Economist Yao Yang: China's economy has turned to innovation-driven growth, and domestic automobile technology surpasses foreign countries

Yao Yang, Boya Distinguished Professor of Peking University, Director of China Center for Economic Research

Text丨Zhu Yuting

Video丨Feng Biao

In June 2023, Yao Yang, President of Peking University Development Institute, said at the graduation ceremony: Optimists win the future, and pessimists win the present.

In Tencent Finance's New Year's Eve planning dialogue, he used the words "rugged" and "hope" to summarize the characteristics of economic development in 2023, and finally used the word "hope" to look forward to 2024.

He said that he is very optimistic about the long-term development of China's economy, and there are reasons for it. "There is no problem with the Chinese economy itself, but we have some ups and downs in the process of recovery. At the same time, Yao Yang believes that pessimists do not need to deliberately become optimistic, because pessimists will think more about difficulties and think about them all in order to get things done.

He pointed out that China's economy has transformed into "innovation-driven growth", and there may be potential for decades of development in the future, and China's industry is moving upwards and even occupying the forefront of the world. The technical content of domestic automobiles has been greatly improved, and it has surpassed foreign automobiles.

In March 2023, in another conversation with Tencent Finance, Yao Yang pointed out that "it is very important to stabilize real estate this year". A year on, Yao Yang pointed out that the pace of real estate adjustment in the past was too slow, and it is long overdue to let house prices fall. "It's not that the people don't have money, it's that the people don't want to buy a house, so you have to get the price adjustment in place. He stressed.

As for the construction of affordable housing, Yao Yang's focus is on: building affordable housing is a bit like "screwing", and it is not necessary to have housing to live in, but also to rent, and do not neglect to build rental housing.

Talking about what problems will be solved in 2023? Yao Yang believes that we have realized that China's economy is a bicycle, and as long as it runs, it will be stable. At the same time, he believes that local government debt should be put back on the back burner, and that it should not be rushed, but should stimulate more investment and consumption, stabilize the bottom of the economy first, and then solve the debt problem.

Finally, he advised young people not to play with stocks on their own, and suggested that they leave their money to professional institutions to take care of.

The following is the full text of the conversation:

It is too early to judge that "the inflection point has arrived", and it will have to wait a little longer

Tencent Finance: 2023 has passed, could you please use a few keywords to summarize the characteristics of China's economic development in 2023, why do you use this word?

Yao Yang: The first word is "rugged", and the path of China's economic recovery in 2023 is relatively bumpy. In the first quarter, the recovery was relatively good, consumption growth was relatively fast, everyone began to travel, and our exports were also growing against the trend, so everyone was in a better mood; in the second quarter, some economic data were weak, and everyone was under great pressure; in the third quarter, the government began to introduce some encouraging policies, and everyone was in a slightly better mood; in the fourth quarter, it seemed that the effect of the policy did not meet expectations, and the mood fluctuated again, so the whole recovery process was "W-shaped" and very rugged.

The second word is "hope". We have received some positive signals from some of the measures launched by the government in 2023, especially the Central Economic Work Conference and the Financial Work Conference, which have laid some confidence in economic growth.

Tencent Finance: Some scholars believe that 2023 is an inflection point for the economy, and the starting point of the tail in the "L-shaped" transformation, what do you think?

Yao Yang: I don't have such a judgment. Because our economy is doing some deep adjustments, including the real estate industry, local debt, etc.

I don't think this adjustment process is actually in place yet, so it may be too early to judge that the "inflection point has been reached", and we need to wait a little longer to see.

In particular, the Central Economic Work Conference proposed to "seek progress while maintaining stability", and the tone for 2024 is still based on growth, so the pace of adjustment may be a little slower, and there will be some time before it bottoms out.

China's economy relies on innovation and domestic automobile technology surpasses foreign automobiles

Tencent Finance: You once said at the graduation ceremony that "optimists win the future, pessimists win the present", are you an optimist or a pessimist?

