Review the 10 keys to economic growth of 5.3% in the first quarter

Zhang Aoping/text

Ten major emphasis on text:

1. The economy will get off to a good start in 2024, but it is still in a realistic environment of insufficient effective demand, overcapacity in some industries, and "strong volume and weak price".

2. China will remain an important growth engine of the global economy in 2024, and the forecast value of global economic growth in 2024 is 3.1%, far lower than the historical (2000-2019) average of 3.8%;

3. In the first quarter of 2024, private enterprises accounted for half of the total import and export value (54.3%), and the number of enterprises accounted for ninety percent;

4. The rebound of exports is the key to achieving a virtuous cycle of "export-private enterprise investment-urban employment (private enterprises contribute 80% of urban employment)-resident income-resident consumption-private enterprise investment";

5. In US dollar terms, the export value in the first quarter increased by 1.5% year-on-year, 6.1 percentage points faster than the growth rate of last year, ending the negative growth of three consecutive quarters last year.

6. The policy focus of expanding domestic demand in 2024: large-scale equipment renewal to promote private enterprise investment, and consumer goods to promote household consumption through trade-in;

7. The "forcing mechanism" of updating and replacing the new is clear: 294 key national standards have been revised in the "Action Plan for Upgrading Traction Equipment Renewal and Consumer Goods Trade-in with Standards", and 74 of them are mandatory national standards (mandatory standards must be implemented);

Since August and April, some developed provinces and cities have formulated specific work rules for local renewal. For example, 7 provinces and cities such as Zhejiang, Shandong, Chongqing, and Guangdong have introduced overall plans or measures;

9. Investment in high-tech industries representing new quality productivity, especially investment in high-tech manufacturing industry, is a "bright spot" in economic development;

10. "The development of new quality productivity is not to ignore and abandon traditional industries", in terms of transforming and upgrading traditional industries, the starting point is a new round of large-scale equipment renewal actions, and energy conservation and carbon reduction, ultra-low emissions, safe production, digital transformation, and intelligent upgrading are important directions.

On April 16, the National Bureau of Statistics released data that preliminary calculations showed that the GDP in the first quarter was 296299 billion yuan, a year-on-year increase of 5.3% at constant prices (base: GDP increased by 4.5% year-on-year in the first quarter of last year), and an increase of 1.6% quarter-on-quarter over the fourth quarter of last year.

By industry, the added value of the primary industry was 1,153.8 billion yuan, up by 3.3 percent year-on-year, the added value of the secondary industry was 109846 billion yuan, up by 6.0 percent, and the added value of the tertiary industry was 174915 billion yuan, up by 5.0 percent.

From the perspective of the troika on the demand side, consumption: in the first quarter, the total retail sales of consumer goods 120327 billion yuan, a year-on-year increase of 4.7% (base: consumption in the first quarter of last year increased by 5.8% year-on-year);

Investment: In the first quarter, the national investment in fixed assets (excluding rural households) 100042 billion yuan, a year-on-year increase of 4.5 percent, 1.5 percentage points faster than that of the previous year (base: investment increased by 5.1 percent year-on-year in the first quarter of last year);

Import and export: In the first quarter, the total import and export of goods was 101693 billion yuan, a year-on-year increase of 5.0% (base: import and export increased by 4.8% year-on-year in the first quarter of last year). Among them, exports were 5,737.8 billion yuan, up by 4.9 percent, and imports were 4,431.5 billion yuan, up by 5.0 percent. Imports and exports offset each other, with a trade surplus of 1,306.3 billion yuan.

On the whole, the economy will get off to a good start in 2024, but it is still in a realistic environment of insufficient effective demand, overcapacity in some industries, and "strong volume and weak price".

From the perspective of price indicators, in the first quarter of 2024, the consumer price CPI representing the downstream was 0% year-on-year, and the producer price PPI representing the upstream was -2.7% year-on-year. It should be noted that the "strong volume and weak price" of the economy is not conducive to the recovery of the micro-perception and expectation of the market.

