以下文章来源于New Economist ，作者新经济学家智库
Wu Ge is the Chief Economist of Changjiang Securities and a director of the China Chief Economist Forum
Distinguished guests and friends, good morning.
It is a great pleasure to be able to come to Chengdu, the land of abundance, in this beautiful season of spring and prosperity, and share with you some views on the current fundamentals, industry and market issues.
The topic of my report to you today is "Hengling Side Peak". What do you want to share with you? I would like to share some of the problems that have puzzled us all over the past year or so, including the first quarter of this year, which may only be short-term troubles, but they may also be some long-term directions for our exploration.
First of all, the first question I would like to share with you is about nominal and practical. What is nominal and actual? In fact, it is clear to everyone that in the past year or so, we have performed very well in terms of real GDP. Our real GDP growth rate last year was 5.2%, and since the first quarter of this year, our GDP in the first quarter has hit a relatively high of 5.3% on top of the high base of the first quarter of last year.
But at the same time, from a micro point of view, especially from the point of view of the profitability of our business, it is more of a nominal value than a real value.
Therefore, if we look at the macro from the nominal value, especially from the perspective of corporate earnings, there may be some temperature difference with our actual value. Why is this happening? In the past, we were in the middle of the nominal rise and the real value was basically synchronized, but why is this time so differentiated? My personal feeling is that there will be a big disagreement about how we view the economy in the future.
Another issue I would like to share with you is the issue of stock and increment, which is facing various challenges at home and abroad, in fact, from the recent macro trends that we have observed, many of them are based on some understanding of the stock problem.
For example, in the past period, whether it is the so-called trade-in, our equipment update, and even our real estate field, there has been a trade-in, including in the recent meeting, we have also seen that the first thing to put is to digest the stock of real estate, and then the problem of optimizing the increment.
So should we pay more attention to stock or increment, or at this point in time, is China a stock economy, or is it its incremental economy that we are looking forward to? I think this is also a very critical question for our understanding of the future.
Of course, since the beginning of this year, whether it is the stock market or the bond market, we feel that investors in the past often focused on short-term issues, but now it seems that we do not know what is short-term and what is long-term. In the middle of our short-term concerns, we also vaguely express some of our concerns about long-term issues. I think these are all questions that we are trying to share with you today, or that we are trying to explore.
Nominal vs. practical
The first problem is the question of nominal and real values that we just mentioned. Historically, China's real GDP and nominal GDP are often the same, so since the reform and opening up for more than 40 years, our goal is often to closely target or target the expected target to a real GDP, so when the real GDP rebounds significantly, it will often bring about an increase in our nominal GDP, so the volume in the process of growth, the price is often a synchronous rise process.
But one of the interesting things is that in the course of the past few years, we have clearly seen that the growth rate of our real GDP is objectively rising, but at the same time, the prices represented by CPI, PPI or GDP deflator are constantly falling. Why is this happening?
Of course, as an intuitive understanding, everyone will have some changes in its statistical caliber based on their views on some statistical data, such as whether it is an adjustment of price and quantity in the middle of this process. I think that such a concern or a concern is essentially fine, or that there is some truth to this concern, and in fact our statistical department has answered these questions very positively. If you look at the various bulletins of the Bureau of Statistics since the first quarter, including the second half of last year, the various positions in the bulletins, including those in the footnotes, clearly express their scientific adjustment process of data caliber. We have seen the reasons for the adjustment, and they also clearly expressed in the communiqué that there are two most important reasons, the first reason is indeed due to some deviations in the quality of some statistical data in the past, so the correction is carried out at this point in time. In terms of the scientific nature of statistics and the rigor, I personally understand that this is correct.
In addition, there is another problem, we see that in the communiqué issued by the central government, there is also a problem, the sample itself is not comparable, or the sample must be corrected to a certain extent, which is similar to a phenomenon that we often see in the middle of the Second World War, called "survivor bias". In other words, when the plane flies back, we feel that the most injured part of the plane is the wings, but if we think that the weakest part of the plane is the wings, in fact, this perception is biased. Because according to our various observations later, it is clear that in fact, in the middle of World War II, the weakest part of the aircraft was not this wing, what was it? It is the fuel tank on its belly, and the plane that was really shot in the fuel tank actually did not come back, so what we see seems to be that the plane that comes back is full of holes, in the wings, but the wings are not the weak link of the aircraft, for mechanical engineers, it should not only focus on the wings, but more importantly may be its fuselage and part of its fuel tank, which is the so-called "survivor bias".
In fact, in the past in the process of replacing the old with the new, especially in the process of developing the new productive forces, we can see very clearly that many traditional industrial enterprises, especially those above our designated size, may have to undergo significant changes in their number. For example, in the past, we always thought that industrial enterprises above designated size were often aimed at the main business income of more than 20 million yuan, but after such a transformation of old and new kinetic energy, especially after a sharp change in the domestic and foreign demand of the economy, we are likely to see that there is a difference in the quantity between the current industrial enterprises above designated size and the industrial enterprises above designated size in the past.
For a process of optimization based on such a scientific, honest and statistical data, we can indeed see that in the middle of various documents of the central government, especially in the middle of the documents of the technical department, it is also very clear that there is a confirmation of the adjustment of the base, and such a question is not evaded.
So from an objective point of view, it may cause our micro market to have a different understanding of the year-on-year growth rate of the economy.
But there is no doubt that in the middle of the scientific adjustment process of this kind of data, some data are not completely adjusted, such as the price data we see, the price data we know will be adjusted regularly, but perhaps its drastic adjustment may not be so much compared with our quantity data, so this may be able to explain to a certain extent that we see a process of separation between economic quantity and price.
