Liu Yuanchun: China is in a period of super-superposition of three factors, with four major unexpected changes

Liu Yuanchun, president of Shanghai University of Finance and Economics, said that looking forward to next year, it is expected that the mainland economy will further stabilize and rebound, showing a trend of high and then stable.

At the 2023 Shanghai Finance Macro Forum held on November 18, Liu Yuanchun said that China's economy is currently in a period of superimposition of three factors, one is the superposition of world structural adjustment and China's structural transformation, the second is the superposition of epidemic repair and real estate super adjustment, and the third is the superposition of traditional and non-traditional risk release.

He believes that China's economic development is in a period of bidding farewell to the old path, and it is necessary to understand the current equilibrium state, grasp the past economic relations, recognize the potential of economic development, consider the relationship between short-term fluctuations and potential growth rates, and think about how to transition from one equilibrium to another.

For example, Liu Yuanchun said that everyone believes that the current lack of demand and overcapacity are facts. However, some people believe that demand should be expanded, but many people oppose it, believing that if there is no reform, expanding demand will only bring about bigger problems, and after bidding farewell to a structural dilemma, it will enter a more severe structural dilemma. "So what is the middle path from one equilibrium to another, that's what we have to think about. ”

The restoration of residents' assets has entered a new stage

What is the current state of China's macroeconomic equilibrium?

Liu Yuanchun said: Judging from the fixed-base index, China's economy has not yet converged. However, China's economic growth is currently slower than its potential. In the process of rapid decline in the potential growth rate, the output gap has not tightened and is in the process of bottoming out, and it is expected that the output gap will converge in the fourth quarter of this year and next year.

Regarding the current stage and level of economic repair, Liu Yuanchun said that the imbalance in repair is obvious. "The biggest gap we found was fixed asset investment, which was 20 percentage points worse than in 2019. ”

Specifically, the industry has bottomed out and rebounded in an all-round way, and has the basis for a sustained recovery. The reason is that industrial profits in August, September and October turned positive year-on-year. If profits turn positive and profits continue to expand, investment will also be close to the bottom.

At the same time, the recovery speed of the service industry has increased, but it is still off trend value, and the theme for next year is also the recovery of the service industry.

The recovery of consumption has been basically completed, and the growth rate is gradually returning. An important supporting material is that the national per capita consumption expenditure divided by per capita disposable income, 2023 is already close to the level of 2019. "But it's still a 2 percentage point gap, and we're still in the process of recovering our income and the corresponding propensity to spend. Liu Yuanchun said.

The adjustment of residents' asset structure may reach the bottom, and asset repair will enter a new stage. "In other words, a large-scale sell-off of various financial assets, a large-scale halt in the purchase of real estate, and a large-scale increase in residents' savings, this is a major adjustment of residents' balance sheets, and this process is beginning to come to an end recently, which we believe is beginning to come to an end. However, Liu Yuanchun also stressed that approaching the end does not mean that it will improve immediately. Therefore, under the wealth effect and income effect, consumption is likely to return to a new equilibrium, but it is likely to be a low-level equilibrium, and the pace of consumption upgrading is slower than expected.

It is important to note that investment recovery has been relatively slow. Liu Yuanchun said that non-real estate investment has begun to rebound significantly, but it is difficult to return to the level of the past. Financing costs and policy uncertainties may also lead to a low level of equilibrium in investment.

In the process of bottoming out and stabilizing real estate, it will take some time for the formation of new development models and long-term real estate mechanisms, and a new equilibrium will be formed at a low level. Liu Yuanchun believes that if the emergence of a new real estate development model is a new equilibrium, the real estate leverage reduction in this process, that is, the asset-liability ratio will be reduced by more than 20 percentage points, but at present, it will only drop by 1 percentage point a year, which is too slow.

"The rapid clearing of the real estate market and the search for a new equilibrium is a key focus of the current work. Liu Yuanchun said.

For exports, Liu Yuanchun said that the change in export growth rate is mainly caused by price factors, and the quantity has not changed much, but the structure has been greatly adjusted.

However, Liu Yuanchun believes that the restructuring of the global value chain supply chain, the re-industrialization of the United States, nearshoring and offshoring, must also go through a super cost digestion period. China's labor productivity is not low, the growth rate of labor productivity is not low, and the cost per unit of commodity is the fastest in the world. "We have stabilized our position, and the next step in global competition is still China's top spot. ”

Three-factor superimposition period

Liu Yuanchun believes that China's economy is currently in a period of super-superposition of three factors, one is the superposition of world structural adjustment and China's structural transformation, the second is the superposition of epidemic repair and real estate super-adjustment, and the third is the superposition of traditional and non-traditional risk release. "These superpositions greatly exceed the three-phase superposition we talked about in 2014 and 2015, so the entire macro operating mechanism has undergone drastic changes, showing new problems, new logics, new laws, and of course a new policy framework is needed. ”

For example, China's overcapacity is not only the overcapacity of global demand adjustment, but also the impact of its own supply and demand misalignment. Therefore, to solve the problem of surplus, on the one hand, it is necessary to expand demand, and on the other hand, it is necessary to solve the mismatch between supply and demand. In addition, it is currently a period of transformation of the core pillar industries, the restructuring of the championship power system and the financial system. "How to find a new power system is actually a super core of our policy construction, if we can't grasp this, simply from the traditional troika to determine the policy, will definitely lead us into the ditch. Liu Yuanchun said.

Therefore, Liu Yuanchun believes that there have been several unexpected changes in China. The first is that the scarring effect is deeper and wider than imagined. The second is that the adjustment of the real estate cycle is deeper and longer than in the past. The third is that the acceleration of major changes unseen in a century has come faster and more violently than expected. Fourth, China's structural adjustment and upgrading have been more drastic than imagined.

In Liu Yuanchun's view, these phenomena have given birth to some logics, which in turn determine the logic of China's sustainable economic recovery under the constraints of high-quality development in the midst of epidemic recovery, real estate super adjustment and drastic changes in the external environment.

In order to find a balanced recovery path in multiple equilibriums, he suggested that a cocktail therapy should be adopted, and that there should be a categorical tool for short-term fluctuations, medium-term structural problems, and long-term growth problems. At the same time, these tools need to be combined and stacked on a mutual level. "One is medium-term structural adjustment, focusing on long-term fundamentals. The second is the rapid repair of short-term gaps. ”