Wang Jun is the Chief Economist of Huatai Asset Management and a member of the China Chief Economist Forum
With the implementation of the steady growth policy, the economic data at the beginning of the year was better than market expectations. According to the macroeconomic data released by the National Bureau of Statistics from January to February on March 18, the national fixed asset investment increased by 4.2% year-on-year from January to February, and the growth rate was 1.2 percentage points faster than last year, of which real estate development investment fell by 9.0% year-on-year, 0.6 percentage points narrower than that of last year, and the decline narrowed for the first time since March 2023. The total retail sales of consumer goods increased by 5.5% year-on-year, down 1.9 percentage points from December last year. The added value of industrial enterprises above designated size rose by 7.0 percent year-on-year, 0.2 percentage points faster than that in December last year.
On the whole, the economic data in the first two months were slightly better than expected, and the overall situation was strong and weak, and at the same time there was a certain trend of differentiation: exports, investment, and industrial production were stronger; real estate sales further declined, and the physical workload such as construction did not improve significantly, and consumption and prices continued to be low. Although the data is improving, the problem of insufficient domestic demand is still obvious, and further policy increases are urgently needed.
What are the bright spots in the national economic data? What kind of signal does the real estate data send? Is March an inflection point for second-hand housing sales? What are the bright spots worth paying attention to in consumption in subdivided fields? How does the trend of consumption in first- and second-tier cities change? The investment data is doing well, indicating that the policy has begun to take effect? Will the stamina be able to cover the whole year? Is there a good expectation for the export industry chain this year? How should we view the impact of the divergence of monetary policies between the central banks of the United States and Japan on the global financial market? How will the policy support the economic recovery? CBN's "Chief Countermeasures" interviewed Wang Jun, chief economist of Huatai Assets.
From January to February, the supply side and the demand side recovered synchronously
First of all, let's start with the latest data, the National Bureau of Statistics released the national economic data for the first two months, where do you think the biggest bright spot is?
Wang Jun: In the first two months, China's economy has made a relatively good start. Although there are reasons for the relatively low base last year, we have seen a synchronous and relatively strong rebound on both the production side and the demand side, especially on the demand side.
So specifically, I think there are at least a few bright spots: the industrial added value should be said to have maintained such a rapid growth trend since the end of last year, especially the industrial added value of the consumer goods manufacturing industry and the high-tech manufacturing industry is growing relatively fast, and the service industry is also growing relatively fast, which is from the production side.
So from the demand side, the first thing is investment. We see that investment is stronger than market expectations, with 4.2% in the first two months, especially in the manufacturing sector, which is 9.4%, and the high-tech manufacturing sector is also more prominent. Consumption is still very resilient, because the first two months include the Spring Festival holiday, so we can see that including travel, tourism, culture, entertainment, and communication equipment like these growth are relatively good, as well as always, new energy vehicles and ordinary passenger cars, have achieved more than double-digit growth, so consumption should be said to still provide a basic momentum.
Real estate data remains subdued
Countercyclical and cross-cyclical regulation should be strengthened
First Finance: We look at the data of the first two months of real estate, whether it is the sales area or the amount, its absolute value is basically a low in recent years, we all know that last year from the central to the local or a lot of real estate policies were introduced, why there is still this situation of nearly seven years of new low?
Wang Jun: This issue is also complicated, which is related to the timing, intensity and rhythm of the introduction of this policy, as well as the expectations of home buyers. Because most buyers see such a market going down, they are often willing to buy up rather than down, so the whole buyer from his mentality, the wait-and-see atmosphere is very strong.
At the same time, from the developer's point of view, because of poor sales and sluggish sales, it has become very difficult to collect payments, and it is facing a more serious liquidity or debt crisis. There is also the price, because the Bureau of Statistics announced 70 cities, and its year-on-year and month-on-month looks good, and the month-on-month decline is narrowing, as if it has stabilized. But if you look at it as a whole, that is, if you divide the sales area by the sales area, then the first two months of this year compared to the first two months of last year are basically more than 20% such a decline.
Therefore, the situation of the real estate market is still relatively severe, according to the judgment of the central government, the relationship between supply and demand has undergone major changes, so how should your regulatory policy adapt to it to do a good job?
Sales data is a leading indicator
Real estate investment data may continue to bottom
Yicai: Although real estate development investment is declining, its decline is narrowing, but real estate sales are declining sharply, why is there such a contrast?
Wang Jun: This is also more complicated, simply put, the investment data and the sales data and other data such as the start and completion of the project, it is not synchronized, because real estate development also has a cycle. In general, or simply, sales data is generally considered to be a leading indicator of all these data in the market as a whole.