But is this the whole story or is this the most dominant thing in the story, and our conclusion is negative, why is it negative? That is, even if we exclude the optimization of statistics, even if we exclude some statistical and technical reasons, including the low base of the previous year, we can still feel that the growth rate of a real GDP based on compound growth rate and the elimination of the base effect is objectively rising, including last year, including the first quarter of this year.
So just from a very local, technical, statistical optimization process, we don't seem to be able to fully get the answer that we have separated the quantity and price for such a long time, so what might be the answer or what is the more dominant answer? In fact, if we carefully observe the past economy, in the middle of the past economic operation, we seem to find such a feature, if there is indeed a serious divergence between nominal GDP and real GDP in the past, or there is a process of volume rise and price fall, it often corresponds to a significant decline in capacity utilization process, or in a period of volume and price divergence, often most of them have the background of oversupply, often have the background of oversupply, so what kind of association does this make us?
Why in the 40 years of reform and opening up, we are more about the synchronization of volume and price, and now there is a divergence of volume and price, perhaps it is related to the structure of our supply and demand. This gives us an inspiration, gives us a very simple inspiration. Whether we look at the general product market, or look at our macro aggregate supply and total demand, there seems to be such a combination that can well fit or explain our understanding of the divergence between volume and price.
For example, if we look at the economy as a whole, if the expansion of supply is fast and the expansion of demand is slow, then in the middle of the process, in terms of the final equilibrium from the image, it can achieve that the volume is rising, but the price is probably going down. This gives us an inspiration, that is to say, perhaps it is precisely because of the current way of development that supply and demand are not synchronized, so that there is a real separation of quantity and price. So can such an assumption be confirmed by our reality?
In fact, if we look at many overseas economies, including the economies represented by Japan, we find a very universal pattern, that is, when these countries are in the process of declining potential economic growth, the economy often begins to turn from the past to a process of easy cooling.
As you know, there are two periods that are very prominent in the process of declining potential growth in Japan, the first period is the sixties and seventies in Japan, when there was a clear downward process of potential growth. The second process is that after the 90s, Japan's potential growth rate also showed a significant downward process. As the potential growth rate declines, it is clear that the probability of a negative output gap in the overall context is actually greater than the probability of a positive output gap as in the past, which is basically consistent with our current understanding of China's economy.
It stands to reason that when the potential growth rate is declining, if supply and demand are in balance, we should not see negative price growth. However, it is precisely in the middle of the decline in the potential economic growth rate that we see a negative price growth, so does it mean that the decline in the potential growth rate itself can lead to a negative price growth? Not in theory. If the potential growth rate declines, if our aggregate demand policy declines with the potential growth rate, in fact, if the two are compatible, our output gap may be 0, but if the potential growth rate declines, but our aggregate demand at the same time makes up for it, which is slower than the potential growth rate, especially when the supply side changes, then of course it is easy to appear that the economy is easy to cold and not easy to heat.
There is no doubt that, in terms of China's reality, we are certainly in the middle of a very profound adjustment of potential growth and economic transformation. In the middle of this process, there has been a relatively rapid adjustment of the number of labor forces as we know it, and there has also been an unremitting effort by us to resist such a potential decline in growth represented by the new quality of productive forces, which we have repeatedly mentioned by the central authorities. However, in any case, from the general observation of academia and industry, I believe that everyone does not have much doubt about the direction of China's economic transformation and potential growth adjustment.
In the process of declining potential growth, we can indeed see from various macro and micro data that the adjustment of supply and demand is asymmetrical.
I'll give you the simplest example, let's take our kindergarten as an example. As you can see, the number of kindergartens in our country has not undergone a very drastic adjustment over the years, and there are still so many kindergartens. But at the same time, our 3-6 year old population, or the kindergarten-age population, has indeed undergone a relatively rapid change. Therefore, some things on the supply side have not changed rapidly in nature, but the variables on the demand side have changed very significantly, which naturally causes the adjustment of demand to be faster than the adjustment of supply.
In that sense, at least in the kindergarten market, there is some oversupply, and I think it's a natural thing. But this is only a very microscopic piece of evidence of reality that we can all perceive. In a broader sense, if we look at more than just China, it's not just Japan. If we look at Germany, we look at South Korea, which are also export-oriented countries, and they are also bank-led countries, and they do have a more significant change in their potential growth rate, especially in the middle of the accelerated adjustment of the population, and often do see such evidence of falling prices.
Therefore, let us clearly see that although in the middle of the process of declining potential growth, supply and demand can be adjusted accordingly, but perhaps the adjustment of our demand is faster than the adjustment of the supply side, which has also created such a macro evidence that the economy is easy to cool and not easy to heat up in the process of declining potential growth rate.
In the middle of this process, if we see that the volume is growing, but the price has declined, but we still follow our past 40 years of reform and opening up, we still pay more attention to the so-called actual indicators, then this will make our market have a different understanding of macro and micro, that is, in the past so many years, whenever we see that China's GDP growth rate in the current quarter is higher than a certain target at the beginning of the year, we can see it with a high probability. The policy is to maintain a considerable degree of determination. Even in the first quarter of this year, we saw that we started the year with such a higher than the economic growth target of about 5% at the beginning of the year, after a development, in fact, for the definition of our overall incremental policy in the second and third quarters, I think there is a high probability that there is still a high probability.
In the middle of this process, you can perceive that there is no problem with real GDP, but due to price, nominal GDP has a very different process after the separation of quantity and price. However, if we still pay so much attention to real GDP in the whole process of observing the economy, or in the whole macro understanding process, many aggregate policies will not change as quickly as our market understands, or the policies will remain quite determined or sticky.
