Economist Zhang Aoping: "Trade-in" presses the start button, how should enterprises grasp it?

Text\Zhao Fangdi

According to the latest report on the first quarter of China's economy in 2024 released by the National Bureau of Statistics, in the first quarter of this year, all regions and departments adhered to the general tone of seeking progress while maintaining stability, focused on expanding domestic demand, optimized the structure, and achieved a good start in production demand.

So, what about the economic data for the first quarter of 2024 captured from a market-oriented perspective? What other key policies will be implemented in the second quarter of the industry and industry? What market-based opportunities can we capture? In what directions will the mainland economy usher in new growth in 2024?

Recently, in the live broadcast of the "China Business Daily" Zero View Finance and Economics Aoping Time Column, Zhang Aoping, economist and president of the New Quality Future Research Institute, said that the economy is always fluctuating, and as long as there is economic activity, there will be a rebalance between supply and demand. At present, there is still a lot of room for improvement in the growth of demand-side consumption. At present, mainland exports have rebounded, and external demand will continue to pick up, but it is necessary to pay attention to the macroeconomic policies of Western developed economies. In addition, the balance between supply and demand is only relative, and imbalance is the general phenomenon.

The economy is always volatile

Zhang Aoping said in the live broadcast that the economy is always fluctuating, and as long as there is economic activity, there will be a rebalance between supply and demand. When the economic growth rate is relatively low, supply and demand are balanced at a lower level; When the economic growth rate is relatively high, supply and demand are balanced at a relatively high level.

Since China's accession to the WTO, the mainland has become a global manufacturing center, so the production and investment needs of many enterprises on the mainland come from the growth of external demand. In Zhang Aoping's view, when external demand declines, the investment of private enterprises will decline along with the decline in external demand, because private enterprises account for 90% of the total number of enterprises in the mainland, and more than 80% of urban employment is directly contributed by private enterprises.

Zhang Aoping combed through the economic growth data of the past five years, and compared it with the same period of the previous year, the data shows that in the first quarter of 2023, consumption increased by 5.8% year-on-year, and in the first quarter of 2024, consumption increased by 4.7% year-on-year. Although this growth seems to be considerable, Zhang Aoping believes that the current consumption growth still has significant room for improvement.

Export data shows that in 2019, the mainland's exports increased by only 0.5% year-on-year. Zhang Aoping explained that this is because of the Sino-US trade friction in 2018. Starting in 2020, mainland exports achieved a new jump, reaching 3.6%, and in 2021, they increased sharply by nearly 30%. Zhang Aoping said that this is because in the early stage of the epidemic in 2021, developed economies such as the United States and Europe generally used ultra-loose macro policies, not only reducing the cost of funds and short-term interest rates, but also purchasing treasury bonds through QE to achieve the purpose of reducing long-term capital costs. Taking the United States as an example, the main economic pillars of the United States, the service industry accounts for about 80%, industry accounts for about 15%, and agriculture accounts for only about 5%. At that time, the United States issued a large amount of money and distributed cash directly to residents to alleviate the living pressure of the American people and stimulate people's consumption, and the Fed's balance sheet increased by 5.2 trillion US dollars during the epidemic, which directly led to a year-on-year increase of nearly 30% in the mainland's foreign exports in 2021.

Since 2022, the CPI in the United States has reached a maximum of about 9%, and the CPI in many European countries has reached about 10%, and the US government and the European Union immediately decided to quickly bring down inflation. Friedman, an economist at the monetarist school, once said that the quantity of money is the main factor affecting inflation and economic growth. Therefore, with the tightening policy of the United States, mainland exports in 2023 will decline sharply year-on-year in the past few years, with a negative year-on-year growth of about 4.0%, but after entering 2024, mainland exports will slowly turn positive, with a year-on-year increase of 1.5% in the first quarter.

The mainland's economic growth is mainly driven by the "troika", that is, consumption, investment and exports. Among them, the investment in this "carriage" is mainly supported by real estate investment, infrastructure investment and manufacturing investment. Zhang Aoping especially mentioned that manufacturing investment and exports are complementary to each other, and when external demand grows, manufacturing investment will grow with it; When external demand declines, manufacturing investment will decline with it. Real estate investment has declined significantly since the "three red lines" landed in 2020, with a year-on-year decrease of 10% in 2022, a year-on-year decrease of 9.6% in 2023, and a year-on-year decrease of 9.5% in the first quarter of 2024. Therefore, Zhang Aoping believes that the drag on the economy of real estate investment in 2024 will improve. When external demand declines, it is necessary to rely on infrastructure investment to boost domestic demand.

The correlation coefficient between U.S. imports and China's exports is very high, and the current mainland exports have rebounded, Zhang Aoping judged that foreign demand will continue to pick up in the future, but it is necessary to pay attention to the macro policies of Western developed economies, and it can be inferred that the United States has been at the tail end of this round of interest rate hike cycle, and a new round of interest rate cuts may start in September. Zhang Aoping reminded investors to prepare in advance.

