Wang Wen of the Chongyang Research Institute of the National People's Congress: The probability of the central bank cutting interest rates again this year is very high

Text/Feng Biao

On March 28, during the Boao Forum for Asia, Tencent Finance had a conversation with Wang Wen, Executive Dean of the Chongyang Institute for Financial Studies at Chinese Minmin University, to interpret China's current economic and macro policies, look forward to the global economic and trade situation, and provide suggestions for China's economic development.

Wang Wen believes that in order to achieve the 5% economic growth target, the possibility of the People's Bank of China cutting interest rates or RRR again in the second and third quarters of this year is very high.

Regarding the impact of the international environment and global economy and trade on China's economy, Wang Wen believes that in general, the opportunities will outweigh the challenges in 2024.

In terms of policy suggestions, Wang Wen believes that to achieve "precise and effective" monetary policy, we need to pay attention to the flow of funds, especially the need to focus on scientific and technological innovation, private economy and emergency response.

Here's the full transcript of the conversation:

Talking about macro policy: interest rate cuts in the second and third quarters are very likely

Tencent Finance: You previously suggested a sharp interest rate cut, and the monetary policy tone proposed in this year's government work report is that "a prudent monetary policy should be flexible, moderate, precise and effective". What are your expectations for a rate cut this year?

Wang Wen: I think in the past few months, many experts, including me, have been calling for a big interest rate cut in 2024. As for the call for interest rate cuts, I think the Chinese monetary authorities have heard it. It is clear to us that PBOC Governor Pan Gongsheng and other key leaders have released several messages in March that China has room to cut interest rates and reserve requirements. The release of this information has made the market fully anticipate interest rate cuts, which has led to growth in other industries such as capital markets, service consumption, and cultural tourism, and even signs of recovery beyond our expectations.

So from this point of view, I think it's logical that the probability of a rate cut this year is very high. In 2023, we have had two RRR cuts and two rate cuts, and in February 2024, there has already been a 50 bp rate cut. I think the probability of a rate cut in the second and third quarters of 2024 is very high.

However, I am somewhat skeptical that there is some talk in the market that there will be negative interest rates in China. I believe that negative interest rates can play a role in stimulating the economy of any country. However, whether or not to introduce negative interest rates in China, I think it may not necessarily be realized in the short term.

Because negative interest rates can be a shock to ordinary people, especially those with low and middle incomes. Ordinary people think that they have finally saved some money, and the process of saving money has to be handed over to the bank. From this point of view, I don't think it is very likely that China will have negative interest rates in the short term.

Tencent Finance: What other suggestions do you have for "precise and effective" monetary policy?

Wang Wen: I think the most important thing to be accurate and effective is to flow funds to the three main areas.

The first area is scientific and technological innovation. It is hoped that the precision and effectiveness of science and technology finance and monetary policy can help China's industry and technology community to break through the bottleneck of "stuck neck".

Second, it is necessary to better integrate funds into the private economy and support more private economies, especially the small, medium and micro economy, so that they can demonstrate their vitality and solve more jobs.

The third is to use the funds in various emergency areas, especially to deal with natural and man-made disasters or unemployment due to uncertain events.

Tencent Finance: The target for economic growth this year is about 5%, how do you view this goal? Do you think we need to maintain a growth rate of more than 5% at present?

Wang Wen: I think the economic growth target for 2024 is set at 5% is very objective and realistic, and it is in line with current expectations. From the perspective of various fields, regions and industries, the growth target of 5% is not achievable overnight, because the current downward pressure on China's economy is very strong, so it is not very easy to achieve 5%, especially the current downturn in the real estate industry.