There is no doubt that if it is true that there has been a negative growth in prices as we have in the past year or so, then in the middle of a negative growth process, as a rational economic person, whether as a resident or as a business, we can all feel that if your prices are generally negative, then I might as well keep cash.
In the past, we can see very clearly in China's history that prices are often at a relatively low level, especially in the process of negative growth, the rate of return on cash is often greater than the rate of return on the real economy, which can also largely explain the regularization of deposits or cash is king in the past year or so, or M0, M1 a very rapid downward process.
At the same time, as we all know, our central authorities have spared no effort in the past few years to solve the problem of reducing debts. I think the positive direction of debt reduction is obvious to all and agrees with it. However, when objectively encountering challenges, if on the one hand you are turning into debts, but at the same time, the price of our overall economy is still in a negative growth range, it will actually bring some challenges to these reforms.
Because as you know, if the price is negative, its nominal liabilities may be declining through debt or other means, but its actual liabilities, that is, the liabilities after excluding prices, may be rising.
That is to say, during the period of inflation, everyone knows that it is actually beneficial to the debtor, and if you have ever borrowed money, you will know that it is more beneficial to the debtor in the middle of the inflationary process, but in the middle of the process of negative price growth, we feel that it is unfavorable to the debtor and unfavorable to the debtor.
From this understanding, we know that price is the result of supply and demand in our economy, but in turn, price can also affect the economy, or that prices and the economy are in a certain circular process. From the perspective of some historical deductions in China's past, prices tend to be more priority than economic performance, or only when prices turn positive in a real sense, then it is possible for the entire economy to achieve a positive cycle.
This is the challenge we are facing now, and after facing the challenge, we will see how we in China deal with it. As we have just expressed, in the middle of our coping process, we have a lot of tools, both aggregate and structural. There are some ways to dispose of stocks, and some ways to increase them.
Stock vs. Increment
From what we've observed so far, in terms of the initiatives that we've taken in China over the past year or so, or some of the ways we've responded to economic challenges, we feel that we seem to be paying more attention to stock than to increments.
To take the simplest example, for example, we see that more houses have been built, so now the first thing is to digest the stock, I think this idea is very intuitive, but we will see whether it is the old for the new, or the so-called equipment update that we will see, or even the real estate, our intuitive or final conclusion is that the key to the final solution to this problem is not in the specific how to resolve the stock, or the stock resolution is also important, but more importantly, we can see the incremental policy, In other words, we can see some policies that tend to be more aggregate.
Let's look at the final deductive logic of prices in countries around the world, especially in the process of accelerating demographic adjustment and in the process of declining potential growth rates. It is worth mentioning that we are very clear that in our entire macro economic system, although we also pay great attention to all kinds of new momentum, but throughout the ages, no matter how much or little real estate accounts for in the country, from the process of their final exit from the downturn in prices, it seems that the stabilization of housing prices or the stabilization of the real estate market is a priority over the stabilization of our prices.
Why is this happening? Perhaps because of its prominence, or because it gives us a forward-looking guide to the future of all aspects of the price. Therefore, whether it is Japan, South Korea, or Germany, they all correspond to a possible adjustment of housing prices in the middle of the entire potential growth adjustment process, but if this adjustment can be stabilized in a short period of time, then the price of the whole price or the price of the whole society can achieve a positive cycle in the real sense.
In the middle of the cycle, if we look at China, there is no doubt that based on our 15 or 16 years of shantytown reform and the monetization of shantytown reform, we did a lot of work at that time and achieved a lot of positive results, but it is an indisputable fact that these things that were done in the early stage may have some substantial impact on us now.
If we look at the sales of commercial housing in China, there is no doubt that no matter how the sales of commercial housing in China fluctuate over the past few years, it is likely to fluctuate around a certain equilibrium value of population and urbanization represented by our dotted line, and such a law is actually consistent with the law of all countries in the world.
From the current point of view, even if we exclude the so-called overdraft impact of the wave of monetization in 15 and 16 years, we can still see the actual sales, which are actually beginning to diverge continuously, away from the equilibrium that we should fit according to population and urbanization for a long time.
Of course, the problem of aging can explain the overall trend of our commercial housing sales, but for the central point, especially the up and down deviation of the equilibrium value, we feel that it is precisely not explained by these long-term variables, and there must be some short-term forces that make us deviate from the equilibrium value that we should have.
From this point of view, we can see that in the past year or so, we have adopted a lot of policies to make up for such a gap, including the recent fact that Hangzhou has also introduced a lot of substantive policies to change our situation, or to make up for the gap that our commercial housing sales are far from the equilibrium value of population and urbanization.
These cities in Hangzhou are very critical, because you know that Hangzhou itself is a strong second-tier city for us, its fundamentals are good, and it is also a net inflow of population into the city, so the changes in some cities such as Hangzhou are actually a directional guide for our future national real estate market, especially because of the city's policy policies, I personally understand that there still exists.
The point is that these policies are being relaxed, or some of the policies that were constrained during our past real estate upswing have been relaxed. What do we expect from the future? This is undoubtedly a positive move, but from the fact that we have seen in the past year or so, we have also seen that many cities, including Nanjing, including Wuhan, including Chengdu, and so on, may actually have the same energy level as Hangzhou.
In the process of opening up these cities in the past, there is indeed a pulse of city-specific policies from a short-term perspective, but a regrettable thing is that the time of this pulse is not particularly long, or after a certain pulse, we can feel as if the sales of these cities will encounter a certain kind of gravity constraint in the dark.
From this point of view, of course, we are happy to see the positive approach of the central government, but as market participants, we are more concerned about its sustainability and its final effect, especially an impact on economic fundamentals.