That is to say, if the sales are good first, then it will drive the investment to gradually prosper, if the sales become very poor, then after a cycle or market observation, then it may affect its investment decisions. In other words, the current sales data is so bleak, then there is reason to suspect or worry that the investment data in the next few months may look good at the current one, or that there may be a further bottom on the basis of stabilization.
Sales and investment have fallen 40% from their highs
Property market expectations are overly pessimistic
Yicai: What do you think is the bottom of the inflection point, where is the bottom line of our psychological bearing?
Wang Jun: It's hard to say, so from the perspective of sales, investment and investment are basically the same. That is, it has fallen by 40% from its 2021 highs. If we follow such a range at the beginning of the year, whether we have invested or sold for three consecutive years, the adjustment range may reach 50%-60%. Personally, I feel that such an adjustment should be said to be a limit that all aspects can bear, that is, the waist has been cut in half.
No matter from which point of view, the prospects for the future development of China's economy are still worth looking forward to, and they are still very bright. The incomes of our residents continue to grow, and we continue to cultivate new momentum, so we have no reason to be so pessimistic about our market. So I do feel a bit overly pessimistic like the pre-stage of the stock market.
So I personally feel that if the policy coordination this year is more appropriate, coupled with our three major projects of affordable housing, then it is very likely that this year is a better inflection point that is likely to achieve bottoming out and stabilization, and it may be difficult for us to rebound so quickly.
The performance of travel consumption is outstanding
The sales of new energy vehicles are unbeatable
Yicai: Consumption is a relatively obvious bright spot, what do you think are the bright spots in the subdivision of consumption, including how the consumption trend of first- and second-tier cities has changed?
Wang Jun: Consumption during the Spring Festival is actually very hot, at least in terms of total amount, you can say a few numbers are very eye-catching. During the Spring Festival, the cross-regional population movement was close to 2.3 billion, and then the number of tourists was 470 million, which is not only a very large increase over the same period last year, but also basically returned to the performance of even more than the same period in 2019. That is to say, in terms of travel and tourism, the corresponding consumption of catering, culture and entertainment should be said to have rebounded very strongly, because this is service-related, and it is also the easiest to return to normal.
There are also passenger cars, according to the data of the Passenger Association, the cumulative growth of passenger cars in the first two months was 17%, and then the new energy vehicles are even more unbeatable, with an increase of 37%, so this is also a very outstanding performance.
As for the performance of first- and second-tier cities or cities at different levels, it does have a lot to do with the income level of its urban residents and the consumption environment that the city has created for consumers, whether it is hardware or software. If you want to transform your own software and hardware, I think it can still play a relatively fast and immediate role in improving consumption.
From "entering Zi to catch up with the barbecue" to "Tianshui Malatang"
Highlights of promoting consumption are frequent
Yicai: In fact, since last year, we have seen that last year's "Zibo barbecue" began to be popular, and then to Harbin during the Spring Festival this year, including now Tianshui is on fire again. This situation seems to have not been encountered in the past few years, do you think this situation will be able to stimulate consumption on a large scale in the future, or may the boom in tourism in these cities be a short-lived phenomenon?
Wang Jun: On the one hand, I think this is a positive phenomenon. It shows that everyone is trying to find ways to improve the environment of their own consumption and increase the scale of their consumption. But I don't want to use the word short-lived, I am willing to use the word maybe in the future, this will become a point to the face, such as the consumption of other commodities from entertainment to a wider range, and more cities to join such a "volume", or this kind of healthy competition with each other, to create better consumer products, consumer services and consumer experience, I think this is a very good phenomenon.
Of course, you can't overestimate the consumption of entertainment and tourism, and it will pull the local economy because it is only one aspect after all, but I think this is a good phenomenon. It shows that everyone has really put a lot of energy and resources into how to expand consumption and stimulate consumption, and I think this is a very positive signal.
Macroeconomic policies have made concerted efforts to promote the improvement of investment data
First Finance: In addition to consumption, there is also investment in expanding domestic demand, and we see that the data on investment is also good, especially like infrastructure investment, manufacturing investment, high-end manufacturing investment, etc., is this not the overall fiscal policy last year?
Wang Jun: Indeed, such a relatively good performance of investment in the first two months is related to the positive development of our finances in the past period. At the same time, we have also started a new round of large-scale equipment renewal and trade-in of consumer goods, so these policies are also supported by the financial sector.
The credit data for the first two months just released last week, whether it is from the medium and long-term loans of enterprises, or from the growth rate of its accumulated balance, and we are specifically targeting these specialized, special and new high-tech small and medium-sized enterprises, their credit growth rate has maintained (10 percent) to more than 20 percent, far exceeding the growth rate of loans obtained by other types of enterprises in the same period, so we are actually fiscal policy and monetary policy are working together.
