- 2021-04-12 20:09
About Author
LIU Yuanchun
Vice President, Renmin University of China
Executive Director, the Chongyang Institute of Finance
Editor's note: On March 27th, Liu Yuanchun, a well-known economist, vice president of Renmin University of China, and executive director of the Chongyang Institute of Finance, to speak on "The Fourteenth Five-Year Plan-National Strategy.”
Competition among major powers, who matter.
I am very happy to share our research with you today. The core content is on several levels:
- looking at some current practices and situations from the "14th Five-Year Plan";
- looking from the perspective of the "Government Work Report" how the country will implement the "14th Five-Year Plan" this year, and how such measures will affect the current situation;
- from the medium and long-term strategic deployment and regular changes, look at the beginning of this year and what are the problems that we need to focus on.
At present, many people are asking, what is our next investment focus? Where are the business opportunities? I think the first thing we should understand is the "14th Five-Year Plan", because any five-year plan is a core of China's macro governance system.
More importantly, this "14th Five-Year Plan" has completely different attributes from other plans. This is the first time that we have laid out at the time of achieving an all-round well-off and completing the first 100-year goal. We have issued 14FYP when the traps are most critical, when the game between big powers is most critical.
Everyone knows that when China's GDP reached 60% of the US GDP in 2015, Western scholars had already followed the 60% line as a strategic guide to comprehensively transform their strategy towards China. The past few years have been a stage in which the United States has comprehensively conceived and implemented its China strategy. What is the stage in the next five years? It is very important that the game between China and the United States is the key five years for the transition from "asymmetric" to "symmetric". It is also a critical period for us to break through the bottlenecks and make substantial progress in key technologies.
This is a very testing time for the nation. Can we a grip on the core issues?
We accounted for 68.4% of the US GDP last year. According to the latest exchange rate calculations, it has reached 71%. It is estimated that we will reach 87% of US GDP by 2025. Of course, the different calculations here are not the same. , And some estimates are close to 90%.
What are the calculations of many international organizations? According to current trends, China's total GDP will surpass that of the United States in 2028. This process of catching up is precisely one of our most difficult processes.
Of course, there is another very important parameter. Last year, our per capita GDP was US$10,800 or roughly US$11,000. What does $11,000 mean? It's about the same level as the world's per capita GDP, but slightly lower. Last year was a landmark year for the Chinese nation. Not only did the total GDP passed the 100 trillion yuan mark, but more importantly, the per capita GDP of the Chinese nation was basically equal to the world per capita GDP. In other words, we have reach parity with the world average.
At the end of last year, the threshold for per capita GDP in high-income countries was about $12,500. According to normal calculations, our per capita GDP will reach 15,000 US dollars by 2025. What does 15,000 USD mean? We will steadily cross the middle-income trap.
In this environment, the "14th Five-Year Plan" we formulated is particularly important. Compared with the "14th Five-Year Plan" and the "13th Five-Year Plan", which strategies are new? Which strategies are continuous? Which strategies have new connotations? Which strategies will have an impact on existing actions? We must have some new dimensions in the work plan and thinking system. This is the key point I want to explore.
Ten major trends in China's economy in the next five years
1. Concretization of strategic goals and paths
Among the most prominent aspects in the "14th Five-Year Plan" outline, the first aspect is to index and systemize the concept of "modernization" that was originally vague, and to visualize strategic goals and paths.
For this visualization, everyone must be clear about the specific parameters.
One is to reach the level of a moderately developed country. This requires us to make corresponding calculations. What is the current basic concept? Reach the median of high-income countries. There are now almost 70 high-income countries, with a median of around 35. The most typical among the 35 top and bottom is Portugal, with a per capita GDP of almost US$23,000.
To reach this level, if the exchange rate factor is not taken into account, our GDP growth rate must reach about 6%. If we consider the factor of RMB appreciation, our per capita GDP growth rate will be 4.5% to 4.8%. In the end, everybody's calculation found that to reach the level of per capita GDP of 23,000 US dollars, our average growth rate have to reach 4.8% in the next 15 years. At that time, our per capita GDP will have to be doubled.
According to such calculations and assumptions, during the "14th Five-Year Plan" period, our growth rate is required to be in the range of 5.5% to 6.5%, and the average growth rate is almost 5.8%. Focusing on this year, how to determine the growth target? What are the implications? This is very important, such as what is the goal for this year? 6% or more.
Many people will ask: Why is it above 6%? Because if we want to steadily cross the middle-income trap in the next five years, according to the current threshold of high-income countries, per capita GDP will increase by 200 US dollars per year and 1,000 US dollars in the next five years, then by 2025, we will reach the threshold of high-income countries. That, roughly $13,375.