Of course, what we are building is a socialist market economy with Chinese characteristics, if it is a market economy, especially in the real estate market, it still has a very strong market-oriented element, we can't help but think of such a rapid adjustment process of housing prices in the past year or so, that is, if in the past our housing prices may have been complained about too high, then now housing prices are driven by market forces, it is a spontaneous adjustment, and then it gradually returns. The gradual liquidation should conform to a general law of the market economy.
However, from the perspective of the countries of the world, we find that the law of market spontaneity in our ideal is not exactly the same as the reality of each country. We found that in many countries in the world, when the real estate does have some kind of unilateral adjustment expectations, then if there is no aggregate policy care, in fact, it is difficult to rely entirely on market forces to spontaneously clear or stabilize.
Why is this happening? We will even find that in some countries, there is a possibility and concept that after such a drop in house prices exceeds their down payment ratio, there may even be a second adjustment in house prices, why is this so? We can completely reduce the price to destock, reduce the price to clear. This really involves our understanding of a systemically important industry. That is to say, if it is a cabbage and radish market, the cabbage and radish market will be in the middle of the process of price reduction, which will certainly help the process of clearing the market.
But if we see that the market is not a cabbage and radish market, it is a very systematic market, that is to say, it involves 60% or even 70% of the stock wealth of our people, and it involves a very important part of the collateral of our commercial banks. This makes us see in the process of housing price adjustment that we see not only the housing price adjustment itself, but also the expectations of our people for future wealth, income, and even employment. And this expected change cannot be reflected in the process of clearing the market price of radish and cabbage, because although the radish and cabbage market is important, it is not systemically important.
Therefore, a reality that we seem to be able to feel throughout the ages is that when there are some unilateral expectations in housing prices, at this time, only relying on some stock policies, or only relying on some administrative liberalization, or only relying on market-oriented clearing, this adjustment process may be relatively slow, so what can we feel in our market participants that the risk appetite has increased significantly, or feel that we will have some positive changes in the market more rapidly?
In fact, throughout the ages, if we look at China's practice, we can clearly see that China's commercial housing sales in general, especially in terms of new home sales, are highly correlated with our aggregate amount, especially the real interest rate. In other words, we have not seen in history that when real interest rates are at a high level, there will be a very rapid stabilization and rebound process of commercial housing sales.
Of course, I am emphasizing here that the real interest rate is not only talking about the interest rate itself, because you know very well that the real interest rate is essentially a certain policy rate or a market interest rate that we have, and it is related to monetary or monetary policy, but it represents more than monetary monetary policy. Because as you know, the real interest rate is our nominal interest rate, which subtracts our overall price level, and the overall price level is not only completely determined by a certain sector, it may also be related to monetary policy, but it may also be related to fiscal policy or other overseas external demand.
So overall, whether we're based on a view of history or a reality constraint right now, we think that the change in real interest rates could be a very critical variable for us to look at the housing market in the future.
Of course, do you think this kind of thing just has Chinese characteristics? Not really. If we can form a consistent conclusion between ancient and modern China and foreign countries after double checking, we can remember this kind of conclusion as a certain regular feature.
For example, if you look at this chart, we are sorting out nearly 20 countries in the world that have had unilateral price adjustments in real estate at that time, so how did these unilateral adjustment countries get out of such a downturn or how did they finally stabilize?
In fact, we have seen that no country has stabilized when real interest rates are at a high level, but it has always stabilized when real interest rates are not at a high level, especially in the middle of a significant downward trend.
If we combine this universal and regular characteristic with a practice in China, we will most likely think that if we want to make a thorough adjustment to this problem in a short period of time, we may still need a broader aggregate policy. Of course, we do not rule out the liberalization of policies like Hangzhou, in fact, I think it is still very positive.
At the same time, what is the complexity of our so-called central government's so-called digestion of our housing stock this time? This time the complexity is different from the past. Because you know what we mean by the stock of housing in the past? It is these commercial houses that many developers are building or have not digested after the completion of construction, and we understand it as a stock of real estate.
However, this round of everyone has noticed that our current stock of real estate actually has a broader characteristic. What are generalized features? Because this round of everyone found that what we are seeing now is not only new housing, but also second-hand housing that we care about the most or that has changed the most marginally recently, and second-hand housing has not been counted in our general sense of stock real estate in the past. Once there is a unilateral expectation of a certain price, of course, there will be a process of obvious changes in the number of second-hand housing listings.
So for such a change, for such a change, we have no experience in the past, we did not have much experience in the past, when the expected listing volume of second-hand housing is in the middle of the rapid rise process, how to deal with it? Our experience is just how we digest the inventory based on the houses that the existing developer has not sold, but whether we have experienced it or not, but from the deduction of this time sequence, it seems to give us some kind of key to solve this problem. In fact, the key to solving the problem is still not in structural policies, but more in aggregate policies.
A very significant feature that we have seen in history is that the number of listings of our second-hand houses seems to be a very subjective or expected variable, but in fact it is highly closely linked to our macro total indicators. That is to say, if the real interest rate rises sharply in the middle of the process, it may also correspond to the number of second-hand housing listings, and the two may be correlated, or there may be some mutual causal relationship. But either way, there is a connection between the two. So from this point of view, we are digesting the stock, including the central government has recently taken a lot of measures to digest the stock.
For example, we have seen some policies issued by our central bank more than a year ago, including the so-called three arrows, including the three that we appeared in the second half of last year, and also since the beginning of this year, we have recently seen some leaders also inspect some of our real estate projects in various parts of the country, and we have also seen the emergence of the so-called project financing white list system, which is a very useful attempt.