Judging from the PMI, the leading indicator of the economy, the economy ended five consecutive months of month-on-month contraction in March and returned to the expansion range:

In the fourth quarter of 2023, the economy contracted quarter-on-quarter, with the PMI below the boom-wither line from October to December, and declining month by month: 49.5%, 49.4%, and 49.0%, and the economy bottomed out in the first quarter of 2024, with PMIs of 49.2%, 49.1%, and 50.8% from January to March.

From a global perspective, China will remain an important growth engine for the global economy in 2024. According to the International Monetary Fund's (IMF) January 2024 World Economic Outlook, global economic growth is forecast to be 3.1% in 2024, well below the historical (2000-2019) average of 3.8%. Growth in advanced economies is expected to slow to 1.5 percent in 2024 from 1.6 percent in 2023, while growth in emerging market and developing economies is expected to remain at 4.1 percent in 2023.

1. The key to economic recovery in 2024: the recovery of external demand will lead to the improvement of exports

Improving exports is the key to the recovery of private enterprise investment and household consumption. The author has repeatedly pointed out that if we only look at the investment of private enterprises in the private sector and household consumption, China's economy is not a troika, but "one carriage pulls two wheels". One carriage is exports, and the two wheels are private enterprise investment and household consumption, which represents market activity.

The reason for this is that since China's accession to the WTO, a large number of private enterprises are export-oriented enterprises, or the end products of the industrial chain are mainly oriented to external demand, and they often benefit from the spillover effect of orders when supply is expanded.

Judging from the data, in the first quarter of 2024, private enterprises accounted for "half" of the total import and export value. In the first quarter, the import and export of private enterprises was 5.53 trillion yuan, an increase of 10.7 percent, accounting for 54.3 percent of the total import and export value. In the same period, the import and export of foreign-invested enterprises was 2.97 trillion yuan, accounting for 29.3 percent, and the import and export of state-owned enterprises was 1.64 trillion yuan, accounting for 16.1 percent.

In terms of the number of business entities, 9 out of every 10 foreign trade enterprises with import and export records are private enterprises. In terms of growth rate, the growth rate of exports and imports of private enterprises was 4.8 and 7.8 percentage points faster than the overall growth rate respectively.

Therefore, the rebound of exports is the key to achieving a virtuous circle of "export-private enterprise investment-urban employment (private enterprises contribute 80% of urban employment)-resident income-resident consumption-private enterprise investment".

When the carriage of external demand and exports rebounds, the investment of private enterprises (especially in the manufacturing industry) and household consumption will be driven to increase in the above cycle, and the economic activity perceived by the market will be enhanced, and vice versa.

This is also one of the main reasons why market players perceive the economy in 2021, which is in the second year of the epidemic, better than in 2023. Exports increased by about 30% year-on-year in 2021 and 4.6% year-on-year (in US dollars) in 2023.

In US dollar terms, the export value in the first quarter increased by 1.5% year-on-year, 6.1 percentage points faster than the growth rate of last year, ending three consecutive quarters of negative growth last year.

The author believes that from the perspective of the endogenous adjustment mechanism of the economy, the overseas destocking cycle has come to an end, and exports in 2024 will be better than in 2023.

2. The policy focus of expanding domestic demand in 2024: a new round of large-scale equipment renewal and trade-in of consumer goods

If it is said that exports drive the recovery of private enterprise investment and household consumption, it is the "invisible hand" of the market that is at work. Then, large-scale equipment renewal and trade-in of consumer goods are the key to stabilizing the economy with the "visible hand" of policy.

Since the Central Economic Work Conference at the end of last year, a number of key meetings at the decision-making level have intensively deployed a new round of large-scale equipment renewal and specific work arrangements for the trade-in of consumer goods, highlighting its importance.

In December 2023, the Central Economic Work Conference emphasized that "it is necessary to promote large-scale equipment renewal and consumer goods trade-in with the improvement of technology, energy consumption, emission and other standards".

In February 2024, the fourth meeting of the Central Financial and Economic Commission emphasized that "the implementation of large-scale equipment renewal and trade-in of consumer goods will effectively promote investment and consumption, which will benefit both the current and the long-term".

