Economist Tian Xuan: The fundamentals of A-shares and economic trends are out of touch The implementation of "T+0" is the inevitable direction

Editor's note: In 2023, China's economy will find its way forward amid changes. Tencent Finance's "Economic Everyone's Talk" column and Henan Radio and Television Elephant Fortune jointly launched the 2023-2024 New Year's Eve series to plan "The Power of Changing Situations", dialogue with financial experts, gain insight into the direction in the intricate industrial changes, find determination in the surging tide of the times, and draw strength from the new development logic. This is the sixth article in this New Year's Eve series, and we have a conversation with Tian Xuan, deputy dean and professor of finance at PBC School of Finance, Tsinghua University.

Tian Xuan, Vice Dean of PBC School of Finance, Tsinghua University, Professor of Finance

Text丨Zhu Yuting

Video丨Feng Biao

From February 18th to 19th, at the beginning of the Spring Festival, the China Securities Regulatory Commission held a series of symposiums to listen to opinions and suggestions from all parties on strengthening capital market supervision, preventing and resolving risks, and promoting the high-quality development of the capital market.

Tian Xuan, deputy dean of PBC School of Finance, Tsinghua University, was one of the important experts. Regarding the IPO, he made suggestions: "On the basis of strictly controlling the entry of IPOs, attracting real high-growth and high-tech enterprises to go public, and enhancing the investability of investment targets, we should strengthen the supervision of the whole process of listed companies, resolutely retreat as much as possible, and promote the survival of the fittest in the market." ”

In fact, this is not the first time Tian Xuan has put forward this view. He said in Tencent Finance's "Economic Everyone's Talk" column that the registration system should be able to ensure a virtuous cycle system of "survival of the fittest", so that the best assets and the best enterprises can be listed, and the scarce public resources can be allocated in the best enterprises.

"Our country is indeed doing delisting reform now, and I think there will be more than 50 companies delisting in 2023 and dozens in 2022, which is definitely a good thing. He further concluded that the registration system should be decided by the market and should be more market-oriented.

Referring to the reform proposal of the registration system, Tian Xuan said frankly that as a representative of the National People's Congress, he would repeatedly propose to implement "T+0" as soon as possible, and he believed that this is an inevitable direction, and "T+1" will put the majority of small and medium-sized investors in a very unfavorable state.

He believes that there is a disconnect between the trend of the A-share market and the economic fundamentals, and there are structural problems in China's capital market. Regarding the proposal that "the stock market should be transformed from a financing market to an investment market", he agreed that if investors cannot make money in the stock market and there is no wealth effect, it will become a public welfare, which is unsustainable.

When it comes to macroeconomic trends, Tian Xuan is "cautiously optimistic", he believes that the potential growth rate of China's economy is around 5%-5.5%, and there is still room for development in both monetary and fiscal policies.

In this dialogue in Tencent Finance's "Economic Everyone's Talk" column, Tian Xuan also interpreted the macro and micro temperature differences of the mainland economy, future macro policy expectations, new growth momentum, the economic impact of artificial intelligence, and the potential of scientific and technological innovation.

The following is the full text of the conversation:

It's not sustainable for investors to make money in the stock market and become a public good

Tencent Finance: Do you think the current stock market trend reflects the development of the economy? The current stock market trend is more affected by the economic cycle, or is it more affected by other factors such as institutional arrangements and market structure?

Tian Xuan: "The stock market is a barometer of the economy", this sentence does not apply to China's A-shares, there is no doubt that A-shares and economic fundamentals are disconnected.

To give a few examples: logically, a country's capital market should be a barometer of the level of the underlying economy, which is positively correlated. The stock index should theoretically outperform the growth rate of the country's GDP, because GDP includes all the assets of the country, good and bad, advanced and backward, but the capital market and listed companies should represent the country's best quality assets, and the best enterprises that can generate future cash flow and future scientific and technological development. There are thousands or hundreds of millions of companies in China, and in the end only more than 5,000 can be listed, so these should be the best companies, and the index should have won GDP growth, but no.