The balance between supply and demand is relative and the imbalance is universal

On April 16, 2024, data released by the National Bureau of Statistics showed that the national industrial capacity utilization rate fell to 73.6% in the current quarter, which is the lowest level since the first quarter of 2020. At the press conference of the State Council Information Office the next day, a reporter from Bloomberg News mentioned that the leaders of the United States and Europe said a few days ago that China has accumulated excess capacity. Regarding the question of whether there is excess capacity, Jin Xiandong, director of the Policy Research Office of the National Development and Reform Commission and spokesman of the National Development and Reform Commission, replied that on the issue of production capacity, we must start from the laws of the economy and look at it objectively and dialectically. Moderate production capacity, the production side is greater than the demand side, is often conducive to market competition and survival of the fittest, in addition, Director Jin also said that the export of more goods is overcapacity, which is untenable, China is also importing a large number of goods every year. Each country will choose some industries that have a comparative advantage over itself according to its national conditions to achieve its own competitiveness. In Zhang Aoping's view, when the industrial scale is formed, the cost will be diluted, and the revenue and profit will increase, coupled with China's policy to support the innovation-driven development of the supply-side industry, in the short term, it is overcapacity, but in the long run, it is to occupy the market.

Business opportunities in equipment "refresh" and consumer goods "refresh".

In March 2024, the State Council's notice on the issuance of the "Action Plan for Promoting Large-scale Equipment Renewal and Trade-in of Consumer Goods" (hereinafter referred to as the "Plan") mentioned that in order to boost mass consumption such as intelligent networking, new energy vehicles, and electronic products, it is necessary to promote the renewal and technological transformation of various production equipment and service equipment. Among them, the plan mentions that "by 2027, the scale of equipment investment in industry, agriculture, construction, transportation, education, cultural tourism, medical care and other fields will increase by more than 25% compared with 2023; The energy efficiency of the main energy-using equipment in key industries has basically reached the energy-saving level, the proportion of production capacity with environmental performance reaching the A-level has been greatly improved, and the penetration rate of digital R&D and design tools and the numerical control rate of key processes in industrial enterprises above designated size have exceeded 90% and 75% respectively; The recycling volume of scrapped cars will increase by about double compared with 2023, the transaction volume of second-hand cars will increase by 45% compared with 2023, 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".

In addition, on April 10, the State Administration for Market Supervision and Administration united seven departments to issue the "Action Plan for Upgrading Traction Equipment Renewal and Consumer Goods Trade-in with Standards", which has a total of 17 articles, of which more than 70 mandatory standards and more than 290 recommended standards are specified in the annex.

In this regard, Zhang Aoping pointed out that the equipment update mainly includes four major directions: first, equipment in key industries, mainly around industry; second, construction and municipal infrastructure; the third is transportation equipment and old agricultural machinery; Fourth, education, cultural tourism, and medical equipment.

For the "replacement" of consumer goods, the focus is on the three major product directions of automobiles, home appliances and home decoration. The recycling market focuses on four aspects: first, waste products; second-hand commodity circulation; the third is to effectively promote remanufacturing and cascade utilization; Fourth, promote the high-level recycling of resources.

Talking about how to implement the "update" and "renewal" actions, Zhang Aoping said that the state will support in five ways: first, financial support; the second is tax support; third, financial policy support, such as various re-lending tools; fourth, the guarantee of production factors; Fifth, the support of innovation. In addition to financial support, there are also preferential tax policies. According to him, at present, Zhejiang, Shanxi, Chongqing, Shandong, Hunan, Henan and Guangdong and other provinces and cities have introduced specific measures around the local large-scale equipment renewal and consumer goods "trade-in", entrepreneurs and investors can deploy in advance.

In addition to the new round of equipment renewal and the "trade-in" of consumer goods to expand domestic demand this year, the ultra-long-term special treasury bonds mentioned in this year's "Government Work Report" are also a major task for expanding domestic demand in 2024.

Zhang Aoping specifically pointed out that the ultra-long-term special treasury bonds mentioned in this year's "Government Work Report" will most likely be issued before June this year. This also means that in the second half of the year, a specific physical workload will be formed, which will pull economic growth on the demand side.

Zhang Aoping believes that the direction of key support for ultra-long-term special treasury bonds is very clear, that is, first, self-reliance and self-improvement in science and technology; second, urban-rural integration; third, regional coordination; fourth, food and energy resource security; fifth, high-quality population development; Sixth, the construction of a beautiful China.

*Zhang Aoping is an economist, president of the New Quality Future Research Institute, vice chairman of the Science and Technology Innovation Industry Committee of the China Electronic Chamber of Commerce, and a distinguished expert of the People's Daily Venture Capital Expert Advisory Committee. Served as an economic consultant for a number of local government departments and associations: special economic consultant of Shandong Young Entrepreneurs Association; Special Economist of Jiangxi Digital Economy Enterprise Association; Distinguished Economic Consultant of Shandong Private Equity Investment Fund Industry Association; Expert consultant of the Chamber of Commerce directly under the Xinjiang Uygur Autonomous Region Federation of Industry and Commerce; Economic Development Consultant of Guangzhou High-tech Enterprise Association; Expert of the Private Economic Development Think Tank of Jinan Private Economic Development Bureau; Consultant of Guangzhou Tianhe District Service Center for Promoting Private Economic Development; Xinxiang Entrepreneur Federation and other special economic consultants; Expert member of Zhongguancun Digital Cultural Industry Think Tank; Special researcher of Shandong Provincial Finance Investment Group Research Institute; Chief Economist of Vietnam Construction Securities China; Consultant of Zhenghe Island Capital Service Center, etc. He was awarded the "Young Economist" of the Nankai Financial Chief Economist Forum and the "Young Financial Thinker" of CBN.

( Proofreader: Yan Yuxia)