Yu Yongding: How to achieve the 5% growth target
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China, which achieved a real GDP growth rate of 5.2% in 2023, will still face internal and external headwinds in 2024, and the annual GDP target for 2024 announced during the "Two Sessions" is about 5%, and how this target will be achieved is attracting attention. "While China's economy faces many challenges and uncertainties, the 5% growth target for 2024 is fully achievable. Yu Yongding, academic advisor of the China Finance 40 Forum (CF40) and member of the Chinese Academy of Social Sciences, said in an interview with Yicai. He has been advocating that the GDP growth target for 2024 should be set at 5% or slightly higher. However, in his view, if China's economic growth rate cannot be reversed in 2024, the window of opportunity may close due to the accumulation of long-term factors and slow variables such as confidence issues, the "hysteresis effect" and population aging, as well as rising inflation due to external shocks. At the macroeconomic level, net exports, investment, and consumption are the "troika" driving the economy, driving economic growth, of which monetary and fiscal policies are very important. Yu Yongding believes that China's CPI inflation rate is close to zero and PPI has been negative for a long time, which is enough to show that China still has a lot of room to implement expansionary fiscal and monetary policies at the macro level. The main driving force of GDP growth benefited from the low base in 2022 and the retaliatory rebound after the epidemic, and the extraordinary growth of final consumption in 2023, contributing 82.5% to economic growth. It is not difficult to infer that consumption growth should decline somewhat in 2024, but it can be assumed that final consumption will be 5% in 2024 in line with GDP growth. In terms of exports, China's export situation may deteriorate as international economic organizations generally predict that the growth of the global economy in 2024 will be weaker than in 2023. "The contribution of our trade surplus to GDP growth in 2023 is -0.6 percentage points. For simplicity, we can assume that the growth rate of the trade surplus in 2024 will be zero. Yu Yongding said. As the share of final consumption in GDP is already significantly higher than the share of capital formation in GDP, consumption growth in 2024 is a key factor in determining GDP growth. If final consumption growth slows to 5% in 2024, capital formation growth will need to increase more sharply in 2024 to offset the drag on GDP growth from the decline in final consumption growth. Investment growth remains the key question, how can capital formation reach the necessary pace of growth in 2024 to offset the negative impact of lower final consumption growth on GDP growth?" Yu Yongding said that according to the data released by the Bureau of Statistics, the national fixed asset investment will increase by 3% year-on-year in 2023, including three parts: infrastructure investment increased by 5.9%, manufacturing investment increased by 6.5%, and real estate development investment fell by 9.6%. Since 2009, the growth rate of China's fixed asset investment has continued to decline, from 30.1% in 2009 to 3% in 2023. How high should the growth rate of each component of fixed assets be maintained so that the growth rate of capital formation is sufficient to offset the adverse impact of the decline in consumption growth on GDP growth? The Bureau of Statistics announced that the national investment in fixed assets (excluding rural households) in 2023 will be 50 trillion yuan, but it has not announced the investment in manufacturing at the end of 2023. Yu Yongding said that according to rough estimates, the three major components of fixed asset investment, manufacturing (including other investment), real estate, and infrastructure accounted for 50.5%, 20.4%, and 29.1% of fixed asset investment at the end of 2023. In terms of 2023, compared with 2022, the proportion of manufacturing has increased, the proportion of real estate has decreased (real estate investment will grow negatively in 2023), and the proportion of infrastructure investment has increased, but the increase is smaller than that of manufacturing. "In fixed asset investment or capital formation, the investment that the government can directly influence is infrastructure investment, manufacturing investment is basically determined by the market, and real estate investment is basically the same. However, due to its nature as a public good, infrastructure investment can be used as a policy tool to compensate for the lack of aggregate demand and affect economic growth. Therefore, the growth rate of infrastructure investment has become a key factor in determining the growth rate of China's capital formation in 2024, while the growth rate of manufacturing investment may decline and the growth rate of real estate continues to be negative. In short, Yu Yongding believes that whether the growth rate of 5% can be achieved in 2024 depends largely on the growth rate of final consumption in 2024, if the growth rate of final consumption declines more, the growth rate of capital formation in 2024 needs to be significantly increased to offset the drag of the decline in final consumption growth on GDP growth. Whether the growth rate of capital formation can be significantly improved depends to a large extent on whether the infrastructure can be significantly improved. There is still room for fiscal expansion, and in order to support infrastructure investment, an expansionary fiscal policy is crucial. "Whether we can find a project that can be completed efficiently and with high quality is a question that should be studied. Yu Yongding believes that if we have no projects to invest in, it will be difficult to implement infrastructure investment through expansionary fiscal and monetary policies. High-speed rail, highways and other projects may be saturated, but the scope for increasing investment in sponge cities, green energy, large aircraft, medical care and elderly care is still quite huge. In addition, in view of the "small courtyard and high wall policy" in the United States, environmental protection, aging and "declining birthrate", and global infectious diseases, "infrastructure" has long gone beyond the scope of "iron public machine", and