Since my country is a late-developing economy, it is complicated to judge the stage of China's economic development. In some dimensions, it has reached the forefront of the world, while in some dimensions it is still in the early to mid-stage.

The development stage of the economy determines the main line of market investment. Since my country is a late-developing economy, it is complicated to judge the stage of China's economic development. In some dimensions, it has reached the forefront of the world, while in some dimensions it is still in the early to mid-stage. This article believes that China's economy is currently in a " multi-dimensional gradient development stage", which also determines that unlike the path taken by developed countries, the A-share market will have multiple investment main lines at the same period. Specifically, the main lines of investment are concentrated in three dimensions: 1) From the stage of technological innovation, including the Internet, new energy and other fields, China has reached the forefront of the world; 2) From the stage of industrial competition, China's manufacturing industry has already It has a strong international competitive advantage and has entered a stage from a domestic leader to an international leader; 3) From the perspective of the structural transformation stage, China’s current path is in line with the general laws of economic development and the historical experience of developed countries. We have begun to enter a " "The Era of Big Consumption", this is still in the early and middle stages. The second point, I think, is particularly worthy of attention in 2021. "Leading overseas" may be an important theme in the next few years. A number of global leading companies will be born in China, similar to the emergence of a number of global companies in Japan in the 1980s and 1990s. From the perspective of competitive advantages, these companies are more likely to be in the fields of home appliances, automobiles, electronics, machinery, building materials, chemicals, etc.

Different economic development stages determine the main lines of investment in different markets

When discussing investment opportunities and investment logic, the market often raises such questions as to what stage China's economic development is currently. Compared with overseas countries, our current development stage is similar to that of the United States and Japan. Which period in Europe?

Judging from the historical experience of overseas countries, different economic development stages do correspond to distinct market main lines. Developed countries have generally experienced the stock market development stages of cycle = consumption = technology and medicine. Moreover, different Different leading companies will be born in each stage. Behind this corresponds to changes in economic development stages and development characteristics. During the period of high nominal economic growth and high fluctuations, cyclical products have the greatest profit elasticity. During the economic structural transformation, the proportion of consumption continues to increase, and the market has entered the era of large consumption. After the fluctuation of economic growth rate decreases, it is increasingly driven by technological innovation, and technology stocks have become the main line of the market.

Take the development history of the U.S. stock market as an example (see Figure 1). In the heavy industry era of the 1950s, cyclical stocks were at their peak, and the stock prices of companies such as Goodyear Tire and American International Paper increased tremendously. In the mid-to-late 1960s, the era of mass consumption began and lasted until In the mid-1990s, the stock prices of companies such as Coca-Cola and Walmart exploded during this period. In the mid-to-late 1990s, there was a wave of technology stocks and the dot-com bubble. In the more than ten years since the financial crisis, Internet giants have begun to dominate again.

There were also two twists and turns, or a big turn in the market. The first time was after the oil crisis broke out in the 1970s. The main line of the market in the era of mass consumption was interrupted, the Nifty 50 market ended, and the main line of the market turned into resource products. Coupled with the small ticket market, the stock prices of crude oil companies skyrocketed during this period. At the same time, the longest and largest round of small ticket market in the history of US stocks appeared. It is even said that the definition of small ticket market (small size effect) comes from It only started to exist during this period.

The second time was between the bursting of the dot-com bubble and the outbreak of the financial crisis. The main trend of the market was financial stocks plus cyclical stocks. During this period, as China's economy joined the WTO after 2001, global commodity prices began to break through historical highs in 2002 and then continued to rise. The U.S. economy was actually in a process of passive imported inflation. The stock price of U.S. Steel increased more than tenfold during this period. This was simply unimaginable in advance. Just imagine that in 2000, the peak of the two-wheel drive of technology consumption in the U.S. stock market was when the U.S. economy experienced "high growth and low inflation." In the new economic era, when everyone felt that the nominal economic growth rate would no longer fluctuate much, suddenly, a 19th-century company like U.S. Steel ( U.S. Steel Company was formerly Carnegie Corporation founded in 1864). Steel Company), its stock price has shone in the 21st century and its return rate far outperforms the S&P 500 Index.

These two major turns in the development of the U.S. stock market have a common feature, which is the increase in fluctuations in nominal economic growth that exceeds expectations, and both times can be regarded as increased fluctuations caused by external factors. The one in the 1970s The oil crisis caused by the Middle East war from 2001 to 2007 was caused by the rapid rise of China's economy, which caused a sharp rise in global commodity prices. But overall, this development path from cycle to consumption to technology still holds.

China’s “multi-dimensional gradient development stage”

So, how do you view China’s current development stage? Is it similar to the 1960s in the United States or Japan? 1970s? 80's? the 90s? This question is very difficult to answer. If we look at it solely from the perspective of GDP per capita, China's current development stage may not have reached the level of the United States in the 1960s. But such a conclusion is obviously inconsistent with everyone's perceptual and rational cognition.

