is no way to talk about a monetary rescue in the world's major economies.
But even if it's reasonable, it doesn't mean it doesn't come without a price. Monetary bailouts have never been costless, and using monetary water to pay for the economic impact caused by the epidemic is just a delay in payment. This round of global inflation is a side effect of the dollar's release. Inflation in the eurozone has remained above 5. After a long period of deflation, Japan, where the CPI has been "lying in the nest" for many years, also saw a big move of 4.3 at the beginning of the year.
Therefore, this round of high inflation is not a problem for the United States alone, but a dilemma for all major economies in the world. At present, the most serious problem is in the euro area, where the stagflationary recession characteristics of high inflation and low growth are obvious. The IMF has comprehensively lowered its GDP growth forecast for the eurozone this year, predicting that the "locomotive of the EU economy" Germany's economy will shrink by 0.5% in 2023, and France's economy will shrink by only 1%. Growth in the eurozone as a whole will lag by 3% globally and below the 2.2% in the United States.
The 2.2% growth rate in the United States is, of course, better than that of the European Union. Important indicators such as the unemployment rate and consumption are also relatively healthy, showing a strong ability to withstand pressure. However, it is still in the shadow of inflationary recession or even stagflation, coupled with the transmission effect of global economic integration, the "pneumonia" of the eurozone neighbor will also cause the "cold" of the US economy.
In short, the current high inflation problem in developed countries such as the United States, Europe and Japan is the sequelae of the epidemic bailout, and the main problem lies in the currency. It is very unwise for hawkish politicians to exacerbate Sino-US friction at this time, greatly increasing the risks to the global economy.
Analysis of the causes of China's "insufficient inflation".
The main problem plaguing China's macroeconomy at the moment is the lack of inflation. The main problem is not in the property market and stock market, but in the sluggish growth of foreign trade and exports, which has reduced imported inflation.
Since China's accession to the WTO in 2001, foreign trade and exports have been an important pillar of China's economy. Foreign exchange earnings from large trade surpluses form imported inflation and are the main engine of inflation. Around 2012, the infrastructure-real estate linkage system was strengthened, and the proportion of real estate investment in GDP rose sharply, reaching 40% at the peak. The share of foreign trade exports in GDP has declined. Many people believe that China has moved away from an "export-dependent" economy.
However, China's economic performance during the pandemic has dispelled this illusion. After the outbreak of the epidemic, China took the lead in resuming work, and exports increased significantly, accounting for more than 15% of GDP again. At the same time, real estate growth has been sluggish, and its share of GDP has declined. In the past three years, China's inflation rates have been 2.5%, 1%, and 2.5% respectively, which is normal, and it is also the only "retrograde" among the world's major economies to achieve positive growth for three years.
It is clear which is the main driving force of economic growth, foreign trade exports and real estate. The economic driver of real estate is overestimated. Investment, which accounts for 30-40% of GDP, only produces about 7% of GDP's industrial added value, and the economic driving efficiency is not high. The foreign exchange earnings from foreign trade exports provide economic impetus directly from the monetary side through the mechanism of imported inflation. This cannot be simply understood as the addition and subtraction of how much foreign exchange has been earned, but it is constantly rolling and magnifying in the operation of the economy to do multiplication.
According to data released by the National Bureau of Statistics, the national consumer price (CPI) increased by 0.1% year-on-year in September and 0.1% year-on-year in August; The month-on-month increase was 0.2%, down 0.1 percentage points from the previous month
At present, there is a clear linkage between China's insufficient inflation and the sharp decline in dollar-denominated foreign trade exports. There is a strong synchronization between the change in China's inflation rate and the value of foreign trade exports this year, with the year-on-year decline in exports in the second quarter being the largest and the worst inflation rate. In August and September, the decline in exports narrowed for two consecutive months, and inflation also showed signs of stabilization. This shows that China's economy is still highly dependent on the support of foreign trade and export earnings.
The global economy is in a downward cycle
China's foreign trade exports are insufficient, and the mismatch between excess capacity and money supply has caused "insufficient inflation". In the United States, there is a surplus of money, and inflationary pressures have increased significantly. China and the United States, as the world's two most important economies, will inevitably have a negative impact on the global economic system. Coupled with the sluggish economic recovery in the European Union, the global economic system has entered a downward cycle. The performance of this economic cycle is structural and difficult to reverse in the short term.
The main problem lies in the extraordinary interest rate hike policy adopted by the United States in order to curb inflation. Driven by interest rate hikes, a large amount of overseas dollars will flow back to the United States, which will create obstacles for China and the United States to overcome the economic cycle.
For China, it is mainly the impact of the global "dollar shortage" after the return of the US dollar on international trade settlement. The decline in the share of the US dollar in international trade settlements means that the "gold content" of China's foreign exchange earnings from emerging market countries has declined, weakening the role of imported inflation.
As far as the United States is concerned, the influx of overseas dollars into the United States has exacerbated inflationary pressures in the United States, and it has been difficult to withdraw from the interest rate hike policy. The negative effects of high interest rates and high inflation will gradually appear, and even after the withdrawal of the interest rate hike policy, the huge inertia will continue for a long time.
Therefore, it is difficult to change the downward trend of the economic cycle in the short term, and there is even great uncertainty in the medium and long term. The global economy is on the downward line of the economic cycle, and the only hope for the "uphill" against the trend is the start of a new round of science and technology cycle, which is inseparable from the cooperation between China and the United States.
Launching a new tech cycle will require a U.S.-China synergy
Since the era of industrialization, the global economy has been a polyphony of alternating economic cycles and technological cycles. One of the most typical examples of the recent is that the huge economic dividends released by the Internet technology revolution in the 90s have brought about 20 years of global economic growth and prosperity, and even withstood the huge impact of the global financial turmoil in 2008, and maintained a growth performance of about 5 years after 2008.
