Introduction: During the 2021 National "Two Sessions", the Chinese government's GDP index this year was above 6%. This news was beyond the expectations of Chinese media and commentators at home and abroad - many voices predicted that GDP indicators would not be announced this year. So, where is the focus of the economy this year? Is investment and consumption expected to recover further? Is there a high pressure on domestic inflation or imported inflation that the outside world is worried about? Observer.com interviewed Yao Yang, Dean of the National Development Institute of Peking University. The following is the full text of the interview.
[Interview, sorting/Observer Network Zhu Minjie]
Observer Network: 3 Government Work Report mentioned that the expected GDP target this year is set to be above 6%. In January, the World Bank released the 2021 Global Economic Outlook, predicting that global economic growth will be 4% this year, China will climb to 7.9%, and the annual economic growth in the Asia-Pacific region will reach 7.4%, mainly driven by China. In contrast, are the goals we set a little conservative and what are the considerations? Where is the point of force?
Yao Yang: To be precise, this year's GDP target is set above 6. The reason for setting this way may be that 6 is a relatively easy goal to achieve, but there is room for it to go up.
I think the focus this year is probably on the consumer side, because we actually had a lot of investment last year and export growth was not bad, but last year's consumption was negative, with per capita consumption falling by 4%. Since the annual report of the Bureau of Statistics does not announce the expenditure side of GDP, we cannot know how much overall consumption fell last year, but I estimate it may be around 3%. Usually, our consumption increases by 7%, or even higher in the year, and rarely falls below 7%.
If we look at this standard, it fell by 3% last year, and it is usually possible to grow by 7% in the year, then consumption growth this year may be expected to reach 10%. Of course, this is a high limit, but there should be 7%.
consumption accounts for 55% of China's GDP, which can drive GDP growth by 4-5 percentage points. In addition, there should be no big problem with investment and foreign trade contribution of about 3%. In this way, GDP can grow by 7%-8%, so 6% is a guaranteed target, and the actual statistical results will be higher.
Of course, another major factor is that we want to downplay the GDP growth indicator now. We did not mention it last year, and in the past few years, we have been saying that we should downplay it. Setting it at around 6%, is actually a manifestation of downplaying the indicators. That is to say, if we can achieve this goal by 100%, it is set at this number.
So since that's the case, shouldn't you just publish it? Why do you need to publish a number? Before this year's Two Sessions, domestic and foreign predicted that the GDP indicator would not be announced, but the results were still announced. I think this is beneficial. Announcement is a signal to the outside world, that is, economic growth is still important. Furthermore, when formulating other plans, you must also have a growth rate, such as a deficit rate. If you don’t know how much economic growth is this year, how can you estimate the deficit rate? There are many examples like this, so even if the government does not publish indicators publicly, at least there is still a rough number within the government, otherwise there will be no way to make plans.
Foreign media pay attention to China's GDP target for 2021. Screenshots are from Wall Street Journal
Observer Network: You mentioned that you have downplayed GDP indicators, and it is indeed discussed in the past two years. But there are also other opinions that considering China's current economic development level and regional differences, we must pursue the highest economic growth rate as possible and actively monetary and fiscal policies are needed because economic expectations have the characteristics of self-realization. What do you think of this problem? What is the relationship between domestic efforts to promote the new economy in the past two years and examining economic growth from the perspective of the new economy?
Yao Yang: According to the standard content of textbooks, economic development should have an indicator of potential growth rate, and macroeconomic policies and monetary and fiscal policies should also be based on potential growth rate. If you have a hunch that the growth rate is lower than the potential growth rate, then you need to stimulate it. If it is higher than the potential growth rate, you need to take some tightening measures. This brings up a question: Where is China's potential growth rate?
Now our general judgment is that China's potential growth rate is between 5.5% and 6%. Setting 6% this year is actually the potential growth rate of our country, which is not too outrageous.In fact, GDP indicators should be determined every year according to the potential growth rate. Whether to stimulate and tighten is related to the potential growth rate. Even if the government does not announce specific indicators, there are still internal figures, and monetary and fiscal policies are formulated around the potential growth rate.