We believe that China's economy is currently in a "multi-dimensional gradient development stage", that is, if you look at China's economy from different dimensions, you will see different stages of development, and the differences between them may be very large. For example, we have already seen the Internet We have reached the forefront of the world. For example, in the servitization of consumption, we may have just begun to match the level of the United States in the 0 era. This "multi-dimensional gradient development stage" economic development characteristic determines that there are many different main lines for stock market investment.

This "multi-dimensional gradient development stage" feature is determined by the "latecomer advantage" development model of my country's economy. Economic development includes fluctuations in economic growth, transformation of economic structure, etc., and there are inherent laws of its own. For example, as the economy continues to grow, the proportion of the service industry in GDP will become higher and higher, etc. But because our country is a late-developing country, we will face many problems in the cutting-edge fields of science and technology when the per capita GDP has just exceeded 10,000 US dollars.

This article believes that we can generally look at the development stage of China's economy from three perspectives, and opportunities mainly lie in these places: ) From the perspective of technological innovation, in some frontier areas including the Internet and new energy, China has Leading the world; ) From the perspective of industrial competition, China's manufacturing industry currently has a strong international competitive advantage and has entered a stage of moving from a domestic leader to an international leader; ) From the perspective of structural transformation, China's current path is in line with the economy In line with the general laws of development and the historical experience of developed countries, the fluctuation of economic aggregate growth rate has decreased, and the proportion of consumption and services has continued to increase. These characteristics are continuing to occur.

Scientific and technological innovation, some fields have reached the forefront of the world

From the perspective of the development stage of scientific and technological innovation, generally speaking, we are still in a catching-up position, including semiconductor chips, computer software, biomedicine and many other frontier fields. We are the furthest away from the world. There is still a gap in leadership level. However, due to the "latecomer" characteristics of China's economy, we encountered the latest technological innovations in the primary and intermediate stages of economic development. In these fields, we basically started from the same starting line as other developed countries, so we were not restricted in the development process. The development stage of the economy itself or the accumulation of technology, we quickly reached the most cutting-edge level of development.

The most typical of these is the Internet industry. China's Internet industry is at the forefront of the world. A group of our companies have changed and subverted existing business models through innovation. The Internet and digital economy have been completely transformed. It affects our living habits and production. I just recently finished reading the masterpiece "Value: My Thoughts on Investment" by Mr. Zhang Lei , which mentioned that "there is only one moat in the world, which is that entrepreneurs continue to innovate and create long-term value crazily." In my opinion , the business model innovation of Chinese Internet companies has undoubtedly created huge social value. This value is reflected in the fact that the utility obtained by consumers will be far greater than the fees paid. In economic terms, it is the Pareto of enterprises and consumers. Improved, consumers gain consumer surplus.

Moreover, so far, the innovation of Internet companies has not stopped, and new life scenarios and business model innovations are still emerging.

In addition to the Internet, we are also relatively leading in the field of new energy, and we are currently experiencing a new energy revolution. Looking back on the history of human innovation, every major scientific and technological revolution is often accompanied by the emergence of an energy revolution. As the world's largest country in energy consumption and carbon emissions, the environmental protection and energy security issues brought about by traditional fossil energy have determined that my country's energy supply structure and consumption model need major transformation. In the past few years, we have happily witnessed the development of new technologies such as photovoltaic and wind power in my country. Excellent development results in the energy industry. Promoting the energy revolution and achieving efficient, clean, and intelligent energy utilization is expected to be a major breakthrough during the "14th Five-Year Plan" period.

Industrial competition, manufacturing industry has global competitive advantages

From the perspective of the development stage of industrial competition, countries such as the United States, Europe, and Japan have successively experienced stages of industrialization and deindustrialization. Now many countries have turned back and want to re-industrialize. Our country is currently at a stage where industrialization has basically been completed and the manufacturing industry has begun to gain global competitive advantages.

First of all, from the perspective of output value, China leads the world in almost all manufacturing sectors. As of the end of 2019, China's total manufacturing output value accounted for 28% of the world's total output value from 9% in 2004, surpassing other countries such as the United States, the European Union, and Japan, and deservedly becoming the world's number one.

And from the perspective of competitive advantages, compared with high-tech products and domestic consumer goods, we believe that Chinese companies have the greatest competitive advantage in the midstream manufacturing sector. Objectively speaking, products made in China cannot be said to have the highest technical content, or our intuitive perception of the highest quality products, but now they are no longer synonymous with low-end and cheap.

includes home appliances, machinery, auto parts, etc. The competitive advantage of a large number of Chinese-made products is mainly focused on "high cost performance", that is, even if the quality is similar, we have a better price advantage. This means that for those products whose technological innovation is not that fast, through many years of efforts, our product quality is no longer lagging behind, but the price advantage still exists, so there will be a "cost-effective" advantage. In fact, most industrial manufactured products are probably like this. Think about air conditioners and microwave ovens. Products from 20 years ago are not very different from today's technology. Or globally tradable midstream materials, these are all in a similar situation.

Why does China's manufacturing have a "cost-effective" advantage, and this advantage will continue. Because one of China's current big competitive advantages is that we have a population of 1.4 billion, and the market is with us! Market advantages determine that large-scale production is more likely to have cost advantages. Although China's demographic dividend is slowly fading and its labor cost advantage is no longer obvious, the new round of technological revolution is very beneficial to us, and digital transformation is making up for the disappearance of the labor cost advantage.