This kind of useful experiment is of course important for the digestion of the housing stock. However, judging from the past history, especially the international experience, in the process of digesting the stock of housing in the past, on the one hand, we must see some more active aggregate policies, but on the other hand, there is also a key point, that is, the intervention of public funds. In fact, in the early stage of Japan's real estate adjustment, its monetary policy cannot be said to be inactive, nor can it be said that its fiscal policy is not active, they are generally doing it in a positive direction, but we can further discuss the magnitude.
But for the disposal of risks, especially for real estate-related risks and related non-bank and bank risk disposal, they have been neglecting for a long time in real estate adjustment, because they think that this is a process of market-oriented adjustment, and in the middle of the market-oriented adjustment process, public funds should not be used to intervene in such a process of market clearing, but the final result of the fact is that the Japanese later realized the importance of public capital intervention. Therefore, on the one hand, there was some active cooperation with the aggregate demand policy, and on the other hand, the intervention of public funds was superimposed.
So then there was a clear process of stabilization in Japan's real estate. I think many of our current measures are in the right direction, but based on the fact that our market has really been deduced to the current extent, there may be some problems that cannot be solved by simply relying on market forces in some local areas.
Of course, we hope that more financial resources, including state-owned financial resources, including the strength of state-owned commercial banks, will intervene in some practical problems such as ensuring the delivery of buildings, so as to alleviate the most important livelihood problems of our people. On the one hand, it should indeed be considered from the perspective of the people and the country, but for himself, he is indeed a business entity, and it may also have a non-performing rate or some accountability constraints, so in this case, there may be more public funds involved, and we think it is a very critical signal for our future.
But now it seems that we can also look at various places, including after major conferences, I believe that there will be a certain way of brewing, but how strong and how fast it is, I think it may have to be taken one step at a time.
In addition, we are also facing a lot of stock problems, in addition to the stock of real estate, we are also facing one of the most significant stock problems, that is, debt, especially the stock of local debts, and the stock of local debts in the past year or so, we have indeed continued to alleviate it, and the relief of it is of course effective.
However, the final statute of limitations of our past refinancing bonds depends on the strength and scale of some of the refinancing bonds you issued at that time. On the other hand, it also objectively depends on whether the place has incremental income or not. Because there is no doubt that stabilizing the economy or ensuring people's livelihood more often requires a lot of active local expenditures.
On the one hand, your debt stock is being resolved, but if your most significant source of income, if the incremental income of the local government does not show a significant improvement, you say that it will further increase leverage to better serve the people's livelihood, which is actually challenging.
From the current point of view, we have positively seen some of the effects of our debt reduction in the past year, but at the same time, if we look at the recent debt repayment pressure represented by especially high-frequency urban investment, in fact, these debt repayment pressures have not been very rapid or greatly improved. This may be related to whether there is a significant improvement in our incremental income, especially for the incremental land transfer income, but we may still be limited to the middle of a revitalization process of the stock policy.
At the same time, there are still some areas where we have pinned our hopes this year, including the trade-ins or equipment updates that we have seen, which are indeed useful in the short term, especially in the second and third quarters.
But if you look at the longer term, you can imagine what the essence of trade-in is. Its essence is actually a kind of intertemporal choice, it is actually a intertemporal balance, then he is actually borrowing the future demand to use it now, which is not to say that it cannot be borrowed, but there is borrowing and repaying. From this point of view, our policy may still be based on the idea of a stock.
In fact, from the past point of view, we are seeing a potential growth rate, especially due to some factors such as population, there have been some rapid adjustment processes in the middle, and many countries, including these export-oriented countries, have indeed encountered a kind of gravity of a price that we just talked about, some downward gravity. In the middle of this process, if we look at the policy response, only those countries whose policy interest rates began to be significantly lower than the equilibrium interest rate, and the country's economy also experienced a substantial process of stabilization.
What is an equilibrium interest rate? This is a very abstract concept, but the equilibrium interest rate we understand is not a long-term equilibrium interest rate calculated according to our so-called Solow model or golden rule, and the equilibrium interest rate we think of is actually an interest rate that is closely related to the short-term aggregate demand policy, which must be related to our output gap, must be related to the short-term job market, and must be related to the historical equilibrium that our short-term price deviation should have.
For such an equilibrium interest rate, it is universal in the short-term dimension of all countries in the world. It's only when such a policy rate starts to fall below the equilibrium rate that we can see that these countries are actually coming out of a price downturn.
Short-term and long-term
In the middle of this process, we see that on the one hand, we are indeed focusing on some stock policies now, but for some of our more substantive changes, we may still need to see some incremental and aggregate policies, and in the middle of this process, how to deal with the relationship between our economic growth and reform?
There are many friends who say that the solution of many problems now needs a deep-seated reform, including our market has higher expectations for many important meetings in the future, which I think is correct, and we are also looking forward to planning a series of deeper reform measures, I think this is what everyone yearns for.
However, from the perspective of our short-term and cyclical regulation, we actually have an objective fact that if we say that our reform is to improve expectations, the improvement of expectations from a short-term perspective is not only a medium- and long-term reform, but also some forces of the short-cycle can actually change our expectations.
For example, we now have too many houses, whether it is a sudden drop in demand, or a surge in the number of second-hand housing listings, it actually reflects everyone's expectations for the real estate market, how to improve expectations, of course, we do not exclude long-term important structural reforms, but from the short cycle, we see from the history is not clear and very clear reality, that is, if we have some agreed policies in the short cycle, In particular, if there is a better coordination of fiscal and monetary policies, the expectations of the short cycle can actually be changed.
Of course, this kind of change, I think it is not simply to say that our market says that the three yang lines change everyone's view of the market, not so simple a short-term emotional problem of the market, but more importantly, these short-term demand policies, indeed it can inject some real money into our micro subjects.