A simple global statistics show that from the beginning of this century to 2023, the United States and the United Kingdom are basically matched (referring to GDP growth and stock index growth), while Japan, although it is in a period of economic depression and recession, its GDP level is 90% of the beginning of this century, down 10%, but the stock index has risen 1.4 times, and the GDP of neighboring India has increased by 4 times, and the stock index has risen 7 times, and its stock index is significantly ahead of GDP.

And in our country, from 2000 to the end of 2023, GDP has increased 14 times, and stock indices have only doubled (from more than 1,500 points to less than 3,000 points). Therefore, it can be seen that under the rapid development of our economy, the stock index has not kept up with the speed.

The second question is, what is the reason for it? Is it cyclical or structural?

I think it's definitely a structural problem. China's stock market has not risen for a long time, which is highly related to some stubborn and chronic diseases in the capital market.

Of course, we have been constantly reforming in the past, but it is true that there are still many problems in the capital market, from the issuance system to the trading system, to the merger and acquisition system, to the delisting system, I think there is still a lot of room for improvement.

Including investor structure, investor protection, the relationship between the government and the market, and so on, how should the visible hand of supervision and the invisible hand of the market be coordinated, and where is its boundary? Of course, there is also a lot of room for improvement in the quality of listed companies and corporate governance.

Some economists and scholars have proposed that the stock market should change from a financing market to an investment market, and I quite agree with this view, which is also very important.

It turns out that the stock market should be a financing market, which is the first to help state-owned enterprises get out of trouble, and then to help enterprises develop and grow through financing, which is the real economy, and there is no problem with this logic.

However, if investors can't make money in the stock market, there is no wealth effect, it will become a public good, which is not sustainable.

As long as the main players of the market perform their duties within the set red line of the system, they should not interfere

Tencent Finance: What do you think is the core direction of the current capital market reform, and what is the most urgent and whole-body reform?

Tian Xuan: The earliest mention of reform is to "three modernizations": marketization, rule of law, and internationalization. I agree with the nine-character policy of China's capital market reform: system-building, non-intervention and zero tolerance, which is actually highly related to marketization, rule of law and internationalization, especially marketization and rule of law.

If you think of the capital market as a play-yard, from the perspective of the government and supervision, we must pre-set the rules of the game in the playground (capital market), and it must be guaranteed by the rule of law. What can be done and what cannot be done? What are the positions and responsibilities of all market participants? This is what I understand as building a system.

Second, "non-intervention" is actually marketization. According to the pre-set rules, different market players should be in place to play their roles when they enter this playground.

For example, the most important listed companies, after listing, should focus on their main business, improve corporate governance, corporate competitiveness, product quality, service quality, and profitability, develop rapidly and steadily, generate returns for investors, and increase stock prices or dividends;

The main responsibility of investors is to understand the risks and returns of corporate investment targets, and there is a comparative relationship. You must know that it is risky to enter the stock market, don't make money and feel that you are powerful, you are a stock god, and if you lose money, blame the company, blame the Securities Regulatory Commission, don't be a giant baby;

Investment Bankers, Analysts, Appraisers, Accountants, Lawyers...... As a financial intermediary, it is necessary to connect the two sides of investment and financing, play a role, reduce information asymmetry, improve the transparency of enterprises, reduce agency costs, etc.;

The government regulators should set the system well, let the market play a decisive role in the allocation of resources, and do not intervene as long as they are in place and perform their duties within the set red line.

The last three words are "zero tolerance". If any enterprises, intermediaries, and investors (including institutions and retail investors) step on the red line and violate laws and regulations, they should increase the punishment for violations and increase the cost of violations.

Of course, if we must pick one of the most difficult in the three aspects of marketization, rule of law, and internationalization, I think it is "rule of law", and the rule of law is the most important starting point to ensure the capital market.

To ensure the "survival of the fittest" in the market, the reform of delisting is definitely a good thing

Tencent Finance: Some scholars have proposed that in the context of a sluggish market, the delisting mechanism should be strengthened to ensure the survival of the fittest of listed companies. What do you think about this?

Tian Xuan: Although the essence of the registration system is an issuance system, it is actually a system project.