Yao Yang: I'm definitely an optimist. I have always been very optimistic about the long-term development of China's economy.

My optimism is justified, mainly because in the past decade or even twenty, China's economy has undergone profound changes, and the most important thing is that it has changed from export-oriented and extensive growth to innovation-driven growth. China's economy is no longer selling cheap products, but relying on innovation, and even going to the path of big and high-end. This is to lay the foundation for the potential of China's economy to develop in the next few decades, such as AI, new energy, electric vehicles, and some medium-tech fields, China's industry is actually going up, and even occupies the forefront of the world.

For example, in the field of electric vehicles, we now sell hundreds of thousands of domestic electric vehicles. There is a joke in the market: if you don't work hard, you can only drive a Mercedes-Benz or BMW next time. Because domestic cars have been sold to the million-level level, we are not bad at all, this is the potential of China's economy.

All developed countries have gone through a period of time, which is the stage of "low quality and low price" of products, which is the 19th century in Germany and the 70s in Japan...... But they all went to the high-end, to the quality. Now I hear that Made in Germany is a symbol of quality, and Made in Japan is a symbol of quality.

Chinese products have also appeared now, China's car is a symbol of quality, a symbol of technology, this change seems to be sudden, just in the past two or three years users buy domestic cars are very relieved, and it has become a fashion. Some people say that this kind of fashion is purely a domestic trend, a national trend, but I don't think it's exactly. The key is that the technical content of domestic cars has been greatly improved, and it has surpassed foreign cars.

Tencent Finance: Do you think that to win the pessimist of the moment, you need to adjust your mindset and become an optimist?

Yao Yang: I don't think it's necessary, because optimism refers to the future, and you have to be pessimistic at the moment.

If you're optimistic about doing things and you can do anything, then you can't get things done. A pessimist will think more about the difficulties, and only then can he get things done.

China's economic development is very diverse, and clothing, food, housing and transportation will always be a sunrise industry

Tencent Finance: In 2023, you should have heard a lot of development cases in your in-depth exchanges with entrepreneurs, which will be of great help to economists to understand the current development status and difficulties of different enterprises.

Yao Yang: China's economy is very complex and diverse, and the temperature in some places is very high, such as new energy vehicles, and the temperature in other places is relatively low.

I don't think it's appropriate to set a temperature for China's economy as a whole. For example, more than 9 million new energy vehicles were sold last year, and it is estimated that they still account for about 60% of the world. New energy vehicle products emerge in an endless stream, and they sell well, such as Yangwang U8, Huawei M9, AVAT...... The temperature is very high.

On the other hand, you can't predict the temperature. Companies like SHEIN are about to go public in the United States, with an estimated value of $100 billion. Can you think that even a traditional industry like the apparel industry can create great wealth.

In fact, "clothing, food, housing and transportation are always a sunrise industry", and many people forget this. For example, real estate, some people say that real estate is over, this is a sunset industry, this statement is not true. You look at the real estate industry in the United States is still a huge industry, even in Europe, and in Australia. This house needs to be renewed, can you imagine? There are new homes under construction in Manhattan in the United States, because the city needs to be renewed, so clothing, food, housing and transportation will always be a sunrise industry.

It's not that the people have no money, it's that the housing prices haven't fallen yet

Tencent Finance: In 2023, "real estate" is an industry that is frequently concerned by residents and enterprises. What problems do you think real estate solves in 2023 and what problems are not?

Yao Yang: The real estate industry, I think it is being solved, the first is the problem of ensuring the delivery of buildings, all parts of the country are moving, which can stabilize the market and expectations a little, but it is still not completed. A problem that is being solved in connection with this is the aftermath work of some large real estate enterprises, such as Evergrande, which has too many assets, and the aftermath work may last for a long time;

I think the most important thing is: first, the market has not adjusted in place, and the decline in housing prices has not been adjusted in place, so people are unlikely to buy houses. Why have all localities lifted purchase restrictions, but residents' enthusiasm for buying houses is not high? Because real estate is still an asset after all, and since it is an asset, the common people must be chasing the rise and fall. Seeing that the house price is going to rise, the people hurry up to buy it, because if they don't buy the house price, it will rise; but the house price continues to fall, and now they will lose money if they buy it, and the people will hold the currency and wait to buy.