It is worth noting that the global economy before the Internet technology revolution was in a downward cycle. First, the stagflation in Europe and the United States in the 60s and 70s of the last century, the limited recovery of the Reagan-Thatcher reforms, and the bursting of the bubble economy in Japan at the end of the 80s pushed the global economy to the brink of crisis. Fortunately, the power of the Internet technology revolution has better maintained the trend of improving production efficiency and swept away the risk of recession. In other words, the global economy did not spontaneously "go through the cycle", but reversed the decline by relying on the technology cycle.
The Internet technology revolution has accelerated the wheels of the scientific and technological cycle, surpassing the economic cycle. Now a new technological cycle is on the horizon. The industrialization direction of artificial intelligence technology and biotechnology has been very clear, and hot fields such as nuclear fusion and superconducting technology have also shown signs of breaking out of the cocoon.
As long as there are one or two large-scale applications of these cutting-edge technologies, the scientific and technological dividends released are enough to trigger a local industrial revolution. If it is a "chain reaction" explosion, then this new cycle of technology will be a disruptive reshaping of the global economic system.
The special conditions of the pandemic economy have also given the new tech cycle additional economic acceleration. At the beginning of the epidemic, a large amount of safe-haven funds poured into the US capital market, and the high-tech industry was the biggest beneficiary.
The market capitalization of U.S. tech giants has soared, with only two tech companies, Apple and Microsoft, reaching a market value of more than one trillion dollars in 2019. In 2021, there are 5 high-tech companies with a market value of more than one trillion yuan. Among them, Apple's market value is nearly 3 trillion, and Microsoft's is also more than 2 trillion. After the pullback in 2022, it has increased significantly this year, and the number of technology companies with a market value of trillions has remained stable at 4 or 5.
During the same period, there was a significant increase in the number of "unicorn" companies in the United States. In 2019, there were fewer than 200 unicorns in the United States, and in 2022 this number skyrocketed to more than 600. The vast majority of them are technology companies. The growth rate has exceeded the golden decade of the Internet technology revolution.
In the "2023 Global Unicorn List" released by the Hurun Research Institute, the United States ranked first with 666, accounting for 49% of the total number of unicorns in the world, China ranked second with 316, and India maintained the third place with 68 unicorn companies
After three years of the pandemic, it is no accident that the United States has made breakthroughs in artificial intelligence, biotechnology, supercomputers and other technological fields.
And this investment boom is not over yet. The multiple rounds of interest rate hikes in the United States since last year have attracted a large influx of "hot money". The turbulent global geopolitics has forced these "hot money" to precipitate as a hedge, and they will continue to be injected into the high-tech industry in the United States, driving the locomotive of global scientific and technological innovation forward rapidly. It is expected that a number of emerging technologies will enter the stage of large-scale industrial application in three to five years.
However, to start a new cycle of science and technology, it is not enough to have the impetus for scientific and technological innovation in the United States. The technology cycle requires not only cutting-edge equipment and the strongest brains in the laboratory, but also a huge application market. Only through repeated trial and error and running-in in the market can new technologies be efficiently transformed from laboratory technology to application technology and release economic dividends. This requires the synergy of the R&D momentum of the United States and the market momentum of China.
With the rapid development and maturity of Internet technology, China has played a key role, which is no less important than that of the United States. Much of the basic research in the U.S. is translated into mature application technology in the Chinese market. It must be admitted that there is still a relatively obvious gap between China's Internet technology and the United States in terms of basic R&D capabilities. However, at the level of application technology, the gap between China and the United States is much smaller, and even in parts with a high degree of industrialization such as video and e-commerce, China has certain technological advantages, and related enterprises have achieved great success in overseas markets.
If China and the United States can maintain the close cooperation in the last round of the new round of science and technology cycle, it is entirely possible to step on the brakes of the global economic downturn in time. If China and the United States drift apart in the field of science and technology cooperation, then both countries and the global economy will be under tremendous pressure from the downward trend of the economic cycle.
For China, if it is marginalized in the new round of science and technology cycle, it means being marginalized in the global economic system, repeating the mistakes of the European Union and Russia, and losing the stage for participating in global scientific and technological and economic competition. As a global science and technology innovation center, the United States is not in danger of being "left behind", but the rhythm of transforming the momentum of scientific and technological innovation into economic power will be disrupted, and the economy will take a long detour in recession and crisis. Sluggish growth in both economies will spill over into the global economy.
It is true that many problems have arisen in Sino-US relations, and there are signs of escalation of international political competition and conflicts of values. There are voices in both countries that are widening the contradictions, and they are spilling over into the economic and technological fields. In particular, US politicians have abused the sanctions tool to restrict cooperation between the two countries' science and technology industries, which has seriously hurt the economies of the two countries and seriously affected the normal operation of enterprises in the two countries.
In the face of the U.S. government's interference, Huang is helpless, dissatisfied, and unwilling. This can represent the attitude of many American entrepreneurs. In the face of political pressure, many outstanding entrepreneurs in the United States are still enthusiastically seeking cooperation with China and attaching importance to the Chinese market.
The courage of an entrepreneur is worth cherishing. The market vision of entrepreneurs is worth paying attention to.
No matter how the international political situation changes, it cannot be denied that competition and cooperation between China and the United States coexist in the fields of science and technology and the economy, but cooperation takes precedence over competition. Without cooperation as a basis, there will be no competition, only a lose-lose situation of recession and crisis, and a total loss of the global economic system.