Some scholars have made statistics: in 1991, the capital market was established, and by 2021, there may be about 100 companies delisted; compared to the more mature capital market, such as the United States, more than 300 companies are listed every year, and nearly 300 companies are delisted, and now the total number is about 3,000 listed companies, and the turnover rate is basically 10%. This means that it only takes about 10 years for the composition of the entire listed company to change, and the total number is still more than 3,000, but the composition is different, so as to ensure the virtuous cycle system of "survival of the fittest", so that the best quality assets and the best enterprises can be listed, and the scarce public resources can be allocated in the best enterprises.

It has been difficult for our country to go public for a long time, and it is also difficult to delist. All kinds of shell protection and hoarding things came out. Now our country is indeed doing the reform of delisting, and more than 50 companies have been delisted in 2023, and dozens more in 2022, which is definitely a good thing.

In the trading system, "T+0" should be implemented as soon as possible, which is an inevitable direction

Tencent Finance: Now that the registration-based system has been fully implemented for more than a year, how do you view the implementation effect of the registration-based system?

Tian Xuan: I think the reform of the registration system is not only the reform of the issuance system, but also the reform of the entire capital market ecosystem. Some people say that "listing a large number of enterprises is the reform of the registration system", but I think this understanding is a bit biased, so there will be some deviations in actual operation.

I understand that the reform of the registration system is actually a market-oriented reform, and whether an enterprise meets the listing standards and disclosure conditions and can be successfully listed is determined by the market.

In other words, first, if a large number of enterprises fail at the time of issuance after being approved by the stock exchange and registered with the China Securities Regulatory Commission; second, some enterprises will break down after listing; and third, they will be forced to delist and delist within two or three years after listing. If these three things happen, I would consider them to be the criteria for the success of our country's registration system reform.

But it doesn't seem to be like that yet, so I think it's probably still a long process, a system engineering.

Tencent Finance: What other suggestions do you have for the improvement of the capital market system?

Tian Xuan: I have also proposed many reforms to the trading system, and last year's "two sessions" my deputy's suggestion was to implement the "T+0" trading system.

Why do I have to emphasize "T+0"? Now it's T+1. Because "T+1" is actually very unfair to retail investors, buying today can only sell tomorrow, and reverse operations cannot be done on the same day. However, large institutional investors can do reverse operations through stock index futures, which puts the majority of small and medium-sized investors in a very unfavorable state, and the "leeks" are easy to be cut.

For example, I think India is a very interesting country, its national development, institutional design, infrastructure and other aspects are much worse than China's, but its capital market has risen very well. From the perspective of the trading system, it is "T+0" for retail investors and "T+3" for institutional investors. Because it believes that institutional investors, the so-called "smart investors", they have more information, and the cost of collecting information is lower, and if they are "T+0" like retail investors, it is to put retail investors in a relatively disadvantageous state, which is unfair to retail investors.

As a deputy to the National People's Congress, I will repeatedly put forward this suggestion: the implementation of "T+0" in the trading system as soon as possible is an inevitable direction, and now China may be the only country in the world that is not "T+0". Previously, everyone was always worried that the stock price might fluctuate violently after "T+0", but in fact, academic research found that it would not, but the restrictions on the capital market (such as the restrictions on short-selling institutions) would lead to abnormal fluctuations in stock prices, which would lead to a decrease in the information content of stock prices and a decline in the quality of the capital market.

Also, the composition of our investors, the vast majority of investors are individual investors now, which is not normal, and individual investors should be allowed to hand over their money to professional people. If there are too many individual investors in the market, many people will be misled, emotionally disturbed, and the phenomenon of behavioral finance will appear, which is actually not the investor structure that a healthy capital market should have.

There is indeed a certain gap between the macro figures and the micro perception of the mainland economy

Tencent Finance: Do you have any research on enterprises or markets in 2023, or have you communicated with some entrepreneurs? Outside of the macroeconomic data, what is the temperature of the Chinese economy?

Tian Xuan: I have been to all parts of the country for research this year, and there are also many EMBA students who are corporate executives, chairmen or actual controllers.