I would like to conclude by sharing with you some thoughts on both long-term and short-term issues. You know, in the short term, especially in the first quarter of this year, there is a scenario that we didn't imagine at the beginning of the year, what is this scenario? It seems that at least in terms of the issuance of local government bonds, especially the issuance of special bonds, this year is actually slower than the general rhythm of past history in the first quarter.
In the past, we often heard a word that said fiscal front-loading, but in fact, from the middle of our economic operation in the first quarter, we saw that the pace of bond issuance was significantly slower than we expected, so everyone began to worry about what the problem was, whether it was because we were now doing a lot of projects, whether it was because of the fact that high-quality projects were becoming more and more scarce, and whether it was because we included the issuance of special bonds, which need to have a certain amount of income and profit as a guarantee. Is it due to the fact that after the project is becoming less and less, we may have some regulatory authorities more stringent, including some standards for the issuance of bonds.
If these are the case, I think it may have a more profound impact on our view of the future, but I am not saying that there are no problems, these problems must exist, but from our recent high-frequency attention, we think that there is a very special phenomenon this year, that is, although the pace of issuance of special bonds and local bonds is slow this year, we find that this year's transfer payments from the central government to local governments are significantly accelerating or in obvious front-loading. In fact, if the transfer payment from the central government in the past is accelerated at the beginning of the year, we will often see that the pace of issuance of special bonds in the current or current year will be slower at the beginning of the year.
If this factor is a dominant factor, then your central transfer payment to the local government in this year, it may be due to the front, but in the second quarter and third quarters, because the transfer payment cake is limited, if you are in the first quarter, then it means that the central transfer payment volume in the second and third quarters will be reduced, then for the local government, it must have new funds, either you will issue bonds yourself, or there will be central transfer payments.
If this year's transfer payment is accelerated, a rational choice for it is to say that I issue special bonds or local bonds, of course, I will postpone it, because the postponement can save some of my bond issuance costs. Therefore, based on this observation, we believe that the slow pace of bond issuance this year may not be fully explained by some of the profound long-term factors that we all feel, as well as by our rhythm, especially central transfers. If this is true, it means that the rhythm of bond issuance in the second and third quarters will spontaneously pick up with the decline of central transfer payments.
If we superimpose, for our short-term many years of trade-in some views, although these views are still considered only a measure of a practice, and do not increase the demand for the longer term, but it is true that if these practices are concentrated in this year, especially in the second and third quarters of this year, it is difficult to say that it will not have some kind of pulse on our consumption, and everyone should note that this trade-in is not a fuel vehicle for fuel vehicles, this time it also involves some of our environmental standards, It also involves a trade-in process for our new productivity, including new trams, so it may also be able to drive some of our consumption growth, including equipment renewal.
We don't think that all equipment updates can be completed at this time, but it is true that after some cycles in the past, especially in the construction engineering equipment, they have gone through a cycle of more than ten years, and we feel that they have indeed reached a point of equipment update.
So on the one hand, we care about the external stimulus of the policy, but if the external stimulus of this policy can produce some resonance with some industries and certain categories, its endogenous and spontaneous equipment update cycle, of course, it is a win-win pattern, maybe in the second and third quarters, we still have a certain expectation of these problems.
As you know, this year, at least since the beginning of the year, the biggest surprise for China's economy, the biggest surprise may not be at home, but overseas. As you know, our global manufacturing PMI has quietly and unconsciously broken through the 50 line. Standing in the middle of what we see at the moment, including our PMI in recent months, in fact, the brightest thing is not these indicators in China, but more about some orders for our new overseas exports, and the most impressive thing for me is that in March, when it was almost an indicator of new overseas export orders, which single-handedly reversed a pattern of the entire Chinese PMI. This process continued by April, which also bodes well for its role as a guide for future exports.
But the key is how strong the guidance is, we are seeing the global manufacturing PMI rising, but is this rise sustainable? You know that our geopolitics is so complicated now, so will the rise of our red PMI come to an abrupt end for various reasons? Standing at this point in time, our views on this issue may still be relatively optimistic, optimistic not only for the current view, but more importantly, for many indicators they have given us forward-looking enlightenment.
For example, if we see this blue line, that is, the world's major central banks, in fact, at this point in time, it will not be as big as last year, no matter how we understand the Fed, but in general, from a global perspective, from Japan to China, and even to the United States, we don't think that these major central banks will have a further tightening process in the future.
If the world's major central banks are constantly getting smaller and smaller, the blue line I have inverted, that is, the higher the blue line, the more the net rate of interest rate hikes of our world's major central banks is getting less and less, whether it is an interest rate cut, but the rate of interest rate hikes is getting less and less, then the higher the currency represents that the currency is easing, so according to the relationship between such a blue line and the red line, everyone pay attention to the blue line and the red line, There is not a synchronous relationship between the movements of the world's major central banks and the global manufacturing PMI.
If you look closely at our image, our blue line has shifted it to the right for about 4 to 5 quarters, that is to say, after the movement of the world's major central banks in blue has shifted it to the right for about 4 or 5 quarters, we can probably see that it can be consistent with the fundamentals of our global economy with a high probability, which means that our blue line, that is, the actions of the world's major central banks, is a leading indicator of our global economic prosperity.
If we are based on such an aggregate understanding, or if we deduce the monetary policy lag effect of our domestic monetary banking in the past to the world, at least in terms of images, it can still be well matched historically, and we can deepen our confirmation of the probability that the global manufacturing PMI will rise in at least the next two quarters, which is of course aggregate.
But in fact, as you know, in the past period of time, we are all over the world, and if you look at this chart carefully, the blue line and the red line are actually obvious or very close together.