If you want to steadily cross, you must exceed the threshold by 20%. What does it mean? You have to reach a level of almost $15,000 to $16,000. What will everyone see? An increase of 5.5% is really not enough, so the GDP growth target set for this year is more than 6%.
Many people are preaching that we want high-quality development and implement the new development concept. We don’t talk about GDP and we don’t set this goal. This understanding is wrong again. High-quality development is still making a fuss on the basis of economic development and still has to settle on the sustainable growth of GDP.
The main targets set by the "Government Work Report" are GDP growth rate of more than 6%, more than 11 million new jobs, urban surveyed unemployment rate of 5.5%, consumer price increase of 3%, and import and export balance of payments. Among these indicators, the main concern is 6%. 6% is a bottom-line management and a bottom-line for our normal operation.
Do you know what the growth rate of the United States might be this year? It turns out that everyone expected the United States to grow at minus 4 and minus 5 last year. The latest preliminary calculations have shown that it was at a level of minus 3.5%. This month Biden has passed the $1.9 trillion stimulus plan for the epidemic. At the same time, he is planning a $3 trillion investment in infrastructure and industrial technology, which adds up to $4.9 trillion. What does this mean? It is equivalent to about 25% of US GDP.
How about this strong stimulation? Now the IMF and OECD immediately adjusted their forecasts for the growth rate of the U.S. economy, believing that the U.S. GDP this year may reach 6.5%. This means that the actual GDP growth of the United States is around $1.3 trillion. 6% in China means that we are less than $1 trillion. According to this year's comparison, the gap between China and the United States will not be further narrowed, but widened.
It is very important to focus on the competition between big powers. Of course, this is not just about the economic growth rate, but rather who can take the lead in normalized growth.
After everyone saw that Biden came up with first the stimulus plan, second one was epidemic control that were faster than expected. This year, the major powers are in the middle of vaccination, whoever is fast will be able to fully open up. Whoever is slow to vaccinate will be brought into a new blockade by a fully open country.
Therefore, we sometimes say that last year, we achieved victory in the anti-epidemic phase and in the economic defense war. But this year the pressure is greater than last year. What are the reasons? First, everyone's expectations have been raised. It doesn't matter if the company lost a little bit last year. If it continues to lose money this year, the mood may be different. The second is that the game between the great powers has entered a critical period. Whoever recovers first, and whoever normalizes first, will win first.
2. Technology is self-reliant and self-reliance is now primary
The "14th Five-Year Plan" outline not only puts the innovation drive at the core, but more importantly puts technological self-reliance at the most prominent strategic position.
Everyone knows that the game between China and the United States has produced trade wars, technology wars, talent wars, and a whole series of new signs of the cold war. This requires our development model to change from the original two-sided open development model towards the Dual Circulation development model. This have shifted to a pattern where the domestic big cycle is the main body, and the international and domestic double cycles promote each other.
What is very important in the domestic cycle is that we must break through the bottleneck issues, rely on technology to become self-reliant, and solve many of the key problems we face. Therefore, our country has specifically introduced four levels of plans:
The first level is the national strategic scientific and technological power. We must give full play to our nationwide system and carry out comprehensive new constructions on national laboratories, local innovation centers, and regional innovation platforms. In this regard, you will see that many policies have been introduced.
The second level is the cultivation of high-level talents. The third level is to give play to the main body of enterprise innovation. The fourth level is some breakthrough progress in basic research and development.
At the same time, everyone must be aware that the state’s key statement in the industrial sector recently is to carry out scientific overall planning to prevent the use of science and technology for self-reliance to tell “innovation stories” and create new bubbles.
From last year to this year, provinces, cities, and counties have been making a fuss about self-reliance and self-reliance in science and technology. However, you will see that many regions simply do not have the ability to innovate. They rely on science and technology to become self-reliant to carry out enclosures, credit, and a series of financial policies, especially the use of science and technology innovation boards. The country is currently increasing a series of audits to inspect these innovation stories .
Now we will see that many securities companies, VCs, funds, etc. are aiming at the national strategic layout in an attempt to capture a series of investment opportunities. This has also aroused some discussions among everyone. For example, when talking about the bottleneck projects, every company and everyone came forward to say that they would be engaged in the research and development in the bottleneck technology. The country requires us to enter the innovation industry. Everyone and every company wants to innovate. This is a misunderstanding.
We cannot achieve this like a swarm. However, the construction of the innovation chain is still very important. During this process, we must avoid excessive inflation of the innovation bubble.