I generally feel that there is a certain gap between the macro number and the micro body feeling. Overall, the macro situation of China's economy is improving, and the GDP growth rate in 2023 has also completed the task at the beginning of the year, reaching 5.2%;

For example, we have a student who is the head of a group company with three listed companies, and the company operates in an industry that has been severely suppressed by the United States. If it is exported from the United States, it will be subject to very high tariffs, and in order to circumvent this problem, some of the industry will be transferred to Vietnam, and when Vietnam may also face tariff problems, it will not be able to set up a factory in Atlanta in the United States, ship semi-finished products to assemble, and finally label them "Made In US", so as to avoid regulations in the United States.

In my communication with him, I felt the impact of internal and external turns in recent years, and I felt that these entrepreneurs are still full of confidence in the future, and want to use various methods to save themselves, toss and turn, take off, and transform...... In the face of many unfavorable external environments, trying to survive, seek survival and development, they are still growing.

China's potential growth rate may be around 5%-5.5% Monetary policy and fiscal policy still have room to exert force

Tencent Finance: There is currently 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 also mean that different macro policies are needed?

Tian Xuan: That's a very good question. There is a great deal of disagreement among academics on what range of economic growth in 2024 should be set.

I think China's potential growth rate is still around 5%-5.5%. Objectively speaking, after 30 years of reform and opening up, China's ultra-high-speed growth, with an average growth rate close to double digits, can be said to have entered the so-called "new normal" in the past decade, and China's economy has entered a medium-to-high-speed growth stage.

However, the total GDP in 2023 will be 126 trillion yuan, and if such a large volume can continue to maintain a growth rate of more than 8%, or even double digits, it is not in line with the laws of the economy.

In fact, we have already created a miracle, with an average growth rate of nearly 10% in the 30 years of reform and opening up, and a double-digit growth rate for several years. From the perspective of economic laws, when GDP reaches a large volume, the potential growth rate will definitely decline, especially after the "new normal" of the last decade and the impact of the epidemic.

In the past four years of the epidemic, the growth rate in the first year is 2.3%, the second year is 8.6%, the third year is 3%, plus 5.2% in 2023, the average is about 4%.

Therefore, in fact, there is a gap in the long run, which has not reached the potential growth rate of the economy, which has a very important impact on the long-term policy orientation:

First, there is no doubt that there is a gap between the actual and potential growth of the economy, which means that there is still a lot of room for economic growth.

Second, I don't recommend massive stimulus.

Our country still has room to exert its strength, whether it is in monetary policy or fiscal policy. For example, the 1 trillion yuan special government bond issued at the end of last year will have a deficit ratio of 3.8% from 3%. Therefore, I think there is still a relatively large room for fiscal policy to exert force.

On the other hand, the vast majority of markets expect the Fed to enter a cycle of interest rate cuts this year, which is definitely good news for China's external pressure. In other words, the monetary policy cycles of the two countries are out of sync, they are raising interest rates, we are cutting interest rates, and if they are going to enter a rate reduction cycle, this is good for us. Therefore, there is still room for our monetary policy to exert force.

But I'm not in favor of a massive release or a strong stimulus policy, because China is now in the stage of "recovering from a serious illness". After three years of the epidemic, the impact on the economy is very large. Insufficient domestic demand, unstable expectations, and some overcapacity...... There are still a lot of problems. Whether it is residents or enterprises, the balance sheet has been relatively damaged, and the academic community calls it the "scarring effect".

In my opinion, the stage of "initial recovery from a serious illness" cannot be stimulated by strong medicine, and it cannot be said that we can take strong medicine in the ICU and then go directly to KTV, we need to slowly recuperate, adjust slowly, slowly repair the balance sheets of residents and enterprises, stabilize people's expectations, and enhance confidence. I think it's a relatively long, not "overnight" process.

Therefore, I think that China's medium- and long-term macro policies should be done in the same way as the trend of "seeking progress while maintaining stability, promoting stability through progress, and establishing first and then breaking down" proposed by the Central Economic Work Conference, rather than rushing to introduce large-scale stimulus policies.

Tencent Finance: We are indeed facing problems such as industrial transfer, demographic adjustment, and rising labor costs, but do you think there is still 5%-5.5% growth potential in the future, and where do you think this momentum or growth space will come from?

