High inflation in the United States continues.
U.S. economic data in June showed that the consumer price index (CPI) rose 1.3% month-on-month and 9.1% year-on-year. It hit the highest level since December 1981; the producer price index (PPI) in May increased by 10.8% year-on-year, which is still high.
In contrast, China's inflation data on the other side of the ocean is significantly more benign: CPI in June rose by 2.5% year-on-year, an increase of 0.4 percentage points from the previous month; PPI in June rose by 6.1% year-on-year, and the increase has slowed down. It can be said that although China's CPI may reach 3% in the third quarter, China's inflation is relatively mild and controllable.
What is the reason for the difference between CPI and PPI between China and the United States? What significant impact will it have on the economies of the two countries? Why is the world said to be entering mid- to long-term inflation? Mr. Peng Zhiqiang, chairman of Shengjing Network, president of Shengjing Research Institute, and founding partner of Shengjing Jiacheng Fund of Funds, gave his answer.
Sharing guest:
Peng Zhiqiang, chairman of Shengjing Network, president of Shengjing Research Institute, and founding partner of Shengjing Jiacheng Fund of Funds, is committed to promoting Shengjing to become China's leading new economic platform. Mr. Peng Zhiqiang manages VC equity investment funds with a scale of more than 13 billion, and has invested in many star projects such as Guolian Shares, Pharmaron Chemicals, Perfect World , Focus Media, Huitongda , Wald, Zhiyuan Internet, etc. He is a member of China and the United States. , the investor behind many of Israel’s top funds.
Mr. Peng Zhiqiang is the author of best-selling books on business management such as "The Power of Business Models" and "Low-Cost Innovation". He also predicted the 2008 US financial crisis in the book "Transformation of Life and Death - How to Survive Businesses under the Great Financial Change".
Highlights
1. How is the CPI difference between China and the United States formed?
2. China’s PPI fluctuates more. What is the reason for this?
3. For Chinese entrepreneurs, how to deal with the global medium and long-term inflation trend?
Q1: We see clear signs of recovery in China's economy, but the U.S. economy is encountering difficulties. In May, the U.S. CPI hit a new high of 8.6%, which directly led to the Federal Reserve raising interest rates by 475 basis points, causing the three major U.S. stock indexes to plummet. In June, the U.S. CPI reached a new high of 9.1%, and in July, the Federal Reserve raised interest rates by at least 75 basis points. Economists are predicting that the U.S. GDP is about to enter a technical recession, and U.S. price levels are still rising sharply. At the same time, China’s CPI is still in a relatively benign range, at 2.5% in June. How is the CPI difference between China and the United States formed?
Peng Zhiqiang: How does observe the CPI differences between China and the United States? Let me first give you a few tips:
First of all, you have to look at the classification composition and weight of various economic indicators. The classification composition and weight proportion of the CPI of the two countries are Different, and the difference is relatively large.
Second, China likes to talk about year-on-year growth, while the United States likes to talk about month-on-month growth.
Third, the difference in base numbers in previous periods will affect the performance of the CPI increase or decrease in the current period.
With these basic concepts in mind, let’s look at the US data. There is no doubt that the current US is in a state of high inflation. In 1979, the US CPI reached 14.86%. It seems that this number is higher than today’s 9.1%. But if the weights of its internal components are adjusted to be the same as this year, then the level of inflation in the United States this year will have reached the level of inflation in 1979.
China's inflation is greatly affected by the pig cycle. In China's CPI, pork accounts for 2.5% of the weight. If the price of pork increases by 100%, this alone will cause the CPI to increase by 2.5%. There is a joke that when a Korean family marries their daughter, the son-in-law will bring a piece of pork when he comes to the door. This illustrates the importance of pork in East Asian peoples. Once pork prices skyrocket, it will still be very scary for China's CPI.
In the United States, the housing index has the largest impact on CPI, accounting for 32%. In the United States, housing sales prices and housing rental prices have increased very strongly in recent years, which has significantly boosted the rise in U.S. CPI. However, the weight of housing expenditure in China's CPI is low, China's housing rental-to-sale ratio is low, and housing rental growth has been small in recent years. China's rising housing prices are not fully reflected in the CPI.
In addition, , energy prices have a great impact on US CPI, but their impact on China's CPI is not so drastic. The United States has a large number of private cars. There are more than 200 million cars for 300 million people. China has more than 200 million cars for 1.4 billion people. There are three reasons for this phenomenon. First, China's urban public transportation is more developed than the United States, especially in subways, high-speed rail, etc., which significantly surpasses the United States. Secondly, Chinese people live in relatively high density in cities and towns, while most Americans live in suburbs and villas. Furthermore, China is also a latecomer in the direction of new energy electric vehicles. Therefore, the consumption of cars and gasoline by American individuals is significantly greater than that by Chinese individuals.
