Liao Qun is the Chief Economist of Sino Group, the Director of the Economic Research Center of Hainan University, the Senior Research Fellow of the Chongyang Institute for Financial Studies of Chinese University, and the Director of the China Chief Economist Forum
In March this year, just after the end of the "two sessions", the State Council issued the "Action Plan for Promoting Large-scale Equipment Renewal and Trade-in of Consumer Goods" document. I said at the time that this document was encouraging, and now I think it is even more significant and far-reaching.
Equipment renewal, that is, the replacement of old equipment with new equipment; The trade-in of consumer goods is the exchange of old products for new products, in fact, both are "old for new". Then, the above-mentioned document points out a way for the sustained rise of the mainland's economy in the future, that is, the implementation of "old and new" products in all walks of life.
This path I would like to call the right path. What is the right way? Among them, the positive not only refers to the correct, but also to conform to the law (see "Zheng_Baidu Encyclopedia") and then the meaning of necessity, just like the familiar poem "The right way in the world is the vicissitudes of life", which refers to the fact that the sea has become a regular phenomenon in the world. Therefore, the righteous path is not only the right way, but also the only way.
So why is it said that "replacing the old with the new" is the right way for the mainland's economy to continue to rise, that is, it is both the right way and the only way?
As far as the mainland economy is concerned at the present stage, it is obvious that "replacing the old with the new" is the right way.
It should be noted that one of the main contradictions facing the mainland's economic growth at present is that supply exceeds demand, that is, economic supply exceeds economic demand, or there is an oversupply, or there is insufficient demand. In such a situation, of course, we should reduce supply and increase demand, and the product "old and new" has achieved both, both "old" to reduce supply, and "new" to increase demand, directly alleviate the contradiction between supply and demand, thereby stimulating economic growth. According to the estimates of relevant departments, the trade-in of automobiles and household appliances alone can create a market space of more than one trillion yuan, equivalent to more than 0.8% of the mainland's GDP. It can be seen from this that the "old for the new" alleviates the oversupply and stimulates economic growth.
At the same time, the significance of "trade-in" for product upgrades is obvious. On the one hand, the quality of many old products on the mainland is unsatisfactory. Taking automobiles as an example, according to relevant market information, there are currently more than 16 million passenger cars with emission standards of "China III" and below, of which more than 7 million are more than 15 years old, which are obviously outdated. On the other hand, the quality of new products in mainland China today is close to or even leading modern standards, such as leading green standards in green and moving towards smart standards in digital aspects. Then, "replacing the old with the new" will promote the upgrading of the mainland industry, and it can be said that it has stepped onto the stage of modernization in one step.
It is not difficult to understand that the above "trade-in" is the right way to promote growth and product upgrading. What the author wants to say in this article is that, as mentioned above, we should not only regard "replacing the old with the new" as the right way, but also regard it as the only way, that is, "replacing the old with the new" is the only way to promote the continued rise of the mainland's economy.
What do you mean by that?
The so-called economic rise refers to the economic growth rate significantly higher than the global average or the level of most countries, and at the same time, the quality of economic development continues to improve to the level of modernization. Since 1978, the mainland's economy has risen strongly for 46 years, growing at an average annual rate of 9%, more than 5 percentage points higher than the global average, and the quality of the economy has improved significantly. According to the parabolic law of the development of things, the rise of the mainland economy has slowed down in the past ten years; The slowdown will continue in the future, but it is still on the rise. Then, if it is to continue to rise in the next 20 years or so, the growth rate of the continental economy still needs to be 2 percentage points or more higher than the global average, that is, relative to the global economic growth rate of 2-4%, the continental economy needs to grow by 4-6%, that is, medium-high growth. At the same time, indicators of the quality of economic development need to continue to converge with the standards of modernization.
In the past 46 years, the mainland's economy has achieved a strong rise with an average annual growth rate of 9 percent, and the main reasons are: first, reform and opening up have liberated the productive forces, and the total factor productivity has increased substantially; second, it was still a shortage economy in the first 20 years, that is, the aggregate supply is less than the aggregate demand, and the domestic demand is driven; third, after the accession to the WTO in the new century, foreign trade has expanded rapidly, and foreign demand has driven; Fourth, the population was growing positively before last year, and at least in the first 30 years, it enjoyed a huge demographic dividend. However, these favourable factors are waning or disappearing. The rate of increase in total factor productivity has slowed historically; The shortage economy has become a surplus economy around 2000; The WTO effect has been fully tapped, and the expansion of foreign trade has been hindered by the United States' suppression; Population growth is already negative, and it will be difficult to turn positive in the future.
So how to continue to rise in this situation? The disappearance of the demographic dividend is irreversible, and the foreign trade situation depends on the external environment.