But in the course of the last two years, we found that although the blue line and the red line are trending together, there is a distance between them, what does it mean that there is a distance? That is to say, the blue line is actually in the process of the past one or two years, the blue line down represents its tightening, and the tightening force is very serious, but in fact, although it has encountered such a strong central bank tightening policy, although our red line manufacturing PMI has also declined, but the decline is not large.
Let's look at 2023 first, in fact, the blue line is a sharp contraction process, but although our red line is also down, the downward range is not large, that is to say, in addition to our cyclical policy forces, there may be some kind of force in the dark that supports the resilience of our red line.
So where does this resilience come from? We also see it further clearly in this picture. If we look at the latest round of interest rate hikes by our major central banks overseas, it adds up to 100 bps, but investment has fallen very slowly.
So in this sense, in addition to some cyclical changes in the world, there must also be some very profound changes, so that our traditional policies in the process of contraction, did not suppress our global manufacturing adjustment process, where do these forces come from? It shouldn't be cyclical, it must come from some structural change. From our observations in recent years, this structural change may be attributed to the story of the restructuring of the global industrial chain to a certain extent.
If you look carefully, the restructuring of the industrial chain we are focusing on now is not only the countries of Southeast Asia, but when we talk about the restructuring of our industrial chain, it seems that we are talking about Vietnam and India, but this is not the case. If we broaden our horizons to our entire blue planet, in fact, we see that the Americas are also happening, for example, if you look at Mexico, the restructuring of Mexico's industrial chain is also very obvious, a large amount of FDI, a large amount of domestic investment, in the reshaping of the industrial chain, domestic remodeling.
Let's not just look at the Americas and Asia, let's look at us in Europe, right? Some Central and Eastern European countries that we have not paid special attention to in the past, including Romania, Hungary, Poland, etc., have also been reconstructed recently, so what we have seen or heard in the past is a very illusory transfer of the global industrial chain, and the story of the restructuring of the global industry is not ethereal, it has been secretly and quietly reproduced in many of our stories of such a country.
Therefore, if on the one hand, we see that the process of tightening overseas currencies is coming to an end, and on the other hand, the story of the industrial restructuring of the global manufacturing industry is also taking place, if these two factors resonate, it is indeed possible to explain many of our current phenomena to a large extent, including the steel that we all see, including some phenomena of the black system.
In the past, we knew a lot of problems with steel, and it was completely based on the logic of our domestic pricing, but now it seems that it is not all, at least we look at the short-term steel, steel, steel and some exports represented by steel are still very bright, I believe that it is resonant with the short-term cycle of overseas and the long-term global industrial chain reconstruction.
In this sense, of course, you say that China's exports do not necessarily make money, in China is to exchange price for volume, of course, we are most looking forward to seeing the volume and price rise, this is our most ideal situation, but the price for volume is essentially better than the volume and price fall, or if from the perspective of greater macroeconomic fundamentals, in fact, in the past few years or so, our China has obviously high inflation overseas, and domestic prices are at a relatively low level, so it causes an objective result. It's that China's goods are really cheap, cheap is the last word, do you believe this last word?
We often see in the news or in the media that many friends from Hong Kong also come to Shenzhen to shop, why? The reason is that cheap is the last word. So from that point of view, we think that such a positive factor on the periphery can continue for a while, but after the US election in November, there will be some uncertainties, and I think we may have to reassess this potential risk issue before and after.
Based on such a judgment, we can still feel that the overall nominal GDP growth rate may be a bottom in the first quarter, and the entire nominal GDP may still have an upward process in the second quarter, and the second and third quarters to the third and fourth quarters may be in a process of gradual stabilization.
Of course, these processes are superimposed on our judgment of many things just now, including our understanding of real estate, our understanding of some phased stimulus policies including trade-in, and the process of understanding our external needs.
In terms of prices, especially the prices represented by the GDP deflatant, we think that the CPI may still be low in the second quarter, but the PPI may have a significant upward process in terms of month-on-month growth, so that in the second half of the year, there is a probability that the price represented by the GDP deflator may turn positive.
Speed and tempo
In the last words, I would like to talk about it again, maybe it is a long-term problem, maybe it is a short-term problem, some of our industries have the problem of overcapacity, I think this description is very accurate, that is to say, we can really see that many industries are facing some overcapacity, and this round of capacity adjustment problems may occur in both our traditional fields and some of our high-end manufacturing fields.
And from the current point of view, in some high-end manufacturing fields, its capacity utilization rate may decline a little faster than the traditional industry, which is a fact we see, and it is also one of the diagnoses of the economic space given to us by the Central Economic Work Conference. Is this a short-term or long-term problem?
In fact, you can see that in the past few years, we have indeed been upgrading on the industrial side on the one hand, but we have observed a phenomenon, that is, on the demand side, we do have such a rebounding momentum at least not as fast as the supply of the industrial side, so the supply side is constantly upgrading, and the supply side is constantly producing, but the demand side is due to some drag of traditional kinetic energy, we see that the performance of the demand side is not as tough as the supply side, so it has caused a result. That is to say, who do you sell a lot of supplies to, especially who some high-end products sell to, of course, overseas is one aspect, but at the same time, we do face contradictions in China, when the development of new and old kinetic energy encounters contradictions, we feel that in fact, various countries in the world have also given us some inspiration.
In fact, we are very familiar with Japan in the 90s of the last century, indeed because of their real estate adjustment, after the adjustment they are not willing to real estate on the entire economy drag, so they engaged in infrastructure for a few years, but after a few years of infrastructure, found that their projects are not enough, because you know that Japan in the real estate adjustment, than we face the challenge is actually greater in some areas, for its per capita GDP at that time has reached 30,000 US dollars, we are now more than 10,000, so from a lot of domestic investmentIn particular, in terms of the potential for domestic infrastructure investment, they had very little room at that time.
