Interview with Liu Yuanchun: The key to boosting confidence in A-shares is to stabilize the economy

21st Century Business Herald reporter Zhou Xiaoxiao Beijing reported that in 2023, the mainland's GDP will reach 126 trillion yuan, a year-on-year increase of 5.2%, and the growth target of about 5% set at the beginning of the year will be completed. As the first year after the three-year epidemic, the mainland's economy is recovering steadily, and the consumption of contact services, which was suppressed in the early stage, is recovering at an accelerated pace, and consumption has become the main force driving the mainland's economic growth.

However, the real estate market will continue to shrink in 2023 and prices will be sluggish, reflecting that the current economy is still facing the problem of insufficient demand. To this end, in the fourth quarter of 2023, the central government decided to issue additional trillion yuan of treasury bonds, and the central bank restarted the PSL tool to support the construction of the "three major projects" (affordable housing, urban village transformation, and "flat and emergency" public infrastructure construction), and the macro policy of stabilizing growth is strengthening.

On January 22, the executive meeting of the State Council listened to the report on the operation of the capital market and work considerations. The meeting stressed that it is necessary to take more effective measures to stabilize the market and confidence. It is necessary to enhance the consistency of macroeconomic policy orientation, strengthen the innovation and coordination of policy tools, consolidate and enhance the positive trend of economic recovery, and promote the steady and healthy development of the capital market.

How to view the economic performance in 2023? How to view the current situation of low prices, how to promote the stable operation of the real estate market in 2024, how to boost the confidence of the capital market in 2024, and what is the expected economic performance in 2024? With these questions, the 21st Century Business Herald reporter interviewed Liu Yuanchun, president of Shanghai University of Finance and Economics.

There is structural differentiation in the context of total restoration

"21st Century": The mainland economy will grow by 5.2% in 2023, how do you think about the economic performance in 2023?

Liu Yuanchun: In 2023, China's economy as a whole will continue to recover, achieving a growth rate of 5.2% for the whole year, reaching the growth target of about 5% at the beginning of the year. Behind the 5.2% growth, there are some twists and turns, there is a temperature difference between macro data and micro feelings, but it is still good compared with the overall global economic performance.

While the economic aggregate will be restored in 2023, it will also show characteristics such as structural differentiation, downward prices, and risk exposure. The recovery is asymmetrical and uneven, especially the repair asymmetry between supply and demand, which is reflected in the fact that the repair of demand lags behind the repair of supply, resulting in continued downward pressure on prices. Under the influence of the external environment and policies, the speed of structural adjustment is relatively drastic, and the prosperity of traditional industries and emerging industries is clearly differentiated. At present, the risks in key areas, including real estate, local bonds, small and medium-sized financial institutions, etc., are due to multiple reasons, but the main line behind these risks is closely related to the deep adjustment of real estate.

Depressed prices reflect a lack of demand

"21st Century": In the fourth quarter of 2023, the mainland CPI will be negative for three consecutive months, triggering discussions about "deflation" in the market. The National Bureau of Statistics responded that this is a structural phase. How do you view the current price performance?

Liu Yuanchun: The price level was sluggish in the fourth quarter, the CPI grew negatively for three consecutive months, the core CPI year-on-year growth rate fell to 0.6%, and the PPI fell by about 2.7% year-on-year in the past three months, indicating that the imbalance between supply and demand faced by China's economy has become more severe, and the problem of insufficient demand is more prominent.

The GDP deflator was negative in the fourth quarter, roughly at -1.5%. The GDP deflator is the most macro and comprehensive price indicator, which measures the comprehensive price performance of all industries and can reflect the overall macroeconomic supply and demand situation. The GDP deflator, which can be roughly obtained from the geometric weighted average of CPI and PPI.

At this point in the year-end and New Year holidays, the economic and price performance for the whole year is important, but it is also necessary to pay attention to the price signals in the fourth quarter, because it reflects that the current economy is still facing downward pressure.