The new round of technological roll-out may be more rigorous than the previous rounds of strategic emerging industries. I think everyone should read the Plan chapters concerning scientific and technological self-reliance.
3. The physical manufacturing industry remains the industrial core
The "14th Five-Year Plan" outline puts the real economy, especially the manufacturing industry, at the core of the industry for the first time. From 2002 to the present, our manufacturing industry’s share of GDP has dropped from just over 37% to just over 27% now, dropping by nearly 10 points. There are complicated reasons for these 10 points. But what do you realize now? The decline of any country starts with the hollowing out of real industry and financial bubblization. If China does not want to repeat Japan’s lost decades, many people recognize that we have to grasp the core of manufacturing.
There are currently several very important aspects of the strategic plan for the "14th Five-Year Plan".
- it is impossible to fully liberalize real estate regulation during the "14th Five-Year Plan" period, and it is impossible to allow the real estate bubble to continue. The construction of a long-term real estate mechanism with the "three stability" as the core is the main thrust of the entire "14th Five-Year Plan". You will see that we introduced the "three red lines" last year, and this year we divided commercial banks into five levels. The real estate credit loans held by commercial banks of different levels are subject to different proportional constraints. Recently, red line management has been carried out on the assets and liabilities of some local enterprises.
You will find that our current real estate management and macro-control have become more precise. It used to be one city, one policy. Now it is a comprehensive macro control of the financial industry and the real estate itself.
Many people say, this year is so strict, will it be a little looser next year? We see that a very important constraint on the macro economy this year is to further increase the regulation and control of real estate.
- Financial rebalancing (of profits) will continue. Our current financial share of GDP is still as high as 7%, and real estate accounts for a little over 6%. These two indicators add up to 14% of GDP, which is almost the highest in the world.
Let’s take a look at the entire financial industry, especially the banking industry’s overall profit last year, which reached two trillion yuan, a positive increase of two points over the same period last year. Everyone is criticizing again, shouldn't finance make less profit this year? Many presidents of big banks are complaining, but the prime minister has already expressed his position that the banks should make less profits [reduce interest rate margins]. [Put emphasis on capital market rather than banking].
The Government Work Report's positioning of finance is a strategic positioning of serving the real economy, which is also fully highlighted in the "14th Five-Year Plan". At the same time, the manufacturing industry is placed at the core. What is so important about the manufacturing industry? The industrial base becomes high-end and the industrial chain is modernized. At the same time, the industrial chain and supply chain must match our innovation chain. In other words, China must have the ability to innovate in many key and important links, and take innovation as a key basis for driving profitability.
4. "Three new" ideas stand out
For the first time, "the new development stage, the new development theory, and the new development pattern" were specifically elaborated, which became the general outline of the entire plan.
Don't underestimate this "three new" thinking. When the General Secretary held a symposium with experts in the economic and social fields on August 24 last year, he specifically talked about opening up a new situation in China’s economy. The development pattern of cyclical mutual promotion.
5. "Digitalization" rises to an important position
The "14th Five-Year Plan" takes "digitalization" and "digital China" as a core this time, elevating the digital society, digital economy, digital government, and digital enterprises to a very important position. Many people say that it was an agricultural society, then an industrial society, and now it is a digital society, which is a new social form.
6. Rural revitalization and new urbanization go hand in hand
The "14th Five-Year Plan" does not simply emphasize urbanization, nor does it simply emphasize the issues of agriculture, rural areas and farmers, but put the two in a parallel position to articulate. This shows that China must have focus on the coordinated development of rural and urban areas in the next step.
7. The carbon neutral program creates new opportunities
For the first time, "30-60" was included in the plan, which is the carbon peak (2030) and carbon neutral (2060) plan. (Editor's note: Carbon peak refers to a point in time when carbon dioxide emissions no longer increase to a peak, and then gradually decline. China promises that carbon dioxide emissions will no longer increase before 2030, and then gradually decrease after reaching the peak. )
The "3060" plan aims to achieve peak carbon in 2030 and be carbon neutral by 2060. This will fundamentally change some of the paths of our future industrial growth, regional layout, and functional planning, and major adjustments will be made in some energy consumption and industrial layout. You have recently seen that various departments are calculating the cost and benefits. This calculation is a cost for many traditional companies, a profit for many new companies, and it means some new opportunities for many finances and transactions.
A while ago, PBOC Governor Yi Gang said that the capital demand for carbon peaking and carbon neutrality is in the hundreds of billions. This means that we are revolving around carbon trading and green finance. It may be that every relevant department and every sector must be reconsidered.
8. Actively respond to population issues
For the first time, "all-round human development" is included and listed as a separate chapter, and for the first time, the implementation of a national strategy to actively respond to population aging has been proposed.