even beyond the scope of "new infrastructure". In terms of technological innovation and technological revolution, industrial chain reshaping and industrial system adjustment, the contribution of government investment is required. Because of the low commercial returns and high risks of such investments, it is difficult to expect private capital to invest in these areas without government involvement. In his opinion, we should think very systematically about which projects should be grasped, instead of dividing the cake into various departments, which is inefficient. "If the government expands fiscal spending, increases the issuance of government bonds, supports infrastructure investment, and is supplemented by an expansionary monetary policy, through measures such as interest rate cuts to support the issuance of government bonds, and increases wage income while increasing property income, it is entirely possible for China to achieve a growth rate of 5% in 2024. Of course, many non-macro factors are just as important, if not more important. "There is an argument that under the Maastricht Treaty, the fiscal deficit ratio should not exceed 3% and the national debt-to-GDP ratio should not exceed 60%, and China has approached or exceeded these two standards. Yu Yongding said. These two criteria were put forward by Germany and other northwestern European countries after the establishment of the eurozone in order to limit the indiscriminate spending of southern European countries. These two criteria have no basis in economic theory and have long been abandoned by Western countries. In fact, China's 2024 budget plan has already surpassed the "Billlot standard" and is higher than in 2023. In other words, in 2024, the Chinese government will increase the expansion of fiscal policy. This is a very welcome initiative. As for whether the expansion of fiscal policy is sufficient, it needs to be further analyzed in combination with the capital needs of infrastructure investment in the broad sense and the needs of other government fiscal expenditures. In terms of China's fiscal space, the total debt balance of the Chinese government in 2022 exceeded 60.7 trillion yuan. Among them, 25.6 trillion yuan of government bonds, 14.4 trillion yuan of local government general bonds, and 20.7 trillion yuan of special debts, it can be concluded that the proportion of debt (national bonds + local government general bonds + special bonds) to GDP is 50.2%. If we add up the so-called implicit debt (the size of urban investment bonds is about 60-70 trillion yuan), the IMF believes that the ratio of the Chinese government's broad government debt to GDP in 2020 was 95.7%, and forecasts that this ratio will be 110% in 2022. Even so, this is not high compared to the international level. For example, Japan (262%), Italy (151%), the United States (137%), Singapore (118%). It is not idle to stimulate consumptionAlthough investment is the most critical carriage this year, China is not without nothing to do to stimulate consumption. Mainstream Western economists, such as Summers and Krugman, argue that the decline in China's economic growth rate indicates that China's growth model that ignores consumption has come to an end. Yu Yongding said he could not agree with this view. In short-term macroeconomic control, stimulating consumption and stimulating investment play the same role in making up for the lack of aggregate demand, but the choice between consumption and investment is the choice between consumption now and more consumption in the future. Given the "capital-output ratio", the lower the investment rate, the lower the future economic growth. Of course, overinvestment can also lead to an increase in the "capital-output ratio", which will lead to a decline in future economic growth. The key is to get it right. China's final consumption as a percentage of GDP is significantly lower than that of the United States, but the proportion of China's total retail sales of consumer goods in GDP is significantly higher than that of the United States. The main reason for this difference is that the share of services consumption in final consumption in the United States is much higher than that of China, and the consumer price of services is significantly higher than that of China. If we look at the structure and prices of final consumption in China and the United States in more detail, the gap between the above proportions of China and the United States is not as large as it seems. In China's current situation, government money to stimulate consumption may not be the best policy option. Of course, Yu Yongding believes that this is definitely not to say that the government has nothing to do to stimulate consumption. The traditional consumption function is not a true aggregate consumption function. There are many other factors that should be taken into account in the aggregate consumption function, such as the age composition of the population, the degree of equality in income distribution, and the completeness of the social security system. Therefore, reducing the gap between the rich and the poor through income policies, improving the social security system and medical system, and providing more and better public services for low-income groups can all promote consumption, thus helping to solve the problem of insufficient aggregate demand. It should be noted, however, that quite a few of these measures have gone beyond the scope of macroeconomic regulation and control, and it is difficult to achieve results in the short term.
[Yu Yongding: Keynote speaker of the Chang'an Street Reading Club, member of the Faculty of the Chinese Academy of Social Sciences]
Note: Authorized to publish, this article has been selected and included in the "Chang'an Street Reading Club" theoretical learning platform (People's Daily, People's Political Consultative Conference Daily, Beijing Daily, Chongqing Daily, Xinhuanet, CCTV, National Party Media Information Public Platform, Vision, Beijing Time, Surging Government Affairs, Phoenix News Client "Chang'an Street Reading Club" column synchronization), reprinting must be uniformly marked "Chang'an Street Reading Club" theoretical learning platform source and author.
Editor-in-charge: Liu Xingyue, preliminary review: Cheng Ziqian, Chen Jiani, re-examination: Li Yufan
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