At this time, setting a target of 5% reflects at least three intentions of the decision-makers. The first intention is to continue to motivate the people, and China's economy is still in the process of sustainable development, and this continuous development reflects the resilience of China's economy. 5% is not very high, but it is not low either, because it is higher than most major economies. The second is that the 5% reflects the strategic will of the central decision-making level, that is, China must continue to develop, maintain a medium-to-high-speed development, and not fall into the bottleneck of the rise of some other countries. Third, a 5% growth rate underpins China's 2035 vision, which will require at least 4.71% annual growth rate to double China's economy by 2035 in accordance with the 14th Five-Year Plan.

Talking about global economy and trade: For the development of other countries, we must have confidence and elegance

Tencent Finance: From the perspective of the international economy, global trade, geopolitics and other aspects, what are the positive and unfavorable factors for China this year?

Wang Wen: In 2024, I think overall China will still have more opportunities than challenges. Our internal and external environment is constantly rising steadily and improving.

For example, in terms of the external environment, China-US relations will show signs of stabilizing in 2024. Since the San Francisco meeting in November last year, Sino-US relations have generally remained relatively stable. This stability will also lead to a certain easing of China's external environment in the short term.

From the perspective of the internal environment, we will see tremendous growth in the cultural and tourism industry, the catering service industry, and the high-tech industry. Judging from January to February 2024, we have actually exceeded our own expectations.

In addition, as for the capital market, I think there will also be a trend of stability and improvement. The short-term suspension of IPOs will promote the benign optimization of the capital market and boost the expectations of shareholders.

All in all, the development of China's economy, it is not easy. It is not easy for the whole world, but in contrast, China's economy is still moving forward, looking for a way to recover amid uncertainty.

Tencent Finance: In recent years, China's new energy vehicle exports have gained momentum, but at the end of 2023, the EU announced that it would launch a countervailing investigation into Chinese electric vehicles. What do you think of this phenomenon? What are your suggestions for Chinese companies to go overseas?

Wang Wen: In fact, in January and February 2024, our exports have exceeded expectations, and the total import and export value of goods trade increased by 8.7% year-on-year. Such a good growth rate indicates that China's import and export trade will have another round of dividends in 2024. I think China's trade accounts for an increasing proportion of global trade. From the perspective of exports, in the past 10 years, the proportion of our exports in the world has increased from 11% to 14%, and the proportion of imports has increased from 9% in the past to almost 10% now. The scale of our trade is so large, it is not easy to add 1 point. What is even more gratifying is that the proportion of labor-intensive products in China's exports is getting lower and lower, and the proportion of intermediate goods and high value-added products is increasing. The most typical phenomenon is our new energy vehicle exports, making China the world's largest automobile exporter.

As the competitiveness of our Chinese products becomes stronger and stronger, we will encounter all aspects of trade protectionism, anti-dumping and anti-subsidy and so on. I think it's better to look at it with a normal mind. In the decade from 2010 to 2020, China has encountered more than 1,000 anti-dumping, anti-subsidy and protective measures. Therefore, we still have full confidence in the future.

Tencent Finance: In recent years, other emerging economies have experienced relatively high economic growth rates and performed well in terms of the transfer of industrial chains and the attraction of foreign investment. Do you think they will form a catch-up and competition with the mainland?

Wang Wen: I think in the face of the rise of other emerging economies, we Chinese should be elegant. First, it may be much better to see them continue to grow and the Eastern world to grow than to see that some hegemonic countries and developed countries in the so-called West are becoming stronger and more hegemonic. The second is that emerging economies are large markets with 100 million or even 1 billion people, and their rise is also a big positive news for our goods exports. Third, we should also note that even as other economies continue to rise, India and Vietnam are still very low. India's economic aggregate is only 1/6 of ours, and Vietnam's is even lower, probably about the same as our Dongguan, and not as good as the economic aggregate of our city Shenzhen.

So by all indications, we have the confidence and the courage to see the rise of emerging economies such as India and Vietnam. On the other hand, we must also be aware of the room for some adjustments in China's certain policies, and the intensity of reform and opening up will be even greater, so as to make China more invincible in the context of the complicated international situation.