It turns out that one focus of debate is whether or not population fertility should be fully liberalized during the "14th Five-Year Plan". The problem here is actually very complicated. However, the "14th Five-Year Plan" proposes to improve the adaptability and flexibility of the population birth policy. More importantly, the fertility policy should be focused on reducing the burden of fertility and encouraging fertility, rather than simply on the number of births.
Everyone knows that the number of new-borns has dropped sharply in recent years. The year before last it fell to 14 million. Last year there were more than 12 million newborns, which means 2 million fewer births. So China's fertility policy is very important.
More important is aging. Soon, everyone will see the Seventh census results coming out. The data release may mean that we need to further re-think and adjust many policies. Future industrial development and changes in business opportunities are also very large.
9. Fully highlight common prosperity
The 14FYP fully highlight common prosperity, and at the same time put "optimized income distribution policy" into a separate chapter. But this is very complicated as income distribution involves everyone's core interests. Recently, the country has conducted some research. Which of the various welfare policies of tax and fee reduction last year gave enterprises the most perceived benefits? In tens of thousands of surveys, the answer given is to reduce the payment of social insurance fees, and companies feel the most strongly about this.
The issue of income distribution is a world problem. How about the answers given by China in the next fifteen years? In fact, this is the most challenging one. Everyone should think about it.
10. Expanding security field
We are moving from traditional security issues to the economic, social, and health fields.
In the economic field, technical security, financial security, privacy security, etc. are very important. This is a big turning point. If you don't have core strengths in some key technologies, how can you negotiate with others?. If you don't have some technical breakthroughs, how can you have bargaining power within the whole industry chain?
Therefore, our reflection on the industrial chain, supply chain, value chain and industrial infrastructure, key components, etc., requires us to make major adjustments in some strategies.
Opportunities and Challenges Facing China's Economy
1. Opportunity
This year we expect that the core momentum of economic growth will continue. The most important reasons are:
First, the continuity, stability and sustainability of macroeconomic policies. In particular, the package of extraordinary policies adopted after the "Two Sessions" will continue to exert their effects. For example, we provide tax relief for small and medium-sized enterprises and financial subsidies for related industries.
Second, the internal energy of our economic growth has begun to manifest.
Third, more than a dozen key projects laid out in the new development pattern will be fully deployed this year. The timing of the roll-out throughout the year is actually the second quarter.
Fourth, the global economic recovery will also have a supporting effect on China's external demand.
2. Challenges
The continued improvement of China's economy this year is mainly due to these four major reasons, but there are also problems.
First, there is a strong uncertainty in the China-United States rivalry game. At present, everyone sees that there is a high probability that many areas will not improve or may deteriorate further. The Biden administration is not displaying the attitude toward tariffs and related industries that it talked about before the elections. On the contrary, in key areas, especially in the fields of technology and ideology, they are step by step pressing even harder.
Second, what is the speed of recovery of the epidemic in Europe and the United States? How about the recovery of industrial chains in Europe and the United States and in emerging countries?
Third is the competition or gap between Chinese vaccines and foreign vaccines.
Fourth is our strategic rollout, especially the early rollout in some strategic emerging industries. As many localities and departments are pushing and hyping projects that ignore the laws of scientific innovation and industrial development, will there be some new unfinished phenomena?
Broadly speaking, we say that some of the overall parameters this year will still be good, but some structural problems remain very serious. It now appears that a growth rate of about 8% may bring a relatively good operating environment and operating situation to our entire economy.
You will also see that the current topic of debate is inflation. With so much money recently, will hyper-inflation occur? The whole world is discussing this issue.
The conclusion of our research is clear: No! But structural price increases will undoubtedly occur. At the same time, some imported inflationary pressures will also appear in the bulk commodity market.
3. Summary
The local and regional impact of recent changes cannot be underestimated. We must have good judgment and strategic determination.
First, we must see the strategic focus and the future development direction from the "14th Five-Year Plan".
The second one corresponds to the core of the "14th Five-Year Plan", depending on which areas we may have some major moves, or some key projects, key projects, key investments, and key reforms will be introduced.
Third, pay attention to changes in some parameters, and have a general understanding of economic growth, world recovery, and Sino-US negotiations.
When we put our prediction of the future into the framework of the "14th Five-Year Plan" to understand, we have framed together the spirit of the Two Sessions, the "14th Five-Year Plan", the 2035 long-term goal outline, and core documents such as the "Government Work Report". Unite, so that we have a basis for understanding, and will not overly follow some judgments made by the media.
This is what I wanted to say. Thank you all.