Source: Tsinghua Institute of New Urbanization 2024-03-28
2024 has been identified as the "Year of Consumption Promotion" by the Ministry of Commerce. In March, the State Council issued the "Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in", requiring the implementation of four major actions: equipment renewal, consumer goods trade-in, recycling and recycling, and standard improvement, and proposing to promote more high-quality durable consumer goods into residents' lives. How do you view the current consumption trend? Why should we emphasize "exchanging the old for the new"? "21st Century Business Herald" conducted an exclusive interview with Chen Wenling, chief economist of the China Center for International Economic Exchanges.
Interviewee: Chen Wenling, Chief Economist, China Center for International Economic Exchanges
Source: 21st Century Business Herald, March 26, 2024, page 4
Pedestrians walk in front of Huawei's flagship store in Shenzhen on September 11, 2023. Photo by Xinhua News Agency reporter Liang Xu
01 New supply is creating new demand
Q1 "21st Century": In 2023, the contribution rate of final consumption expenditure to economic growth will reach 82.5%, an increase of 43.1 percentage points over the previous year. What do you think of the huge increase in consumption last year?
Chen Wenling: The figure of 82.5% is both unexpected and expected. Last year, China's manufacturing industry was still in the recovery stage, and it only began to rebound in the second half of the year. During the epidemic, among the "troika" of investment, export and consumption, consumption was the most affected area. In 2020, China became the only major economy in the world to achieve positive growth, and the economic growth rate rebounded to 8.1% in 2021, but offline consumption is still greatly affected. By 2023, China's economy will be able to achieve positive growth of 5.2%, and I believe that the contribution of the rebound in consumption is the first.
I think there are several reasons. First, the epidemic period was greatly impacted, and the previous base was low, so the proportion of increments after the rebound was significant. Second, in 2023, the state will introduce a series of policies to expand consumption, focusing on creating new consumer demand. Third, offline consumption rebounded rapidly after the epidemic was liberalized, especially tourism, catering, cinemas, exhibitions, etc., all of which have seen explosive growth, from the "Zibo barbecue" at the beginning of the year to the "Erbin" at the end of the year, offline consumption has even exceeded the level of 2019. Fourth, new demand created by new supply is growing, such as the consumption boom of new energy vehicles, and China's new energy vehicle production and sales account for more than 60% of the world's total. Fifth, the demand for new flexible consumption is growing, such as cultural experience and tourism consumption. Behind the intrinsic changes in consumer demand is the improvement of residents' living standards.
02 "Trade-in" promotes a virtuous cycle of "supply-demand".
Q2 "21st Century": The government work report proposes to encourage and promote the trade-in of consumer goods to boost bulk consumption such as intelligent networked new energy vehicles and electronic products. Why the emphasis on "trade-in"?
Chen Wenling: From the perspective of economics, this is to start from the change of demand-side behavior and promote the reform of the supply side, so as to form a new way of circulation, transaction and iteration of products.
In 2023, the cumulative main business income of China's home appliance industry will reach 1.84 trillion yuan, a year-on-year increase of 7%, and the profit will be 156.5 billion yuan, a year-on-year increase of 12.1%. The mainland is the world's largest producer and exporter of household appliances, accounting for about 60% of the world's share of production. In fact, the replacement of household appliances itself will not be too fast, and is entering a stock era, and the "old for new" will bring about the circulation, trading, and iterative updates, generating a higher level of consumer demand, and then promoting the structural reform of the supply side.
Full consideration should be given to transforming the scale advantage of China's manufacturing industry into a new driving force for creating consumer demand, and at the same time making the manufacturing industry deeply transform and upgrade, create new quality productivity, and let the "old for new" promote the virtuous cycle of "supply and demand". In 2023, the output of household washing machines, household freezers, refrigerators, air conditioners and other products will maintain double-digit growth. Strong demand drives strong supply and accelerates consumption transformation and upgrading, which is an important part of the domestic cycle.
The supply side has strong support from the manufacturing industry, and the demand side itself has huge potential for "trade-in". First of all, there is the need for "renewal". In the past, many imported household appliances used by families actually had a life cycle of 8~10 years, and once the year has arrived, there are no longer conditions for further maintenance. In recent years, the quality of manufacturing products has been greatly improved, and the cycle of product upgrading has been extended. In 2023, the number of major categories of home appliances in mainland China will exceed 3 billion units, which contains a large number of replacement needs.
The second is "generational replacement". Nowadays, the combination of home appliances with artificial intelligence and new computing power technologies is very common, such as smart refrigerators, smart washing machines, and so on. The improvement of the intelligent level and convenience of household appliances will make consumers have the demand for "replacement". The third is "upgrading", and the proportion of new demand for high-end consumption is rising. This includes personalized and flexible needs, such as the upgrade of functions and styles, the optimization of the user experience, and the more highlighting of personality and characteristics. Although the scale of this part of the consumer is not large, the value is relatively high. The fourth is the need for green transformation. In the past, many household appliances consumed a lot of electricity and had a high carbon footprint, but the new appliances are more reliable and can save costs for a longer period of time because they are more energy-efficient, thus reducing the inconvenience of maintenance and use.
Finally, "trade-in" may promote a new round of interaction between the demand side and the supply side, forming a product flow between urban and rural areas and between regions. For example, some household appliances in the city that are backward in style but not backward in function may need to be upgraded and replaced, so these household appliances should not be wasted, but should promote the flow between urban and rural areas, and even between the mainland and neighboring countries. Therefore, I believe that the production and consumption of household appliances can become a typical sample of "a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles promoting each other".
03 Create a domestic large-cycle "home current" and "car flow"
Q3 "21st Century": Can such a flow be understood as a kind of capacity transfer?