It turns out that the people have no money, but the people still have money, and the savings rate is still rising. It's not that the people don't have money, it's that the people don't want to buy a house, so you have to get the price adjustment in place.

Some people are afraid that housing prices have fallen, people's assets have been damaged, and bank loans may not be repaid. However, if you do not let the housing price adjustment in place, it will be extremely difficult for real estate to stabilize.

So local governments can no longer control housing prices. Why are housing prices so high? The very important thing is that local governments don't want housing prices to fall.

The speed of housing price adjustment is too slow, and if there is nothing to fall, someone will buy it

Tencent Finance: From the perspective of ordinary residents, it is inevitable that the concept of buying a house will rise. If residents expect that there is still room for house prices to fall, then no one will come to buy?

Yao Yang: So we have to fall to the end, let it fall to the end, and if there is nothing to fall, the people will take action. For example, in a medium-sized city, Chengdu or Xi'an, if the housing prices in Xi'an are cut in half, do you think the people will buy it?

So, first of all, let house prices fall into place. I said that the people are not happy, and the people say how can you let my house price fall? My assets have been damaged, but you have to think that there are still many people who do not have houses, and we keep saying that the house prices are too high, why are the house prices falling and everyone is unhappy?

Tencent Finance: How to judge whether the price has "fallen into place"?

Yao Yang: We can't judge, only the common people can. The people felt that they could bear it, and the house price was okay, and some people began to buy it. Everyone felt as if the time had come for the house price to rise back if they didn't buy it again.

Because there are always some people who need housing, but they don't have enough money. Only when it falls into place will he feel that he can afford it.

Tencent Finance: In March 2023, you said that "it is very important to stabilize real estate this year", which is also the consensus of many economists.

Yao Yang: No, because it's still falling, it's still negative growth. There are various reasons, but I think one of the most important ones is that the pace of adjustment is too slow, and local governments do not let housing prices fall. It is long overdue to let house prices fall, so that the willingness of the people to buy houses will come back.

There is still room for adjustment at the policy level. First of all, the full liberalization of purchase restrictions will give everyone a signal, and now it is a city-specific policy, in fact, in terms of effect (except for Beijing, Shanghai and Shenzhen) has basically been fully liberalized. Because it was not announced, the people always felt that they had not let go. I think there is still a need for a document, even if it is a policy of the city, a document will be issued, and if it is not issued, there will be no clear signal.

Second, local governments can no longer limit housing prices.

Third, we need to remove some of the restrictive policies of the past, such as the three red lines and loan quotas. Now, although we mention "no less than three", the loan quota is still there. Why can't you just let go and run? Why do you have to shackle yourself? These are all things that need to be improved.

Don't "screw the screws" It is not necessary to own a house to live in, it can be rented

Tencent Finance: In order to achieve the goal of "living in a home", some residents need to rely on the construction of affordable housing. Some economists have pointed out that if we vigorously promote affordable housing, it may bring more debt to local governments, what do you think?

Yao Yang: I think the construction of affordable housing is one aspect, but don't neglect the construction of rental housing.

Our rental market is actually very active and in high demand. But the houses we build are rarely dedicated to tenants, and the units are obviously for sale. Whether or not we can build some rental buildings is too good for young people, and it is a part of reducing the burden, so they will not have the pressure to buy a house.

If you build affordable housing now, taking second-tier cities as an example, even if the cost price is 12,000 yuan per square meter, it is needed. Ordinary people have to buy at least seventy or eighty square meters to buy affordable housing, which is close to one million. If the average wage earner wants to buy a million-dollar house, he actually has to make up his mind.