Four major reasons make the favorable factors for exports this year outweigh the unfavorable factors
CBN: The data of industrial added value is also good, and the export data released by the General Administration of Customs is also relatively good.
Wang Jun: That's right, although there are some unfavorable factors, but I think there are more favorable factors, supporting external demand this year, our exports have performed better than last year.
The first is that the global manufacturing cycle and the cycle of commodity trade have bottomed out, and this is closely related to our external demand and our exports, that is to say, the downward cycle that has plagued our exports in the past year may be over, which is the first supporting factor.
Second, in the past few months, we know that the relationship between China and the United States has actually undergone a relatively large improvement, so this kind of trade between China and the United States, China's exports to the United States should be said to maintain a relatively stable growth, so this has also driven some of the big and powerful countries in our traditional industrial chain, such as Japan and South Korea, to increase the demand for our products.
The third is that with the adjustment of the Fed's monetary policy this year, the dollar may gradually weaken, which is also beneficial to the recovery of global demand. In addition, the weakening of the US dollar may lead to the strengthening of commodity prices, so there will be a support for our foreign trade imports and exports.
There is also a consumer electronics industry chain that has begun to bottom out, and there may even be an upward cycle. The specific performance is, for example, televisions, mobile phones, including chip integrated circuits, which may be an upward cycle to open, so it should be said that our country's foreign trade is supported. Of course, there are some headwinds, for example, because global growth is still slowing slightly this year, which may also have an impact on trade growth. It should be said that the positive factors still outweigh the negative factors.
The Bank of Japan exited low interest rates and the attractiveness of assets increased
The divergence of policies between the United States and Japan Global financial markets need to be wary of volatility
CBN: The Fed will immediately move from raising interest rates to cutting interest rates, and we see that in addition to the Fed, the Bank of Japan has also exited negative interest rates, combined with the performance of the central banks of these two more important economies, what impact do you think it may have on the world's financial environment this year?
Wang Jun: Indeed, there are some factors that have been expected, and there are some that have not been expected, from the end of interest rate hikes to the beginning of interest rate cuts, from the first goal of fighting inflation in the past, to the main task of dealing with a slight recession in the future, which may require a relatively long process.
As far as Japan is concerned, it should be said that the market, or everyone has predicted the end of its negative interest rate policy, and this cycle is indeed over, and the market has basically priced it more fully in terms of digestion and reaction to this information. After the end of negative interest rates, Japanese companies are likely to become more attractive to global capital, and international investors may appropriately increase the proportion of such an allocation to yen assets, so this will attract global capital flows.
Because the two major central banks of Japan and the United States are in opposite directions, one is tightening and the other is easing, so it will inevitably affect the flow of capital around the world. Coupled with such a variable as China, it is indeed better if China recovers this year, including the fact that international investors have begun to increase the proportion of Chinese assets, especially medium and long-term government bonds. In the first two months, we have seen that foreign capital has actually become the second largest holder outside commercial banks, approaching 9 percent or more than 8 percent.
It is expected that there will be 1-2 interest rate cuts and RRR cuts this year
Yicai: So combined with the international and domestic situations we just talked about, how do you look at the adjustment of macro policies this year, what kind of policies do you think should be launched in a timely manner, and how to further support economic growth?
Wang Jun: It should be said that the just-concluded two sessions have sent us a very clear signal and path. For example, in terms of fiscal policy, it is moderately strengthened, and active expansionary policies are supporting. Just now we talked about last year's 1 trillion yuan, half of this year's use this year, this year's 1 trillion yuan of ultra-long-term special treasury bonds, and then there is a new round of large-scale equipment renovation. According to the introduction of the National Development and Reform Commission, it is estimated that it is 5 trillion yuan per year, and the trade-in of consumer goods is estimated to be about 1 trillion yuan.
And then there are the three major projects of support, we know that the central bank has its structural tool PSL, which has issued 500 billion, and there is an unprecedented support including the budget. For example, the report of the two sessions said that the government budget investment of 700 billion yuan, so the combination of these policies should be said to provide a very strong momentum for us to achieve the goal of about 5% this year.
Looking at monetary policy, the market is relatively consistent with the trend of medium and long-term interest rates, and believes that there is room for further downside. Whether it is to combat the current low inflation, or to reduce the pressure of future debt repayment of local debt, and to give profits to the real economy, there is a need for this. Both policy rates and market interest rates have room for further downside. So I personally estimate that there may be 1-2 RRR cuts and 1-2 interest rate cuts this year.