In the past year, U.S. housing sales and rental prices, energy prices represented by gasoline, and food prices have all experienced staggering increases in all aspects.
US inflation is currently facing huge upward pressure on both the demand side and the supply side. The United States is currently in a hyperinflationary range, and the inflation in the United States increased by 1% month-on-month in May. If this number is converted into an adult, it would be 12%, and prices are skyrocketing. On the demand side, the United States' crazy money spending has led to a surge in demand. On the supply side, the Russia-Ukraine war has driven up energy and food prices. The COVID-19 epidemic has caused chaos in the global supply chain. The imposition of tariffs on China is actually shooting itself in the face. Therefore, the increase in supply-side prices is difficult to solve in the short term.
China is currently doing well in terms of energy security and food security, and it also attaches great importance to the attention and management of CPI. In China, if you don’t consider buying a house in first- and second-tier cities, keep renting, or have already bought a house, that is, you don’t need to consider the pressure of buying a house and mortgage loan caused by high housing prices, the price pressure of Chinese people is less than that of the United States.
Q2: Since the beginning of this year, the PPI values of both countries have increased significantly year-on-year, setting new highest values on record. The PPI trends of the two countries are generally similar, but China's PPI has greater volatility. What causes this? Can China's energy security be guaranteed?
Peng Zhiqiang: US PPI includes agriculture, industry, service industry, construction industry and other industries, covering approximately more than 75% of the entire national economy, among which medical and health services account for a large proportion. China PPI refers to the "Industrial Production Price Index", which is not included in the service industry and is more affected by cyclical fluctuations. In terms of PPI trends, the United States is smoother than China.
Although China's PPI growth rate in June was 6.1%, it has been rising for several years. Everyone should feel this way - Chinese companies are facing increasing pressure on production costs, but their ability to transfer costs to downstream companies is relatively weak. , relatively speaking, American companies have a relatively strong ability to transfer costs from upstream to downstream, and the market transmission mechanism of and is relatively sufficient.
In China, the upstream is mostly state-owned enterprises and central enterprises, and the midstream and downstream are mostly private enterprises and small and medium-sized enterprises. The price transmission ability is not strong, which has caused huge operating pressure on small and medium-sized private enterprises.
From the perspective of national energy security, China’s energy security is basically guaranteed. China's coal accounts for a relatively high proportion of energy consumption, accounting for about 56%, a decrease of 0.9% from 2020. Coal is still the main force in energy consumption, but its proportion is declining year by year.
Therefore, companies that provide coal-related equipment services are reminded to carry out "non-coal business" as soon as possible, that is, businesses other than coal. Because the proportion of coal consumption is declining year by year, the coal industry will become increasingly difficult to work in five or eight years. There are also some companies that provide real estate-related services, and they must also start "non-real estate business" as soon as possible. Because China's real estate industry has reached its peak, and the market size is even shrinking. When running a business in , you must follow the trend. It is normal for your original main business to be in the coal and real estate fields. You must start to innovate in the quadratic curve, do non-coal business, non-real estate business, and gradually improve the second-order business. Curve business proportion.
In the composition of China's energy consumption, coal accounts for about 56%, oil accounts for 20%, natural gas accounts for 7%. These two areas are highly dependent on foreign trade imports, with 72% of my country's oil and 44% of natural gas. Relying on imports, from this perspective, China and Russia establishing a comprehensive strategic partnership is a correct or necessary route choice.
At the same time, China’s clean energy accounts for about 22.5%. What is clean energy? Natural gas, hydropower, wind power, photovoltaic , solar energy, etc. are all clean energy. This has increased by 1.2% compared with 2020, but there is still a considerable gap compared with the international level. Therefore, clean energy is the focus of China's future development.
China's strategy of developing new energy is very firm, and this is also the biggest opportunity in the field of venture capital in the future. CICC data shows that in the next few decades, China's total investment in the field of carbon neutrality and will reach 139 trillion. Everyone must realize that this is a huge business opportunity. Just now we mentioned "K-shaped differentiation", which means that some industries will go down and some industries will go up. New energy is an upward industry. We must cultivate some industries that represent national development opportunities from small to large.
The carbon-neutral field represented by new energy will surpass real estate and become the core pillar industry of the national economy within ten years.