Real estate they are constantly adjusting, and then the infrastructure for a few years, and feel as if the project is somewhat constrained, so the Japanese in the 20 years from 1990 to 2010, they have indeed increased some investment in new momentum, especially we can see that Japan's R&D expenditure as a proportion of GDP after 1990, this red line has a clear upward process, thereby easing the population including real estate and a series of downward suppression of their potential growth.
Of course, I don't think Japan is doing anything wrong, and I think these things are doing the right thing, but objectively speaking, there is indeed a problem of speed and rhythm in the process of transformation between the old and the new. Let's just say that if your old momentum does adjust too drastically, even with the support of new momentum, it may be difficult to achieve a negative growth in the price quickly, which I think is still challenging.
In the longer term, we certainly feel that there are various factors that will support us in the short term, including the possibility of a price recovery in the second and third quarters.
But from what we have just seen, for example, in the middle of the real estate adjustment process of the past 20 overseas economies listed on the chart, the relationship between its real estate adjustment and prices, especially the GDP deflator, we seem to be able to see a more universal law, that is to say, when a country only when the adjustment of real estate does reach a bottom or the adjustment is completely over, a country's prices can still have a substantial process of stabilization and recovery. But in the middle of this process, there may be fluctuations in price and GDP values, but those fluctuations may not represent a long-term trend.
So in fact, we come back to our question of both the short and the long term. In our opinion, can China's real estate and economy be decoupled, or can they deviate? Are they still converging? To answer this question, my personal observation is yes or no is correct, depending on how we look at this painting, this painting can be seen from a long distance, or very close, if you look at this painting from a long distance, the fact that the two cause China, it is basically synchronized, China is synchronized, in fact, many overseas countries just now we saw that it is actually basically synchronized, but from the medium term or from the short term, if you look at this picture closely, in fact, the two may be differentiated.
For example, we see that around 2010, although the real estate cycle was going down, our nominal GDP was going up, why? Because there were some manufacturing investments, some stimulus policies and manufacturing opportunities, which would make our real estate cycle and economic cycle at that time obviously deviate.
Later, in 2017 and 2018, we also had this situation, the real estate cycle is going down, but the nominal GDP is up, why? Because there were some positive changes in external demand at that time, including the positive export of exports, then in the past few years, our real estate cycle and economic cycle are basically synchronized, but if the story we just said in the second and third quarters can be fulfilled, for example, we do think that the recovery of exports can continue for a period of time, for example, we see that there is such a domestic equipment update and some of its own internal industries, it itself has internal demand resonance, So it is true that there is a question of a divergence between our nominal GDP and the real estate cycle in a relatively short or medium cycle, so our answer is either yes or no, depending on how we look at the picture.
So if the price trend, it will have a variety of internal and external reasons in the short-term cycle to narrow the decline, or a slight rise, then we personally think that for our stock market, for the bond market, its risk appetite adjustment is also obvious. Due to time constraints, I will basically report here today, and I will summarize the last words.
end
What questions are we discussing today, we are discussing three questions today, the first is nominal and real, we are answering why in the past year or so, there has been a divergence between our nominal GDP and real GDP, real GDP has been rising, but nominal GDP represented by prices has not maintained such a strong momentum.
One of our understandings is that, of course, there are some disturbances in the process of statistical optimization, but this is not some substantive reasons, and the substantive reasons are excluded, and we can still feel that the actual value is obviously deviating from the nominal value, and from our past observations, this result, this combination, may appear in a development process where supply is significantly faster than demand. This context is related to changes in our overall potential growth rate during an adjustment process of population acceleration.
Although supply and demand are being adjusted at the same time, there is no doubt that the speed of demand adjustment is significantly faster than the speed of supply adjustment, and in this period it is easy to appear economically, especially from the perspective of Japan's experience, that Japan's experience is a process of cooling, resulting in a process of divergence between nominal GDP and real GDP. In the middle of this process, if we pay more attention to real GDP and further ignore prices, the adjustment process may be relatively long, but if we pay more attention to price signals to make corresponding policy adjustments, we may be able to converge relatively if we deviate.
Price is the result of the operation of our entire economy, and it will in turn have a negative impact on the momentum of our economy. In fact, changing this price expectation undoubtedly depends on a process of adjustment of our macroeconomic policies. What we have seen at present seems to be that this policy is mainly based on stocks, but we have just demonstrated that the adjustment of stocks is of course important, but we may look at the facts of ancient and modern times, China and foreign countries, and we may see that more incremental special aggregate policies are needed in the middle of this process, especially the aggregate policy represented by the real interest rate, which may play a more important role in dissolving the stock of our entire economy.
At the same time, for the short term, we can indeed feel that there are many resonant factors in internal and external demand, so that our per capita GDP in the second and third quarters is an upward process, and some factors, we think it may have a certain degree of sustainability, especially including the lag effect of our global cyclical monetary policy is also fading, plus we see a story of the global industrial chain reconstruction, in fact, it is already coming to us at a very fast speed. I think these are still helpful for a stabilization and recovery of many of our short-term economic momentum.
Of course, in the longer term, we think that a more substantial stabilization and recovery or more positive development will depend on our understanding of the old and new momentum, especially the relationship between our real estate and some new productive forces. Overall, if we can adopt a more gradual adjustment approach, I believe that China's future is worth looking forward to.
Looking at the ridge side as a peak, with different heights and heights, I think this is a theme that I will report to you today. The reason why we feel this confusion is because we are only in this mountain, but fortunately we can use people as a mirror, copper as a mirror, and history as a mirror, so that we can recognize ourselves on these foundations, so that we can better recognize the big tide of our times, and finally make a more rational and positive asset allocation choice.
Thank you.
