At the Warren Buffett Shareholders' Meeting and China Investors Summit, Wang Han, Chief Economist of Industrial Securities, delivered a keynote speech entitled "China's Macroeconomic Analysis: Strengthening Confidence", analyzing China's macroeconomic situation in the short and medium term.
Wang Han
Chief Economist of Industrial Securities
The theme of today's summit is "The Potential of Investment", and in fact, in the current environment, if we look at China's macro economy and China's financial market, I think it is indeed full of potential and potential for various investments. That's why I'm titled "Firm Faith", and I want to discuss with you four aspects as a whole:
● First, everyone is more concerned about the trend of China's economy in the short term.
● Second, there has been a lot of discussion in the past two years, what are the highlights of China's economy, especially the macro economy, in the medium term?
● Third, what are the new changes in the capital market?
● Fourth, what are the recent changes and highlights of the external situation?
I would like to share my views on these four issues.
China's economic situation during the year:
Steady growth policies escort and prevent risks and cure both the symptoms and the root causes
First of all, in the short term, we know that China's economic fundamentals in the first quarter of this year have made a good start. This data is very hard to come by. GDP growth in the first quarter was 5.3%. When we look back at the smoothing of economic growth over the past three years, the average growth rate of China's economy is about 4%. Of course, there is a special reason for the first quarter of this year, which is the so-called leap year effect. There are also many people who say that if the effect of leap years is excluded, perhaps China's data for the first quarter is not so bright. But we must not forget what the first quarter of last year was like. Push back to the end of 2022, when everyone was probably wearing masks and had high expectations for economic growth in 2023. Because the epidemic is finally over, we can finally start our normal lives.
In the first quarter of last year, when all of us, especially office workers, walked in the airport and the hotel, what was the most troublesome thing for us? That is, we couldn't buy air tickets and book hotels. In other words, the first quarter of 2023 has a very strong base effect, and behind this base effect is the enthusiasm of everyone who has been suppressed for two to three years and has not been released due to the impact of the epidemic, which will be released in the first quarter of 2023. With such a very strong base effect, we will still be able to maintain a growth rate of 5.3% in the first quarter of 2024 compared to the same period last year, which is very much more than expected.
Whether it is through the year-on-year data or the investment data, we will find that all kinds of data are better than everyone imagined. After the first quarter, what will happen to the economy this year? A very important point of interest in this year's economy is the demand for economic growth by macroeconomic policies. We just mentioned that the average annualized growth rate of the economy in the past few years is about 4%, and this year's economic growth target is 5%, and we know that last year's economic growth target was also 5%, but that 5% is easy to achieve because the economic base in 2022 is very low. However, in the context of the post-pandemic economic recovery in 2023, it is not easy to put forward a 5% growth target again.
Of course, the central government's policy has never simply stated a single goal, but has a large number of policies to cooperate. For example, if we break down the growth target of more than 5% and correspond to the employment data, we will find that the requirements for employment this year are different from before. In the past, we had a requirement of about 12 million people to be employed, but this year we are asking for more than 12 million people. In the case of the traditional fiscal policy, where the deficit rate is about 3% unchanged every year, another adjustment has been made this year, that is, we will issue special government bonds for the next few consecutive years. How much is this construction bond? The number was given this year, but not in the next few years, why? I think this may be to leave enough policy leeway for the economy if there are some potential downside risks.
At the same time, the disruption of the epidemic in the past few years has led to very unsmooth exchanges and exchanges at home and abroad. I remember that when I went abroad for an inspection last year, I found that it was very difficult to buy air tickets, and the number of round-trip flights was very small. At the same time, since the beginning of this year, we have introduced a large number of policies to open up to the outside world, whether it is the exchange of visas with many economies, or the rapid growth of the number of flights, the expansion of opening up has also brought a very important impetus for economic growth.
In addition, an issue that everyone has been particularly concerned about in the past two years is that China's economy has accumulated a lot of strength for economic growth after the rapid development of the past few decades. At the same time, however, some problems have accumulated, whether they are real estate problems, local debts, or problems of small and medium-sized financial institutions.
I think that from these perspectives, this year's policy is clearly aware of some uncertainties in the medium and long term of economic growth, and that there may be some potential issues that need attention to our economic growth, and still put forward the 5% target under such a situation, and at the same time prepare corresponding policy reserves.
Under such circumstances, we may not need to be as pessimistic about economic growth during the year, as some friends have suggested.
Medium-term highlights:
New quality productivity is the source of China's medium-term economic power
In the medium term, what kind of changes will happen to the economy, and what problems are certain and which are uncertain. For example, what is the pace of debt resolution, and what is the slope of the soft landing of the real estate market, we must observe these issues as we go. But in the midst of these uncertainties, there are also some certainties, such as the cost of money in financial markets. Whether it is to find new growth drivers for the medium- and long-term economy, to encourage entrepreneurs to be willing to invest further in the medium and long-term, or to create a good condition for the resolution of potential stock debts. In such a situation, we believe that the central bank's monetary policy will remain somewhat accommodative. What are the benefits of this? That is, compared with the rapid growth period of the past few decades, the cost of the entire capital will be shifted down in a platform.
This incident will have two positive impacts, on the one hand, it will resolve the existing debt, which means that the pressure of rolling profits caused by the accumulation of debt interest will be alleviated from both enterprises and residents. On the other hand, it is also very important that the cost of these investments will be lower, whether it is for Chinese companies to go global or for domestic enterprises to invest for the future in the process of transformation and innovation. From that point of view, although we think that after a period of continuous downward movement in interest rates over the past few years, at this point in time, how much room do you say there is for interest rates to fall sharply? But even if there will be some impulsive rebound, the overall cost of capital will remain low, which is a very important point.