Chen Wenling: I think it should be the innovation of production capacity, which is the result of the development of new quality productivity. The accelerated development and cultivation of new quality productivity has promoted the deep transformation and upgrading of the manufacturing industry, and the innovation and transformation of the industry cannot be digested without market demand, so the update of the demand side can in turn promote capacity innovation.
The production and consumption of automobiles is a case in point. In 2023, China's automobile production and sales will exceed 30 million units for the first time, and domestic passenger car sales will exceed 25 million. In 2023, the number of cars in the country will reach 336 million, and the average replacement cycle of traditional fuel vehicles is about 8 years, and it can be roughly calculated that the market size of "trade-in" can reach about 10 million. At present, the increase in automobile consumption is huge, and at the same time, a huge stock market has been formed. First of all, the original car was just a simple means of transportation, and the current car is becoming an important carrier for the emergence of various new consumption methods. For example, the increase in car ownership has led to a significant increase in the proportion of self-driving travel in residents' travel modes, further promoting the consumption of fuel, accommodation, catering, entertainment and other consumption, forming a strong driving effect on the overall service industry.
Secondly, the demand for new energy vehicles is strong. At present, the new energy vehicle technology in mainland China has made continuous breakthroughs, the battery technology has been continuously matured, the battery life problem has been continuously optimized, and the charging infrastructure has been continuously improved. The pace of new models is also accelerating, and they are dominating the world in terms of quantity and quality. In addition, autonomous driving opens up new space for future car consumption. The continuous progress of artificial intelligence, 5G, and computing infrastructure has laid the foundation for intelligent and digital transportation, and also provided reliable application scenarios for unmanned driving.
Third, the financial leasing of automobiles will develop rapidly. Due to the rapid replacement of car styles, some consumers now choose not to own car property rights, but to obtain the right to use by leasing, and some companies that originally focused on rental cars are now also developing the financial leasing business of automobiles (a new way of buying cars with the separation of car ownership and use rights). This flexible and convenient way of automobile consumption is expected to become a new consumption hotspot.
In addition, the maturity of the second-hand car trading system also provides conditions for "trade-in". From the perspective of the current second-hand car transaction structure, cars with a car age of 3~6 years account for nearly 50% of the second-hand car transaction. A considerable part of the "trade-in" is to be completed through the second-hand car market, so to further smooth all aspects of the second-hand car transaction, improve the second-hand car market subject filing and vehicle transaction registration management, and promote the second-hand car circulation standardized, orderly and healthy development, is one of the important tasks to promote the "trade-in" action. In 2023, the Ministry of Commerce and nine other departments jointly issued the "Guiding Opinions on Promoting the High-quality Development of the Automotive Aftermarket" to promote the steady growth of the automotive aftermarket scale and better meet the diversified automotive consumption needs of consumers. For example, Shanghai's new round of fuel vehicle trade-in subsidy policy and new energy vehicle replacement policy are clear, and individual consumers can apply for a one-time car purchase subsidy of 2,800 yuan if they scrap or transfer vehicles that meet the corresponding requirements.
From a larger perspective, the above-mentioned new demand continues to be extended, and it can form a "home current" and "car flow" to create a large domestic cycle. In the future, the housing sector should also encourage "trade-in", increase the proportion of improved housing and high-end housing, and encourage consumers to buy houses in other places, etc. In this way, the domestic cycle can truly circulate smoothly, forming a benign interaction and mutual promotion between the supply side and the demand side. A series of upgrades and changes in consumer demand have promoted the continuous innovation of the manufacturing industry, made technological breakthroughs brought about by the scientific and technological revolution, driven the deep transformation and upgrading of the industry, and further met the increasing consumer demand. At the same time, it can also increase jobs and increase residents' income.
Q4 "21st Century": How do you think macro policies should be used to promote the steady growth of consumption?
Chen Wenling: First of all, we must stabilize expectations. For the fundamentals of China's economy to achieve a rational and objective analysis, on the one hand, we must see a series of macroeconomic challenges, on the other hand, we must also see that the fundamentals of China's economy have not changed, the super-large-scale market, the super-large-scale manufacturing capacity has not changed, and the depth and breadth of transformation and upgrading are unprecedented, and a large number of leading enterprises stand out in the world.
Second, it is necessary to raise the income level of residents, especially the income of low-income groups. Consideration can be given to the "trade-in" model to send subsidies to the demand side, and stimulate the innovation and upgrading of the supply side with the improvement of the immediate purchasing power of the demand side.
Third, macroeconomic policies should send a clear signal of institutional reform. For example, for the "trade-in" of housing, a clear policy orientation of long-term stability should be released, and real estate tax should not be levied for improvement demand and the purchase of houses in other places for pension or health purposes, and real estate tax should not be pursued for the stock of housing that has paid various taxes and fees in accordance with national regulations at the time of purchase. For example, the trade-in policy for automobiles and home appliances should be stable, and it should be clear at the beginning which subsidies should be encouraged and which should be naturally replaced by the market.
Finally, we should pay close attention to the rational allocation of resources. For some rural and urban low-income groups, the most important thing is not to trade in the old for the new, but to undertake a part of the high-end consumer product substitution, these products also have high-quality use functions, but the level of intelligence or design is lower, so that the cycle of consumer demand at different levels of the whole society can be formed. Considering the difference in the level of demand between different regions and different groups, how to form a reasonable and smooth flow of the demand side, so that consumers at all levels have new harvests, and meet the growing demand of the people for a better life, it is necessary to promote the corresponding policy supporting design.
* Author: 21st Century Business Herald reporter Hong Xiaowen, editor: Lu Yueling.
Source: Tsinghua Institute of New Urbanization