On this point, I think it is particularly worthy of attention in 2021. "Leading overseas" may be an important theme in the next few years. China will give birth to a number of global leading companies. From the perspective of competitive advantages, these companies are more likely to be in home appliances, Automobile, electronics, machinery, building materials, chemical industry and other fields. The process of

may be very similar to a group of global companies that emerged in Japan in the 1980s and 1990s. The chart below reports the proportion of Japan's exports of goods to the value of global goods exports since the 1960s, as well as the proportion of sales of Japanese companies among the world's top 500 companies, and the proportion of sales of Japanese companies among the world's top 500 companies. It can be seen that Japan's proportion of goods exports reached its highest level around 1986, and continued until about 1993. In contrast, the sales proportion of Japanese companies among the world's top 500 companies lagged behind, starting from 1985 From the beginning of 1995 to 1995, the proportion of sales of Japanese companies in the world's top 500 companies continued to increase.

We can understand that the birth of leading companies may lag behind changes in the industry. When a country's exports explode, competition among companies should be very fierce. It is hard to say who will win during this period. .The rising proportion of exports in macro data actually proves the country's industrial competitiveness. Therefore, as time goes by, leading companies in related industries will stand out.

This stage corresponds to the continuous increase in the proportion of overseas operating income of leading companies, and the globalization of domestic leading companies overseas to become a global leading company. This process occurred in the 1960s and 1970s in the United States and in the 1980s and 1990s in Japan. It has happened before, and our country has almost entered this stage.

Structural transformation, China has entered the era of mass consumption

From the perspective of the stage of structural transformation of economic development, China's current development stage is basically consistent with the general laws of economics and the path taken by Western countries, which is mainly reflected in the overall economic growth rate From high speed to medium to high speed, the volatility of economic growth has dropped significantly, the proportion of investment in the GDP composition has continued to decline, the proportion of consumption has continued to rise, and the proportion of the service industry has continued to increase.

Looking back at the development of the U.S. economy and the U.S. stock market, from the mid-1960s to the mid-1990s, the United States entered an "era of big consumption". During this period, the stock prices of U.S. consumer stocks continued to rise sharply. We are now in the market A group of investment masters who are particularly well-known, such as Buffett, Peter Lynch, etc., all made huge profits from their investments during this period.

What needs to be emphasized here is that I think China has also entered a "big consumption era". Comparing the development process of the United States, the characteristics of the "big consumption era" are very similar:

first, the era of heavy industrial investment is over. The United States also had a golden age of heavy industry investment from the post-war period until the 1950s. In the mid-1960s, heavy industry investment began to slow down. This is also the case in my country. After 2010, the investment growth rate of the traditional economy continued to decline, and China's heavy industry investment grew rapidly. It has also passed.

Second, the real estate cycle in the United States had not yet begun, and my country’s current real estate cycle is nearing its end. A major real estate cycle in U.S. history began around 1995 and lasted until the subprime mortgage crisis in 2006. The current major real estate cycle in our country generally started in 1998. Judging from the current situation, this real estate upward cycle is basically coming to an end. Under the policy direction of "housing for living, not speculation", the total real estate volume has The overall cooling is an inevitable trend.

The end of the heavy industry investment era and the end of the real estate cycle mean that residents' savings rate will significantly decrease, while the consumption rate will increase significantly. From this perspective, China has now entered the "era of big consumption", and at this point in time, this may only be the beginning.

If the judgment of the "era of big consumption" is true, then looking forward, firstly, the proportion of residents' consumption in GDP will continue to rise. Compared with developed countries, there is still a lot of room for improvement in the proportion of consumption in my country's economic aggregate. Second, the proportion of service consumption in consumption will continue to increase, while the proportion of commodity consumption will continue to decrease.

I have always believed that consumption upgrading has at least two meanings. One is to eat well, wear well, and use it well. We pursue more high-end products. The second is that the proportion of service consumption continues to increase. As income increases, our demand for There will be an increasing demand for services and a willingness to pay for services (medical, educational, entertainment, housekeeping, etc.). Overseas developed countries have all experienced this kind of development in their consumption upgrading process. This is in line with the general laws of the economy. I believe we will follow a similar path in the future.

Finally, to make a summary, this article believes that from the perspective of development stage, the current investment opportunities in China's stock market are mainly in three directions: industries at the forefront of technological innovation such as Internet new energy, manufacturing companies with international competitive advantages, and those entering the "big consumption era" ” Chinese consumer goods company. Looking forward to 2021, I believe that the "leading overseas" of manufacturing companies may have the greatest opportunity. All specific stock targets involved in the

article are only statistical summaries of public information and do not constitute any profit forecast or investment rating.

Risk warning: The macro economy is less than expected, overseas markets fluctuate significantly, and historical experience does not represent the future.

Yanxiang SAC practicing certificate code: S0980516080002

This article is reprinted from Guosen Securities Research report on November 22, 2020 "Guosen Securities-Market Thinking Essay No. 53: Multi-dimensional Gradient Development Stage "

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