On March 1, 2024, the executive meeting of the State Council pointed out that "promoting a new round of large-scale equipment renewal and trade-in of consumer goods is a major decision made by the CPC Central Committee with an eye on the overall situation of high-quality development of the mainland", and deliberated and adopted the "Action Plan for Promoting Large-scale Equipment Renewal and Trade-in of Consumer Goods" (hereinafter referred to as the "Action Plan");

On March 5, 2024, the government work report pointed out that "encourage and promote the trade-in of consumer goods, boost bulk consumption such as intelligent networked new energy vehicles and electronic products" and "promote the renewal and technological transformation of various production equipment and service equipment".

First, a new round of large-scale equipment renovations and trade-ins of consumer goods has both short-term and long-term market opportunities.

Judging from the current top-level program document "Action Plan", a number of work requirements are set to 2027, which means that equipment renewal and consumer goods trade-in will become a major focus in the next three years.

"By 2027, the scale of equipment investment in industry, agriculture, construction, transportation, education, cultural tourism, medical and other fields will increase by more than 25% compared with 2023; The recycling volume of end-of-life vehicles will about double compared with 2023, the transaction volume of second-hand cars will increase by 45% compared with 2023, and the recycling volume of waste household appliances will increase by 30% compared with 2023, and the proportion of recycled materials in the supply of resources will be further increased."

Secondly, it involves a wide range. The "Action Plan" is clear in terms of equipment renewal, promoting the renewal and transformation of equipment in key industries, accelerating the renewal of equipment in the field of construction and municipal infrastructure, supporting the renewal of transportation equipment and old agricultural machinery, and improving the level of education, cultural tourism and medical equipment.

From the perspective of "promoting the renewal and transformation of equipment in key industries", it will "focus on key industries such as steel, nonferrous metals, petrochemicals, chemicals, building materials, electric power, machinery, aviation, shipbuilding, textiles, and electronics". The direction of the update is green, safe, and digital intelligence (energy conservation and carbon reduction, ultra-low emission, safe production, digital transformation, and intelligent upgrading are important directions).

In the "Action Plan", the three major product directions of automobiles, home appliances and home decoration are clarified in terms of consumer goods replacement;

In terms of the implementation of recycling and recycling actions, it has clarified the four major priorities of improving the recycling network of waste products and equipment, supporting the circulation and trading of second-hand goods, orderly promoting remanufacturing and cascade utilization, and promoting high-level recycling of resources.

Since April, some developed provinces and cities have formulated specific local work rules. For example, seven provinces and municipalities, including Zhejiang, Shandong, Chongqing, and Guangdong, have issued overall plans or measures, while three provinces and municipalities, Shanghai, Beijing, and Jiangsu, have issued financial support programs.

In addition, Hunan, Shanxi, Guangxi and other provinces indicated that they are or need to explore the need to update in the future, and Hunan, Shandong, Shanxi, Guangxi, Jiangxi and other provinces need to further formulate lists or implement documents in various fields in the future.

Finally, the policy is strong. The Action Plan clarifies the "forcing mechanism" for the implementation of standard improvement actions. It includes four major aspects: accelerating the improvement of energy consumption, emission and technical standards, strengthening the improvement of product technical standards, strengthening the supply of resource recycling standards, and strengthening the convergence of domestic and international standards in key areas.

Readers need to pay attention to the fact that the State Administration for Market Regulation issued the "Action Plan for Upgrading Traction Equipment Renewal and Consumer Goods Trade-in with Standards" on April 10, which clarified the key areas for standard improvement this year and next year in the form of a list.

Among them, 294 key national standards have been revised, and 74 are mandatory national standards (mandatory standards must be implemented).

Key directions: "Accelerate the revision of energy consumption quota standards for thermal power, refining, coal chemical, steel, coke, polysilicon and other industries, focus on improving the energy efficiency standards of key energy-using equipment such as charging piles, boilers, motors, transformers, pumps, chillers, cold storage, etc., and pay close attention to the formulation of energy consumption quota standards for lithium battery cathode and anode materials, photovoltaic crystal pulling products, and energy efficiency standards for communication base stations", "upgrade air pollutant emission standards for coking, lead, zinc, coal mines and other industries" "Promote gas hoses, The recommended standards for gas appliances such as shut-off valves have been changed to mandatory standards".