What does this mean? When the cost of capital is low, it means that the cost of making an investment will be lower. Note that investment here refers to financial investment and industrial investment.
In addition to the cost of funds, we also need to pay attention to what kind of economic structure we should develop in the medium and long term, and what is the driving force for our economic growth? This is what the party Central Committee and the State Council have been mentioning since last year that we must vigorously develop new productive forces.
The connotation of the new quality productivity is very rich, but if we use the words of the central government to express it, it is the "three highs": high technology, high efficiency, and high quality. Why do we do this? I think there are many ways to talk about it, but there are two levels of understanding that are the most clear.
First of all, from the perspective of the stage of economic growth and development, after this stage, the people's requirements for the quality of economic growth will become higher and higher. Whether it is the group of young people born in the 90s and 00s and the group of people born in the 60s and 70s, life and work should be balanced, input and output should be more matched, and the embodiment of personal value should be more visible to me. All this means that economic growth needs to be of higher quality.
On the other hand, it is also very important, that is, an important change has also taken place in the population structure and talent structure, which has laid a very good foundation for the development of high technology and high efficiency. I know that some friends will say that China's education system seems to be different from the Western system, and the Western system seems to allow children to be artists and innovate in a very free way, and it seems that everyone in the process of Chinese education has some very rigid lines that must be crossed. Some people will feel that such an education system is not what they want. But I would like to say that the core of China's education system is actually to train engineers. If we think about all the math problems we do in primary and secondary schools, as long as it is the same equation and we solve it a hundred times, it will still be the same result, isn't this an engineer? What an engineer does is that when the design engineer makes the design drawings and hands them over to the architectural engineer, he can completely and meticulously implement this matter, and this is precisely the most important talent base for China's medium-term development of new quality productive forces.
At the same time, our industrial base is also a very important guarantee for the development of new quality productive forces. Do you know who is the world's largest economy? But if we take away the tertiary industry and simply look at the primary and secondary industries, or simply look at the manufacturing industry more directly, who is the world's largest manufacturing country? East Asia accounts for about 30% of the world's industrial sector, and North America accounts for only 18%, which is still calculated in terms of value added. We know that in the past two years, the hottest word in the industry has been supply chain. If we think about the supply chain, if we think about it in terms of output value, China's entire industrial output accounts for 36% of the world's output, and the United States accounts for 12%. In other words, you have the world's largest and most complete industrial system, which means that all of our innovative young people, when you want to implement your innovative ideas, have a strong industrial chain to support. For example, if a business owner who sells mobile phones wants to build a car, as long as he comes up with an idea, all the companies in the industrial chain system will help him prepare every part, and he only needs to save it.
However, if you go to another country, for example, this country itself does not have a strong enough complete industrial system, is it possible that the world's most powerful mobile phone company will build a car in this place? Maybe after a few years of work, you will say, forget it, I won't build this car.
Another very important thing, in addition to our complete industrial system, the huge domestic demand market will also mean that Chinese enterprises will form a win-win situation in the future globalization layout process, and will not be like some small industrial countries in the past, when it de-globalization layout appeared hollowing phenomenon.
First of all, as I said earlier, the question we need to focus on is where the demand for medium- and long-term economic growth comes from? What is China's advantage? As we just said, our advantage lies in providing industrial products to help the economy industrialize. In such a situation, if we consider the different structures of the world, the developed countries of the West have a population of 1 billion people, and it has completed industrialization. With a population of 1.4 billion in China, our industrialization has also reached a certain level. But where is another very important place in the world? 8 billion people minus 2.4 billion people, there are 5.6 billion people, and these 5.6 billion people have a strong need for industrialization, and China has a complete industrial system, a huge product library, and cheap and high-quality goods to provide them. When they go to industrialization, whose industrial products do they buy? Of course, it is Chinese.
Many people say that Chinese enterprises will directly set up branch factories there, and after a long time, will China be hollowed out? No, because there are still 1.4 billion Chinese in China, and when no enterprise goes to the global layout, it will only need the African market, and the Chinese market will not be needed. If we judge China's economic growth in the medium to long term from these perspectives, we will become a little more optimistic than before.
Policies have helped accelerate the formation of a good ecology of the capital market
What should the capital market do in the process of developing new productive forces? I think the most important thing, as recently mentioned in the new "Nine Articles," is to solve the problem of a good ecology of the financial market and to speed up the formation of a good ecology of the capital market. In other words, investor-oriented. If we look at such a policy orientation, Chen Jinquan also said just now that in order to improve the stability of the financial market, it is very important to have long money in various systems, and long money can ensure the reduction of volatility. If the policy orientation is to improve stability, it means that the future policy will increasingly guide the entry of long money into the market, which is obviously an ecologically important positive contribution to the capital market.
External Situation Concerns:
Local geopolitical conflicts, trade structuring
Finally, as we mentioned earlier, there are a lot of uncertainties in the external situation, especially this year, whether it is Eastern Europe or the Middle East, this kind of geopolitical conflict seems to be becoming more and more intense. It is possible that such a drastic situation will continue for some time, and every time such a fierce upheaval, we have to pay attention. But at the same time, we should also pay attention to the fact that in the course of geopolitical conflicts in the past few years, there have been some special changes, for example, the IMF has raised its economic growth forecast for Russia for nine consecutive reports. War will change the structure of global trade, and in this process, how can China's huge production capacity and the changes in the structure of global demand be reconciled? This is a question that we can also explore.
The above is my overall judgment on China's economy, which can be summarized in one sentence "firm confidence", thank you!
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