To solve the problem of oversupply is to solve the shortage of demand, and to improve total factor productivity is to improve supply. According to the principle of making up for shortcomings, the problem of insufficient demand should be solved first.
Economic demand is the three major components of GDP on the demand side, namely final consumption, capital formation and net exports, or simply the so-called troika, namely consumption, fixed asset investment and exports. Insufficient demand means that the current horsepower of the troika is insufficient, that is, consumption growth slows down in a situation of saturation, fixed asset investment is limited in expansion due to overcapacity, and exports are difficult to continue to expand due to the deterioration of the external environment. Therefore, if the economy wants to grow at a medium and high speed and improve its quality, it is necessary to stimulate demand, and export demand cannot be controlled by the external environment, so what we can do is to stimulate domestic consumption and investment demand.
So, how to stimulate consumption and investment demand when existing consumption tends to be saturated and industrial overcapacity tends to be overcapacity? It can only open the door to demand for "new products" by eliminating some existing consumer goods and production capacity, that is, some "old products", that is, "replacing the old with the new".
It has been analyzed and pointed out that "replacing the old with the new" not only drives economic growth but also promotes product upgrading, and the intensity is very strong. This ensures that the economy continues to rise in terms of growth rate and quality.
From the perspective of quality, it should be noted that the mainland has a huge need and space for "replacing the old with the new." This is because, to say that the mainland economy is oversupplied means that the supply exceeds the demand in aggregate, but if we consider quality, the situation will be very different. As mentioned earlier, the quality of many "old products" on the mainland is unsatisfactory, but in fact, if strictly measured, there are not only many, but quite a few "old products" that are still at a medium and low level in quality, and there is a big gap between the modernization standards and the level of developed countries. For example, housing for urban residents in mainland China is currently the most talked about. According to the seventh national population census, in 2020, the per capita housing area of urban residents in mainland China was 38.6 square meters, and the ratio of suites was 1.09, both close to the standards of developed countries, indicating that the total supply can be said to have exceeded demand. However, it must be noted that only about half of the houses of urban residents on the mainland are commercial houses built after 2000, while the other half or so are non-commercial houses, and most of them were built before 2000. Most of the non-commercial housing involves about 400 million urban residents, and the quality of all aspects is far from the modern housing standards, and sooner or later it needs to be replaced. Therefore, if the mainland's consumption and industrial structure are to be modernized and to catch up with and surpass the developed countries, a large number of low- and medium-quality "old products" must be eliminated and replaced with high-quality "new products," that is, "removing the old and replacing the old with the new." Only when this is achieved can the mainland's industrial structure and economic outlook take on a new look.
That is why it is said that "replacing the old with the new" is the only way for the mainland's economy to continue to rise in the future.
Many people may disagree or understand this. Isn't it a waste, one will question? Others will say, isn't this artificially creating demand and thus GDP?
This is the key to what we need to understand.
Is "trade-in" a waste? Traditionally, of course. It's not that the old one can't be used, so why replace it? This kind of frugal thinking is true in the era of shortage when supply exceeds demand, but it is conservative, wrong, and not worth advocating in today's surplus years of oversupply. From a personal or corporate point of view, it may not be comfortable to use, just like every home has household appliances, but many functions are not strong and often break, which makes people annoyed; Everyone has a house to live in, but many of them are old, small and lacking in supporting facilities, which is uncomfortable; The plant has equipment, but many of them are old and backward, still need manual operation, and the output efficiency is low, and they have to be maintained frequently, which makes entrepreneurs headaches.
So, to be comfortable, it is necessary to replace the old ones with new appliances, houses, or equipment. After replacing it, it is more comfortable to use, that is, consumption or industrial upgrading, it is worth it. Why is it worth it? Isn't the goal we strive for to make life more elegant, better, and more comfortable? That being the case, getting rid of the old cannot be said to be wasteful, or that this waste should or even must be. If it is really an "old product", if you have feelings, you can only endure the pain and love, and only regard it as the price that you have to pay for a more comfortable or better life.
As for whether demand and GDP are artificially created, it is true that it is artificial, but from the perspective of economic development, such artificiality should and even must. It should be recognized that the needs of the modern economy are either or can only be artificially created in a situation of oversupply. This is the essence of Keynesianism in stimulating demand for economic growth. In the 30s of the last century, when the global economy fell into the Great Depression due to oversupply, Keynes put forward the theory of stimulating demand and GDP growth with expansionary fiscal policy in the face of the lack of demand momentum for economic growth, which saved the entire capitalism and the global economy. Expansionary fiscal policy is naturally artificial, that is to say, Keynesianism advocates the artificial creation of demand, and its success is due to the government's artificial creation of demand according to his theory. This artificiality is now rarely challenged.