Observer Network: In other words, it may be a general point of view to pursuing high economic growth rates as much as possible, but the potential growth space cannot be ignored behind it. The policy must be determined around this base. Is this the reason?
Yao Yang: pair. But first of all, I think that the statement that we should pursue as high growth as possible is a bit ambiguous. If you want to pursue high growth in the short term, you can always do it, and just increase fiscal and monetary policy; but doing so may not be a good thing for the long-term economy.
is because the factor that determines long-term growth is still on the supply side, which is how much supply capacity is. To increase China's growth rate, we must increase the potential growth rate. The key is to work hard on reform, technological innovation and effective investment. These are two things, and the corresponding supporting policies are different.
Observer Network: You mentioned that the focus of economic growth this year may be on the consumer side. In recent years, we have been talking about how to revitalize the huge Chinese market. From cities to rural areas, it has been talked about for many years, but what exactly is the problem of consumption? Is it because you don’t have money to spend, or is it because you have money but don’t have enough expectations for the future? Furthermore, a situation highlighted since the epidemic last year is consumption stratification, and most of the wealth in the whole society is concentrated in the hands of a small number of people, and the marginal effect of these people's consumption in China is getting smaller and smaller and difficult to satisfy. Therefore, the consumer side needs to make efforts, where should we make efforts?
Yao Yang: First of all, from a macro perspective, our consumption growth rate has been faster than GDP growth in the past 10 years, so the proportion of consumption in GDP is increasing, from the lowest point of 48% in 2010 to 55% now. In turn, our savings rate has dropped to 45%. From a macro perspective, our consumption growth is already fast enough, which is very important.
Many people are saying that we can also increase domestic consumption potential, but as I mentioned earlier, consumption usually increases by 7% in annual consumption, which is still calculated based on comparable prices. Excluding the special circumstances last year, 7% is a very high growth. Therefore, from the perspective of the proportion of domestic consumption in GDP and the acceleration of consumption growth, I think there is little potential.
What we mean by increasing domestic consumption means adjusting the consumption structure, which is the key point. There are two aspects to the consumption structure.
pictures are from the Internet
First, we need to increase consumption of low-income people. Last year, the Prime Minister said at a press conference of the Two Sessions that the average monthly income of 600 million people is around 1,000 yuan. In fact, there is nothing to be surprised about this number. Economists have known it for a long time. Just look at the data released by the Bureau of Statistics to understand it.
There is another number that is, 50% of the lowest income class in my country, accounting for only 16% of the total income. This number is very low, worse than the United States. 50% of the lowest income in the United States can also account for more than 30% of the total income. The focus of China's income growth and consumption growth should be 50% of the minimum income, and these people are basically in rural areas. The poverty alleviation process is completed, and the path to revitalizing in rural is the right way. Consumption is an endogenous thing. If you don’t have income, you won’t have consumption. 50% of this part of the minimum income is very low, and of course you have no consumption capacity. I think this must be adjusted.
Second, China's middle-class consumption needs to rise. For a long time in the past, consumer goods in the middle layer were lacking. For example, the clothing industry is either very expensive and high-end, often seven or eight hundred or even thousands, or street stall goods cost dozens of dollars, which means that there has been a long lack of brands for domestic middle-class consumption. Of course, it has changed now, and some niche local clothing brands are emerging. If this part can be expanded, our consumption will increase. Consumption will drive the growth of the entire GDP, which may not necessarily account for the proportion of GDP, but will drive GDP growth, so that China's economy will enter a more virtuous cycle.
Observer Network: thought of a set of comparisons. Last year, two ports of Chinese consumption made huge efforts. One was Pinduoduo, and the sinking market expanded rapidly, and the other was that China became the fastest growing global luxury goods market last year.