In the field of new energy, China is definitely in a leading position in the world. China produces 60% of the world's new energy cars and 90% of the new energy buses. In the field of photovoltaics, China is in an overwhelming position. This is where we have the most confidence in the Chinese economy, turning crises into opportunities and turning the original pollution and energy consumption problems into opportunities for entrepreneurship and investment. Behind the high PPI of , we need to see - how can the traditional high energy consumption model achieve energy conservation and emission reduction through technological innovation? How to relate corporate business to "carbon neutrality"? These are huge business opportunities.
Q3: For Chinese entrepreneurs, how to deal with the world entering the medium- and long-term inflation channel?
Peng Zhiqiang: Everyone must realize that the world will enter a medium- and long-term inflation channel. Why is "medium and long-term inflation"? There are two reasons:
First of all, things like the Russia-Ukraine war that lead to geopolitical and geographical divisions are no longer an occasional event, but a normal event.
Second, whether it is the new crown epidemic or the game between China and the United States, it will lead to a reset of the global supply chain.
In the past, many low-cost products were produced in China, but now the United States feels that they cannot be placed here, but must be produced locally, or deployed in Mexico, , Canada, Southeast Asia and other places. In May this year, Canada surpassed China and became the United States' largest trading partner.
At the same time, , because China is worried about the United States being stuck, it has to develop its own high-tech products from chips to new energy sources. China is also resetting its supply chain.
From the perspective of international division of labor, this will lead to rising global costs. Global trade is now very different from a few decades ago. 70% of the products in circulation are "intermediate goods". These "intermediate goods" are transported between countries and finally shipped to the most suitable place for assembly - —The efficient collaboration and operation of this supply chain is an important factor in the continuous reduction of costs in the past few decades, the so-called globalization dividend.
Why is the United States experiencing high inflation today? In addition to releasing water, in fact, because the dividends of the global low-cost supply chain have slowly peaked, China's supply chain costs have also increased significantly.
The current basic logic of the world is: because the supply chain will be reset, developed countries in Europe and the United States are looking for ways to avoid being kidnapped by China, and China is looking for ways to avoid being kidnapped by the United States - because all countries in the world are resetting their own supply chains. , therefore global supply chain costs will rise significantly; at the same time, global technological progress has been relatively stagnant in the past decade, and total factor productivity has not improved. This objectively also determines that the low-cost dividend of globalization is disappearing.
The world is entering a mid- to long-term inflation trajectory. In this case, what should Chinese companies do?
There are only two paths for enterprises. The first path is "internal cost reduction" and the second path is "external revenue increase". Entrepreneurs and entrepreneurs still need to grasp the situation with both hands and be strong with both hands.How does
achieve "internal cost reduction"? What are the costs we need to pay? We have internal and external customers, what costs can be cut? Here is a simple method for you, which is "Sheng Jingtian Wen" . What I want to emphasize in particular is that the vast majority of entrepreneurs and entrepreneurs still do not use Shengjingtianwen in place and fully. They only stay at the level of "knowing" but have not really implemented it.
"Who are your core customers? What are the core needs of core customers? What core products are used to meet the core needs of core customers? What core sales channels are used to sell core products?" Are these four questions easy to answer? It’s hard to answer. Entrepreneurs and founders need to lead teams to conduct detailed and systematic in-depth analysis and discussions.
Answering these four questions is only the first step of 's long march . I call it "clarity" , which can be expressed clearly; the second step is "consistency" , which must not only be able to express it clearly, but also There must be consistency. Can these four issues be strung together to coordinate with each other? The third step is "correctness" , "choose the right pond to catch fish" - is the market you choose a small market, is it a market that is not worth the effort at all? Finally, to be "creative" , your answer must be innovative and represent future trends. So from this perspective, entrepreneurs must not only answer these four heavenly questions, but also achieve clarity, consistency, correctness, and innovation. If
wants to achieve "internal cost reduction", it must be extremely focused and do less or less anything that has nothing to do with the four cores. When is extended, the company's people, finances, and materials, as well as the company's human resources, R&D management, and production management, must be closely related and consistent with these four "Heavenly Questions". Only in this way can we truly "reduce costs." How does
achieve "external revenue increase"? Only by creating greater value for customers can you increase revenue. Otherwise, why would customers buy your products or even pay a higher price for your products? Therefore, we need to create greater customer value, or unique customer value. This must also go back to "Shengjingtianwen", how to provide core products to meet the core needs of core customers, and maximize the sales of core products through the core sales system, thereby increasing revenue and profits.
Therefore, to reduce costs internally and increase revenue externally, the answer is actually the same, that is, entrepreneurs and teams must complete the "Shengjingtian Question", which is also the company's "minimalist strategy". These four key questions or soul questioning are worthy of the leadership of entrepreneurs The team discusses together to find the answer for their own company.