And now there is no such demand (affordable housing) for urban residents. Our home ownership rate is very high. Affordable housing is mainly aimed at this part of the population who are new to the city, and their ability to pay is actually limited. With such a calculation, I am afraid that they would prefer to rent a house rather than buy a house, and they are not sure whether they will stay in the city for a long time.

Now that public rental housing is doing very well, rental housing can also be very high-end, young people are willing to live, we should solve housing in various forms to relieve everyone's pressure. We're still a bit of a "screw" now, but we don't necessarily have to own a house, you can rent it.

What is lacking in 2023 is investment, not consumption, and in 2024, we must increase investment and development

Tencent Finance: In the past two years, "promoting domestic demand" has also been widely mentioned, how do you think it can better promote domestic demand?

Yao Yang: Promoting domestic demand is not only about consumption, in fact, before the epidemic, the growth rate of consumption was very fast, 7% or 8% every year, exceeding the growth rate of GDP, so the proportion of consumption in GDP has risen. You can't imagine spending going from the lowest point of 48% to 60%, which is unlikely, it always has a process. So don't keep saying that we don't consume enough, this consumption is growing fast enough.

In 2023, 83% of China's economic growth will come from consumption, followed by 10% of exports and about 30% of investment. In fact, what we lacked was investment, and the contribution of investment was low, not the contribution of consumption, so we should not be confused. When it comes to domestic consumption, we think of consumption, and investment is more direct, because it is a big project.

If we talk about insufficient consumption, it is actually largely related to real estate and the reduction of local government spending. Real estate brings huge spending, and many people don't understand this.

When you buy a house, you have to decorate, buy appliances and furniture, these are all consumption, and they are all bulk consumption. Real estate is on the downturn, and consumption is definitely going down, so it is not easy for our consumption to grow last year. Because a large part of real estate is declining, and a large part of local government expenditure is declining, and local governments are also spending a lot, how difficult it is!

I think it is very good that a recent Central Economic Work Conference proposed to create a situation in which consumption and investment promote each other. Use investment to promote consumption, and consumption to promote investment, and the two are linked.

Tencent Finance: Do we need to further increase our investment efforts in 2024?

Yao Yang: We need to increase it. In fact, there are still many opportunities for investment, and there are still many places to tinker with. For example, the renovation of old residential areas is a large amount of work. There are still so many places in Beijing that don't even have indoor toilets, you can renovate them, and there are old and dilapidated buildings, are they not rebuilt?

Local governments should be encouraged to spend money Local civil servants should not take pay cuts

Tencent Finance: There is some debate in the academic circles about the potential growth rate, what do you think? Based on the different judgments of the potential growth rate, does it mean that different macro policies are needed?

Yao Yang: What is this potential growth rate? It's hard to estimate, depending on how you estimate it. My estimate is simple: I first estimate the contribution of capital formation to economic growth. Because our savings rate remains high, it is estimated that capital formation can contribute 3.5 percentage points to economic growth.

What are the next factors? The so-called growth rate of total factor productivity, the contribution of growth to the potential growth rate. Experience in the past tells us that it's 20%-40%, and then work backwards along this line, what is the potential growth rate? Take an average of about 5.5%, that's my calculation.

I think if we don't grow at 5.5 percent, we're just going to stimulate, we're not demanding. If our potential growth rate is 4%, then our economy is overheating, which is obviously not in line with what we have observed. We have always said that demand is insufficient, we reached 5%, last year it was 5.2%, then there is not enough demand, it means that our potential growth rate is definitely higher than 5.2%. I think there should be no problem with a potential growth rate of around 5.5%.

If you say that the potential growth rate has exceeded the potential growth rate, then the economy is overheated and should contract, and if you say that the potential growth rate has not been reached, then it should stimulate demand, but the demand is insufficient.

To solve the problem of local government debt, do not rush to achieve results, and first stabilize the bottom of the economy

Tencent Finance: As 2023 has passed, what problems do you think China's economy has solved now, and what problems still need to be solved?