Yao Yang: pair, this is an abnormal phenomenon. Most of the things sold by Pinduoduo are cheap and have relatively inferior quality. On the other hand, the high-end market is very luxurious in sales of products, but the middle part is missing. We need to cultivate some domestic brands to produce for the Chinese middle class.
Observer Network: But this phenomenon itself also shows that there is also a problem with the secondary distribution of social wealth.
Yao Yang: that problem is big, it’s too much to talk about. Of course, I must first say that since the construction of a harmonious society in 2006, the intensity of redistribution has increased significantly, which must be affirmed; subsidies for rural residents and subsidies for the central and western regions and the northeastern regions have increased significantly. This is a achievement, but there are still many institutional obstacles.
The simplest thing is, the gap between rural and urban areas is too big, and the difference between underdeveloped and developed areas is too big. For example, there is also a big gap between children going to school, not only the gap between primary and secondary schools, but also in college. Most of the children who go to third-tier schools come from rural areas and have to pay high tuition fees for this. In China, good schools pay very little tuition fees, mostly public schools . It can be seen that this is upside down. Other countries also have inverted cases, but many of their bad schools are private, and there are very few inverted cases in public schools. There are many similar situations that need to be changed urgently.
20 China becomes the only country in the global luxury goods market to grow positively. The data picture comes from FT
Observer Network: Since it mentions rural revitalization, I would like to ask questions about the central and local finances in the government work report. The report proposes that local fiscal revenue and expenditure contradictions are prominent, and the government arranges 3.5 trillion special debts. In the past few years, the central government has emphasized that it will no longer cover local debts, but like the popular regional development strategies and rural revitalization in recent years, there are still many places to spend money. One is where the development funds come from, and the other is that local governments need to invest money. People are also worried about whether they will return to the old investment path in the past, repeatedly wasted construction, etc. Are there any means to avoid it?
Yao Yang: Rural revitalization does require some money, repairing bridges and roads, and providing some subsidies for rural residents' social security, etc. But we cannot think that rural revitalization is the business of the government alone when we hear about it. I think rural revitalization should still start with the economy and revitalize the rural economy.
Actually, I am not very satisfied with the speech of Minister Tang Renjian of the Ministry of Agriculture and Rural Affairs on the channel of the Ministers of the Two Sessions. I only talk about agriculture, not about rural areas. It’s not that agriculture is not important, but of course agriculture is important, but we can’t just talk about agriculture, but also about rural development. The income of rural residents in China has long been no longer dependent on agriculture. Now many people don’t seem to mention this or pretend to be confused with their understanding. Twenty years ago, more than half of rural residents' income came from non-agricultural employment, and today, 80% of rural residents' income came from non-agricultural employment. Of course, this data is on average, and it is not ruled out that the income of residents in the main grain area mainly comes from agriculture.
So, can rural revitalization be revitalized just by engaging in agriculture? Why did it change its name to the Ministry of Agriculture and Rural Affairs? It means that it not only needs to engage in agriculture, but also needs to engage in rural issues.
The biggest problem in rural areas is employment. When you go to the countryside to see, there are still many unemployed people. How to solve it? We also have to rely on industry and service industries, but the development of industrial services cannot bloom everywhere as much as before, and every village can do it. Now it is proposed to develop the "county economy", which is an economy with the county town as the core. Because transportation is very convenient, farmers are gradually becoming richer. At least they can afford a motorcycle, so it is easy to ride a motorcycle to work in the county town. Many people in rural areas drive cars, like a medium-developed county like my hometown. Many families have cars, and some drive to work in the county town, which only takes 15 minutes. This commuting time is much better than that in big cities, which shows that this can be done.