There is an "overshoot" in real estate in 2023

21st Century: Real estate investment and sales data in 2023 will still be negative, although the decline will be narrower than that in 2022. Since the third quarter of 2023, policies to stabilize the property market have been continuously introduced, bringing some positive effects to the real estate market, but the overall investment and sales data are still declining. How do you view this phenomenon, can the downward trend of the real estate market be reversed in 2024, and how should the policy respond?

Liu Yuanchun: Real estate plays a very important role in China's economy.

The current in-depth adjustment of the real estate market is actually the product of the unsustainable development and investment model of "high debt, high leverage and high turnover", the lax supervision of the original special funds in the industry and the collapse of the capital arbitrage model. The reason why "high circulation" can occur is mainly through the off-plan housing system, after land bidding, auction and listing, development and design, began to sell off-plan properties, and soon realized the return of funds. Normally, the funds for the sale of off-plan properties should be held in a special account, and the developer cannot access them casually. However, under the "three highs" model, real estate developers will take out the funds in special account custody for other development investments, and at the same time, there are also illegal borrowing of funds, such as some developers taking shares in small and medium-sized banks, and even turning small and medium-sized banks into ATMs, etc.

The collapse of the old model of "three highs" is not necessarily a bad thing. The current deep adjustment of the real estate market cannot be simply classified as the adjustment of the Kuznets cycle, which is also different from the real estate crisis in Europe and the United States, nor is it brought about by the demographic structure. According to the calculations of many institutions, the market demand is greater than the current real estate transaction volume. At present, there is an "overshoot" in the market, and in the context of the tight capital chain of real estate enterprises and the emergence of unfinished buildings, the demand for housing has shrunk sharply in such a special period.

The current deep adjustment of the real estate market is a product of the old model that is difficult to maintain, so its adjustment time will not be too short. In terms of policy response in 2024, the government can neither sit idly by nor take over comprehensively, but should split the business of real estate development enterprises, provide liquidity support for normal development business, and clear out insolvent caused by violations of laws and regulations. More specifically, on the one hand, it is necessary to promote the stable operation of the macro economy through the "three major projects"; on the other hand, it is necessary to split the real estate business, and the normal and reasonable development business should be given liquidity support to promote the supply of the real estate market, and then stabilize the overall market.

Since August 2023, the adjustment and optimization of real estate policies have been more from the demand side, that is, reducing the proportion of down payments and liberalizing restrictive policies. In 2024, to promote the transformation of the real estate development model, the policy level should pay more attention to the support for the reasonable liquidity of real estate development enterprises to avoid a liquidity crisis on the supply side, otherwise this will exacerbate the thunderstorm of enterprises, the contraction of demand, and the release of risks.

2024 will still be a year for the real estate market to face a big test. Although judging from the year-on-year data, the drag of real estate on the macro economy may be significantly reduced, but the difficult period will continue. Taking the sales data of commercial housing as an example, the sales of commercial housing in 2021 will be 18.2 trillion yuan, which will drop to 13.3 trillion yuan in 2022 and 11.7 trillion yuan in 2023.

The key to boosting confidence in A-shares is to stabilize the economy

"21st Century": In 2023, A-shares will rise from 3,100 points at the beginning of the year to 3,400 points in the first half of the year, and then gradually fall below 2,900 points, and the market has been pulling around 2,800 points recently. How do you view the decline of the A-share market in 2023 and how to boost the confidence of the capital market in 2024?

Liu Yuanchun: With the market turmoil, the stock index falls to a certain extent, and there may be a contraction of liquidity, intensified stock sell-off, and then self-trampling, which is a relatively common phenomenon in the capital market.

The capital market is a reflection of the real economy. In order to boost the confidence of the capital market, it is necessary not only to talk about stock indexes, but also to stabilize the market through active trading, and more importantly, to boost the market's confidence in the economy. At present, it is very important to exert efforts in the policy of expanding domestic demand, and to make sufficient efforts in the active fiscal policy and monetary policy, so that the micro market entities can have a sense of policy gain.