Yao Yang: In 2023, a problem will be solved, that is, seeking progress while maintaining stability, and promoting stability through progress. Realize that China's economy is a bicycle, and it will only be stable as long as it runs. As soon as the speed comes, it will fall, and everyone understands this.

The unresolved problem is what to do with local government debt, how to stabilize real estate, and how to stop negative growth, and how to support the bottom line.

To put it more abstractly, how to effectively promote demand has not been solved. We talk about promoting domestic demand, but in practice, many policies are restricting demand, especially local governments and real estate.

The real policy and the direction of the policy are fighting, and the question of how to unify it has not yet been resolved.

Tencent Finance: What solutions can we have in 2024? What kind of suggestions do you have?

Yao Yang: My suggestion is a cliché, and you should grasp these main contradictions. If we want to promote demand, then real estate must be stabilized, and there must be a real policy to stabilize real estate.

I think we can put local government debt aside and don't rush it. The debt is so big, even according to the debt identified in 2018, our calculation is 18 trillion yuan, some people estimate that the stock of local government debt is 60 trillion yuan, and some people say 90 trillion yuan. Are you in a hurry to solve it all at once? In my opinion, what is the task for local governments this year? Or should we stimulate more investment and consumption, stabilize the bottom of the economy first, and then solve this debt problem.

Young people don't play stocks on their own, it is recommended to leave it to professionals

Tencent Finance: In terms of asset allocation, do you have any advice for young people today, and what risks need to be paid attention to?

Yao Yang: Regarding investment, I would like to say don't play stocks by yourself, this is the psychology of Chinese gambling. If you think about it, if the institutions are all losing, how can you play the institutions? People are professionals, and people are a team of dozens, hundreds of people researching. It's all lost, can you make money as a retail investor? Are you a genius? Ask yourself, if you are not a genius, you can't do stock trading full-time, so don't do it as soon as possible.

I suggest you find a good agency or some professional agency to take care of this money. You have to trust the professionals, don't keep thinking about making a lot of money in the stock market, it's impossible!

Tencent Finance: In the past, real estate, consumption, capital market and other industries were the "conspicuous package" of economic development, what do you think will be the new growth industries in the future, and what industries should we focus on?

Yao Yang: I don't think it's possible to focus on any industry. As an economist, I'm a layman when I say this.

Can you imagine that SHEIN can become a $60 billion company, who could have predicted that? Let me tell you, there is gold everywhere, and there are heroes everywhere. By the time retail investors start to focus, they have already become leeks, and institutions have already gone to invest, and when you go in, everyone has withdrawn, and you will be cut as a "leek".

Retail investors must not think that they can find an outlet, this is insulting the IQ of other professionals! These are all done by professionals, and investors should receive some financial education and learn how to manage their wealth, instead of taking money to the stock market to play, which is doomed to lose.

We are a group of retail investors who shout "we are leeks" every day, and then they are especially willing to make "leeks". I suspect that some people just play this process, play is a heartbeat, just gamble, lose and lose, anyway.

This is not a good investment strategy, and it is still necessary to trust the professionals.

In 2024, it is normal to maintain a "hopeful" mentality It is normal for there to be ups and downs in the economic recovery

Tencent Finance: What do you think will be the sunrise industry in 2024?

Yao Yang: I don't know, no one knows about this. Including experts in the field of AI, if you ask them, they don't know.

Who knows? I don't know where the industry came from. If someone tells you that I know which industry is going to be hot, it's basically not accurate, and industry analysts only have a general idea of what next year will bring.

It is impossible for anyone to predict what a certain industry will grow, and it is unlikely, the market is random.

Tencent Finance: Similarly, use 1-2 keywords to express your expectations for China's economic development in 2024?

Yao Yang: I think it's still "hope", to maintain an optimistic and hopeful attitude.

China's economy itself is fine, but we have some ups and downs in the process of recovery.