Tian Xuan: This is a very good question, the growth rate of 5%-5.5% I am talking about refers to the present, and it does not mean that it can be maintained forever in the next 10 years, 20 years, 30 years, this growth rate will decline by a step every few years, which is an inevitable trend, and finally it will reach 4%, or even close to 3% or lower in the long term.

The reason why I am not as pessimistic as some economists is that although we are indeed facing the problem of population aging, it is only a mild population aging at present, and has not entered a serious stage;

China still has a number of advantages. For example, we have a very complete industrial system and a broad market. I have had some students who have moved the industrial chain to Vietnam, and they have found that the cost is actually quite high. While labor costs and tariffs may be reduced, the supporting facilities, local environment, and quality of labor are much worse than those in China. We have a broad market space, a complete industrial system, a high-quality and relatively cheap labor force, as well as a complete industrial chain and supporting measures. The most important thing is that we have a group of hardworking people who have a strong yearning for a better life.

Therefore, I am cautiously optimistic about the future. There is no doubt that there is a pattern of economic growth. In the early days of reform and opening up, we carried out some institutional reforms and adjustments, which unleashed tremendous productive forces. There is rapid growth due to the low starting point. However, as the size of the economy increases, the growth rate will gradually tend to mature economies, and it will decline by one step every few years.

So, in the future, our potential economic growth could fall to 4.5%, 4%, 3.5%, 3%, or even lower, which is predictable, but I don't think that day has yet to come.

In the future, the artificial intelligence model will be a subversion of the industrial revolution

Tencent Finance: Some scholars have put forward the concept of "new new normal", what do you think are the changes we are facing?

Tian Xuan: "The great changes unseen in a century" is a very profound and important judgment.

As I understand it, there has been a wave of de-globalization in recent years. I don't think the general trend of globalization will change, but it's like the Yangtze River flowing from west to east, and a whirlpool has appeared in the middle, which has caused us some trouble. Therefore, we need domestic and international dual circulation, a unified domestic market, and break down regional cutting, industry barriers, factors, personnel, mobility, etc.

I believe that these are countermeasures in response to external anti-globalization changes, and they are a major factor in the "great changes unseen in a century" for a long time.

The second angle is geopolitics, including the "Russia-Ukraine conflict" and "Palestinian-Israeli conflict".

The third angle is the rapid development of science and technology. In the future, the artificial intelligence model will be an industrial revolution-level subversion, which may be the same magnitude of technological subversion as the steam engine, electricity or information technology in the past, and the speed will be very fast, which will have a very important impact on our daily life, economic form and even political form.

Scientific and technological innovation should use the strength of the state to support the key neck technology

Tencent Finance: When it comes to "technological innovation", under some internal and external pressures, where is the driving force and potential for our innovation?

Tian Xuan: Innovation is actually a process of combining factors of production such as labor, capital, land, and data in a newer model to produce greater output. It is an important starting point for greatly improving the level of economic development of a country, along with systems and laws.

From the perspective of my research, I hope to use financial means to stimulate scientific and technological innovation.

At the macro level, our country is currently adopting a new national system, which represents the country's great importance to scientific and technological innovation and technological innovation. Because of the large investment in the early stage of innovation, long cycle, strong uncertainty and high failure rate, there are some basic and disruptive innovations that cannot be commercialized for a long time, which is suitable for the state to take the lead, and there can be a large amount of resources and capital investment, and the tolerance for failure is also very high.

Therefore, I think we should use the power of the country to support and guide the key neck technology.

Second, it is necessary to give full play to the role of enterprises at the market or micro level. Enterprises do innovation in order to optimize products, better serve customers, expand market share, improve profits, make enterprises bigger and stronger, the market will also force them to do a lot of disruptive innovation, which requires the power of finance, reform the financial system, the use of financial markets and tools, so that innovative enterprises are willing to do long-term, early investment, to explore, to trial and error.

Therefore, there is still a lot of room for the financial sector to exert its strength in scientific and technological innovation. I believe that the R&D work in the earliest stage of scientific and technological innovation should be led by the government, and then when it is slowly approaching the marketization, enterprises should intervene.

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