IMF Managing Director: China should try to release more consumer spending

On April 18, IMF Managing Director Georgieva publicly stated that China should work to unlock more consumer spending.

The president pointed out that domestic demand on the mainland has been hit hard due to the real estate crisis caused by excessive investment, which has put the entire macroeconomy at a "crossroads".

She also urged the mainland to move away from decades of investment- and export-led economic growth and instead boost the economy through consumer spending.

"Now is the time to look for sources of domestic growth," she said. ”

Georgieva is not the first person to say this, and US Treasury Secretary Janet Yellen, who visited China a few days ago, also put forward a similar view.

In my opinion, in essence, the two sides have different or even diametrically opposed views on the path of economic growth, so they have done very different things in terms of some measures to stimulate economic growth.

First of all, economics is indeed a product of the West, which is understandable, and Adam Smith is also recognized as the originator of economics, especially the use of "invisible hand" to describe the market, which is a good interpretation of the dominance of the market in economics.

The reason why many people in the West believe that consumption stimulates economic growth is a consensus is to a large extent the experience summed up by the lessons of blood and tears.

It's like a few decades ago, half of the world's economies were on a planned economy, but today there is no need to argue too much about the fact that a "planned economy" really doesn't work.

In the past, the West was also like this, relying on the growth of production capacity and relatively low wages, it achieved rapid economic growth, but in the end, the West faced the ultimate problem of a market economy: production capacity is getting higher and higher, but workers' wages are not rising, who should sell goods to?

This problem is the root cause of the Great Depression in the United States.

There was a problem with income distribution, which led to oversupply, and in those days, the European and American economies were already the richest economies in globalized trade, so they could not rely on exports to solve the problem of overcapacity as we do today.

Of course, earlier, during the Opium War, the Western powers actually used artillery to open the ports of commerce, which essentially meant that they had to solve the problem of who the goods should be sold to.

After the Great Depression in the United States, economists found that in order to balance supply and demand, it was necessary to raise the wages of most people, and people's income levels should be "olive-shaped" rather than pyramid-shaped, so the mighty "revisionism" appeared.

What to correct? It is to revise the pure market capitalism of the past.

Through the two means of administration and trade unions, the distribution of the income system at the macro level was regulated, and finally the strongest consumption power of the West and the world was guaranteed, and then the situation we see today was formed.

Without exception, all developed economies in the world are supported by the tertiary industry, that is, consumption, to stimulate economic growth.

So Yellen said, and the managing director of the International Monetary Fund also said, let's use consumption to stimulate economic growth, which is not unreasonable.

But when it comes to changes in consumer spending, this will inevitably involve the cornerstone of the income distribution mechanism, that is, the lowest thing, and its complexity is self-evident.

International Monetary Fund Managing Director Georgieva also said that the mainland should first solve the real estate crisis, boost consumer confidence, and strengthen and improve the social security mechanism, so that more people "have the opportunity to save less and spend more".

Why can't an economy always rely on an economic growth model dominated by investment and exports? Because investment and exports are essentially selling production capacity, and in the past, globalized trade was market-oriented, and where the price was cheap, it was bought.

Now Europe and the United States have begun to consciously de-risk and diversify the layout of the industrial chain, at this time the goods are no longer market-oriented, and tariffs are suddenly imposed, or simply do not buy your goods, we can condemn it, but in the final analysis, it is also the freedom of the buyer, but the buyer is not a company or enterprise, but an economy.

Relying on the consumption of the European and American markets, this point has become more and more unreliable today, and the best way is to rely on yourself, who will digest the production capacity, how to grow consumption, and finally can achieve this set goal by yourself.

But in my humble opinion, the structural resistance we face to stimulate consumption is very large, how difficult is this? We just need to think about this matter from another angle: If it is really that easy to promote consumption, is it necessary for us to continue to rely on exports and infrastructure investment?

People will choose, especially according to the difficulty of a thing and the possibility of completing it, now we are in stimulating consumption specific and even actual actions, frankly speaking, there are not many, which also shows that the difficulty of this matter is so high.

Once it comes to the bottom of the income problem, behind which is related to the consumption and hope of hundreds of millions of people, any link out of the pool, its consequences, are unpredictable.

Of course, there is also a possible disagreement between the two sides that there is a "welfarist trap" behind this issue. Although our social security system is currently weak, there has always been a view that increasing welfare is easy to encourage lazy people, and the very popular lying flat thinking in recent years may also confirm this to a certain extent.

Although I personally disagree with the so-called "welfarist trap", our traditional culture cannot stand up to the so-called "hardship and hard work" spirit.

In addition, I have more reason to doubt whether US Treasury Secretary Janet Yellen and IMF Managing Director Georgieva, two female economists, really understand us, or a real mainland economy and society.

They are screaming for more consumer spending, boosting consumer confidence, and strengthening the social security system, but don't they know how difficult it will be to implement and how much resistance it will involve?

Of course they understand, but the cry itself has its meaning.

Although the practical significance may not be great, the symbolism does exist.

Our differences and consensus should not be limited to discussing the trap of welfarism, but we should still look back and carefully examine the past few decades, when the economy has grown rapidly to today, why some people are getting busier and busier, their incomes are getting lower and lower, and even bank card deposits are getting smaller and smaller.

I say this with data to back it up.

The 2018 annual report of China Merchants Bank reveals a good sample for us: taking that year as the end point, counting back five years, that is, from 2013 to 2018, the proportion of private banking customers of China Merchants Bank remained between 0.05% and 0.07%, and their per capita assets were tens of millions, which was the highest echelon of the pyramid and the smallest number of people, but the wealth assets held by this group expanded from 20.23% to 30% in 2018.

That is, the so-called 6/10,000 customers occupy 30% of the wealth assets of China Merchants Bank.

The proportion of ordinary customers of China Merchants Bank remained at about 98%, but the proportion of wealth assets shrank from 27.35% in 2013 to 19%. According to the per capita wealth assets, the average wealth held by CMB's private banking customers increased from 22.41 million yuan in 2013 to 28 million yuan in 2018, while that of ordinary people decreased from 16,000 yuan to 10,500 yuan.

At the macro level, our economic growth has increased significantly, and at the micro level, the per capita assets of the richest group have increased from 22.41 million yuan to 28 million yuan in 2018.

What about ordinary people? From 16,000 yuan to 10,500 yuan, in just five years, the savings not only did not increase, but decreased.

For ordinary people, the large expenses for housing, education and living costs may be the cause of the insufficient balance in their bank cards, not the decline in income.

But looking at the trends of those five years, it is still easy to see the Matthew effect getting worse, that is, the rich getting richer and the poor getting poorer.

Today, another five years have passed, and we have no way of getting a glimpse of what the new wealth structure is, because the annual report of China Merchants Bank no longer publishes these things.

Perhaps, we can really create a miracle in the history of the world economy, that is, whether the economic model of investment and export growth can be sustained in the absence of large domestic consumption.

Perhaps, the traditional path of stimulating economic growth in the tertiary industry is the best solution.

Our consensus and disagreement on economic growth not only determine our understanding of the matter, but also sometimes determine the path we take.

Today, everything is still unknown.

end.

Author: Luo sir, concerned about the economy, society and everything in our world, curious about the logic behind the development of things, optimistic pessimist.