While the "action plan" clarifies the "reversal mechanism", it also clarifies the way to support policy resources. For example, in the "increase of fiscal policy support", it is proposed that "the eligible equipment renewal and recycling projects will be included in the scope of financial support such as investment in the central budget", "the energy conservation and emission reduction subsidy funds arranged by the central government will support the trade-in of eligible vehicles", "the central government will set up special funds to support the recycling and treatment of waste electrical and electronic products", etc.

3. The key to supply-side innovation-driven in 2024: accelerate the development of new quality productivity

In the first quarter of 2024, investment in high-tech industries, which represent new quality productivity, especially investment in high-tech manufacturing, is a "bright spot" in economic development. Investment in high-tech industries increased by 11.4 percent year-on-year, of which investment in high-tech manufacturing and high-tech services increased by 10.8 percent and 12.7 percent respectively.

Among the high-tech manufacturing industries, investment in aerospace and equipment manufacturing and computer and office equipment manufacturing increased by 42.7 percent and 11.8 percent respectively, while investment in high-tech services increased by 24.6 percent and 16.9 percent respectively in e-commerce services and information services.

It should be noted that there is still a major misunderstanding in the current market about the development of new quality productivity, and it is believed that the development of new quality productivity should completely abandon traditional industries and only develop strategic emerging and future industries.

On January 31, 2024, the 11th collective study of the Politburo on the development of new quality productivity made it clear that it is necessary to achieve "three-line progress" at the industrial end, emphasizing that "it is necessary to apply scientific and technological innovation achievements to specific industries and industrial chains in a timely manner, transform and upgrade traditional industries, cultivate and expand emerging industries, lay out and build future industries, and improve the modern industrial system". In the ranking, "transformation and upgrading of traditional industries" ranked first, highlighting its importance.

On the afternoon of March 5, General Secretary Xi Jinping emphasized when participating in the deliberations of the Jiangsu delegation at the second session of the 14th National People's Congress that the development of new quality productive forces is not to ignore and abandon traditional industries. All localities should adhere to the actual situation, first establish and then break, adapt measures to local conditions, and provide classified guidance, selectively promote the development of new industries, new models and new kinetic energy according to local resource endowments, industrial foundations, scientific research conditions, etc., transform and upgrade traditional industries with new technologies, and actively promote high-end, intelligent and green industries.

The author believes that one of the major tasks in the transformation and upgrading of traditional industries is a new round of large-scale equipment renewal actions, with energy conservation and carbon reduction, ultra-low emissions, safe production, digital transformation, and intelligent upgrading as important directions.

Regarding the specific business opportunities of strategic emerging industries and future industries, readers can focus on the Implementation Plan for the New Industry Standardization Pilot Project (2023-2035) (hereinafter referred to as the "Plan") issued by the Ministry of Industry and Information Technology and other four departments in August 2023.

The "Plan" clearly states that "new industries refer to emerging industries and future industries that apply new technologies to develop and grow, which have the characteristics of active innovation, technology-intensive, and broad development prospects, and are related to the overall situation of national economic and social development and industrial structure optimization and upgrading". In addition, the plan also clarifies the goals of emerging industries and future industrial standardization construction.

The eight emerging industries include: new generation information technology, new energy, new materials, high-end equipment, new energy vehicles, green environmental protection, civil aviation, shipbuilding and marine engineering equipment.

The nine future industries include: metaverse, brain-computer interface, quantum information, humanoid robots, generative artificial intelligence, biomanufacturing, future display, future network, and new energy storage.

In addition, the author believes that the cultivation of new quality productivity needs to be jointly promoted by six aspects: "new quality cities, new quality infrastructure, new quality industries, new quality enterprises, new quality talents and new quality finance", each of which is indispensable.

In addition, in the second quarter, in the second quarter, the incremental fiscal implementation of trillions of ultra-long-term special treasury bonds and special bonds, and the continuous promotion of the "three major projects" of the new real estate development model, the imbalance between supply and demand is expected to be alleviated, and the market micro subject perception and expectations are expected to be repaired.

(The author is the president of the Institute of New Quality Future)