Macroeconomic control needs to anchor some core parameters. The active fiscal policy has a clear expansion effect on the expenditure side, and the monetary policy has a clear reflection on the access and cost of micro subjects, which is a very important indicator to test the enthusiasm of the policy. When there is a significant contraction in land transfer revenue, even if the size of the deficit increases to a certain extent, the scale of broad fiscal expenditure may still decline, which will reduce the effect of active fiscal policy and bring about a difference between macro and micro feelings. When the GDP deflator is negative and prices are declining, if the money supply is anchored to the nominal GDP growth rate, it may also bring about a situation where the expansion effect of monetary policy is insufficient and the sense of acquisition of micro subject policies is insufficient.

Therefore, to boost the confidence of the capital market, the first thing is to stabilize the economic market through the operation of active macro policies, give micro subjects a clear sense of policy gain, and then improve the relevant policies of the capital market.

The economy is expected to grow by about 5% in 2024

21st Century: What is the expected economic performance in 2024?

Liu Yuanchun: There are many support points for China's economic recovery in 2024. The downward force of China's economy has changed at an inflection point, thus generating upward support. Inventories will bottom out in the third quarter of 2023, and many companies will enter a new stage of replenishment this year. In 2023, the profitability of micro entities will be improved to a certain extent, which will play a fundamental role in the recovery of consumption and investment. In 2023, the market's negative sentiment on various risk concerns will be excessively released, and the capital market will show signs of "overshooting", which is expected to form a positive effect of covering in 2024. Real estate is still facing the pressure of continuous adjustment, but the lifting effect of the "three major projects" will appear, and the support for developers' liquidity will also have a significant pull effect, superimposed on the low base of the previous year, the growth rate of real estate investment is expected to turn positive in 2024. In 2024, strategic emerging industries still have good development prospects, and the increase in investment in scientific and technological self-reliance and self-improvement will bring positive effects.

The full return of proactive fiscal policy and prudent monetary policy in 2024 is the core force supporting China's steady economic growth. Constrained by the downturn in the real estate market and local government debt problems, the scale of local government spending in the broad sense will not expand in 2023. The effect of additional issuance of trillions of national bonds, the new bond issuance plan, the expansion of the scale and scope of use of local special bonds, and the use of policy-based financial instruments, especially the use of PSL tools, are expected to be much stronger in 2024 than in 2023.

In 2024, the external environment is generally not optimistic and uncertain, the world economy continues to be weak, geopolitical conflicts, great power games, etc., but China's export competitiveness continues to improve, especially in some strategic emerging industries and high-end manufactured goods, and the J effect of the depreciation of the RMB exchange rate in 2023 will appear in 2024. In 2023, mainland exports will increase by 0.6% in RMB terms and decrease by 4.6% in US dollar terms, and it is expected that the export scale in US dollar terms in 2024 will be the same as the previous year.

The economic growth target for 2024 is expected to be around 5%, but achieving growth of around 5% this year will be challenging. Last year's growth target of about 5% was under pressure, because the economy will grow by 3% in 2022 and the two-year compound average growth rate will be 4.1%, and this year the target of about 5% will be set with a two-year compound average growth rate of 5.1%, which is 1 percentage point higher than the compound average growth rate of the previous two years. To achieve the economic growth target in 2024, on the one hand, it is necessary to rely on the continuous repair of the economy, and on the other hand, it is necessary to rely on the positive effects brought about by structural transformation and policy strengthening.

(The author Liu Yuanchun is the president of Shanghai University of Finance and Economics and the former vice president of Chinese Minmin University, this article is transferred from the 21st Century Business Herald on January 23, welcome to pay attention to the Chongyang Sina Weibo: @人大重阳, WeChat public account: rdcy2013)