Many people may have heard of Keynes's "digging theory", which states that when the economy is in a downturn, 200 people are hired to dig the hole, and then 200 people are hired to fill the hole, which creates jobs and thus GDP. If we talk about waste, this is a typical useless work, and there is nothing left after the pit is dug and filled, which is much more wasteful than our "old trade-in" sacrificing "old products" but obtaining "new products"; If we say artificial, this is not only artificial, but also unprovoked, much more artificial than our "trade-in" for the defects of "old products" to "new products". But paradoxically, in terms of stimulating demand and the economy, such "digging" is effective. Therefore, for the modern economy, we should not stick to traditional thinking, but should open our minds and carry out "brainstorming".
After the Great Depression, governments followed Keynesian theories and adopted expansionary fiscal and monetary policies from time to time according to supply and demand, which successfully stimulated demand and economic growth. At present, as mentioned earlier, the continental economy is facing a shortage of demand, which is actually the case in most countries, and the Keynesian theory of artificially stimulating demand should naturally come into play. In fact, there are now many examples of artificially stimulated demand, and people have embraced and enjoyed it. You don't see, Apple's mobile phone, in fact, now includes many domestic mobile phones, and a new version will be launched after a while, which will soon be the 16th version, that is, Apple 16 (iPhone16). The new features in each new version meet the new needs of consumers, but are these new needs initiated by consumers? In fact, no, but Apple mobilizes or stimulates it with supply, that is, Apple forward-looking designs and produces new features, and then guides consumers to buy new versions of mobile phones and use new features through advertisements and other forms; Consumers find the new features interesting, so they buy new phones and consume them, and they never get tired of it. This is the classic artificially stimulated demand. But few people seem to be aware of this and oppose it, and everyone is having fun with their new phones. There are many more examples of this, such as the equipment of intelligent functions in new energy vehicles that are currently in vogue.
Therefore, artificially creating demand or GDP is not a deviant, nor is it a new thing, nor is it a waste and gratuitous, but an inevitable way of modern economic development.
At present, the mainland's economy has reached the stage where artificial demand can maintain medium-high growth and improve the quality of the economy, so as to continue to rise. Otherwise, economic growth will slide to the global average level relatively quickly, and it will be difficult to improve the quality of the economy, so that the process of economic rise will be interrupted, and even fall into the "middle-income trap".
Of course, some people will say that the key to the continued rise of the mainland's economy in the future lies in the further improvement of the total factor productivity on the supply side, including scientific and technological progress, the improvement of human capital, the improvement of the economic structure, and the optimization of the market mechanism, as well as the further development of emerging industries. From a supply perspective, this is true, and it is very true. However, economic development requires both the demand and supply sides to move forward and exert force at the same time, and the improvement of total factor productivity on the supply side and the development of emerging industries do not rule out the demand side of "replacing the old with the new"; Far from being excluded, they complement each other. This is because the effect of the improvement of total factor productivity on the supply side and the results of the development of emerging industries are ultimately realized and applied through the "old for new" on the demand side, such as scientific and technological progress to promote the faster development of emerging industries, and the faster development of emerging industries provides higher quality "new products" that can satisfactorily replace "old products" on the demand side. On the contrary, if there is no "old for new" and "new products" there is no demand space, the development of emerging industries will not be supported by demand, and the improvement of total factor productivity will be meaningless.
Some people may still sigh and question, does human beings need to be so artificially tossed? There is no "new product", as long as the problem of food and clothing is solved, although the use of "old products" is not as comfortable as using "new products", but it also saves all kinds of troubles and tragedies caused by continuous struggle for "new products", which is not bad? Tao Yuanming's "Peach Blossom Spring" has no "new products", isn't it that many people yearn for? It should be said that this questioning has philosophical metaphysical thinking and Taoist feelings of "passing away", which is level, and in a philosophical sense, the author actually appreciates and empathizes with it. However, what we are discussing here is not a philosophical issue but an economic issue, and the focus is not on the metaphysical meaning of life but on the effective way for the mainland economy to continue to rise in reality. The above analysis has shown how necessary it is to "trade in the old" in the field of economics. The necessity is all the more exacerbated when we consider how fierce the economic competition among countries is in this day and age, and how important the outcome of the competition is to the fate of each country. As far as the mainland is concerned, the most important thing to ensure the continued rise of the economy is to carry forward the spirit of "being promising" and not hesitate to toss around. When human society has truly developed to the point of great material abundance, fully developed economy, high political civilization, and everyone yearns for peace, let us rise to the air of philosophy, adopt Taoist thinking, and pursue the artistic conception of "Peach Blossom Spring".
Therefore, the "old and new" that has just begun should be implemented as soon as possible and spread to all parts of the country and various industries, so as to form an economic tide like promoting the development of strategic emerging industries.