The next question is how to make the county economy or county economy specific.Here, I must make it clear that in the past we have emphasized the development of high-tech too much. High-tech is very important, but not every city should develop high-tech. Most cities in the vast central and western regions should honestly develop some traditional industries. When I went to any city for investigation, the local leaders said that there were too few listed companies here, there were no national development zones, only a handful of provincial development zones, and no high-tech enterprises. But have you ever thought about it? More than 300 cities across the country are engaged in high-tech. Can it be done? Just like when we develop the chip industry, every city wants to do it, that's not a fool.
development must be adapted to local conditions and honestly do some traditional industries that can be done locally. In fact, there are many sunrise industries in traditional industries. We cannot rush all cities just because the government raises high technology. Now that the government has established so many guidance funds, they all want to do high-end things, but many of them cannot be done because they do not have the ability.
In other words, high-quality development of economic includes many aspects. I think one of the aspects is to bring employment and increase the income of the people, which is high-quality development. This is the most important high-quality development. If high-quality development has been done for a long time and the people’s income has not increased, then what is the significance of development? We say that we should not forget our original aspiration. What is the original aspiration? It is to make the people rich. This is the most fundamental thing. Nowadays, many places blindly pursue the so-called nobleness and forget the most important original intention.
If you want to increase the income of ordinary people, you must provide higher quality employment. In the past, they worked in the fields and were not efficient. They could not make a thousand yuan a year for work, but if they worked in the factory, they could make three or four thousand a month. For example, the more people in my hometown could have five or six thousand. This is not very good.
Observer Network: What is the relationship between the "county economy" mentioned here and the township enterprises developed in the past?
Yao Yang: is definitely different. Township enterprises are smoking in every village, and county economy is concentrated in county towns. First of all, environmental pollution can be reduced and environmental quality can be controlled more easily. Secondly, public facilities such as transportation will also be improved. Moreover, product sales are nationwide. In the past, when we started township enterprises, many of the products of the enterprises were mainly provided to people in surrounding areas, especially food processing enterprises. Now the division of labor is becoming clearer and logistics is developing rapidly, so the development of county economy must be based on a national perspective and comprehensive consideration. In fact, this is quite consistent with our past experience, which is that industrial clusters can be transferred to the central and western regions in an integrated manner.
Observer Network: From the perspective of the economic cycle, in addition to consumption, there is another aspect of investment. Judging from the data at the end of last year, the overall domestic investment situation rebounded in 2020, but it was not as fast as imagined. Moreover, among fixed asset investment, the real estate department recovered the fastest. Nowadays, it is often said that investment is weak or poor. So what is the problem? Is it because of the lack of willingness, is there any problem with the financing channels, or is there a relatively few investment projects at present, especially in some innovative technology fields?
Yao Yang: The issue of investment is very complicated and can be divided into two parts: one is public investment, mainly infrastructure, and the other is corporate investment.
Regarding infrastructure investment, the country issued a lot of special bonds last year. It is estimated that some of them may not be converted into investment immediately after being issued, or the funds issued have not been used up due to various management issues.
As for the relatively sluggish investment in enterprises, this is understandable, because the overall economy is still in the recovery period, and everyone will first use their own production capacity before expanding it, so it is unrealistic to increase investment immediately. However, some corporate investment may resume this year. If expectations are better in the future, everyone will invest.
Observer Network: But the current rate of investment recovery in the real estate sector is more worried about the outside world.We say that the 4 trillion plan has played a huge role in China's economy, but it has indeed laid hidden dangers in some aspects, including real estate. Will the current situation remind people of the situation at that time?
Yao Yang: The real estate industry is a sector that is more sensitive to the macro economy, especially during the epidemic, people's willingness to buy a house was suppressed. In May last year, the epidemic gradually improved. Real estate developers felt that the economy was about to recover. When people's willingness to buy a house was back, they would start investing in buying land, and the land sold very well last year. The real estate industry looks at the future. This year, the central government has begun to send out some signals to remind the real estate industry not to run too fast and not overheat. This is the main reason.
Of course, there is another aspect, that last year, the local government's finances were relatively difficult, and the land sales income was relatively flexible, while the special bonds given by the central government were very troublesome. In this way, local governments would definitely prefer to sell land, especially in some difficult places, selling more land to supplement fiscal deficits. This possibility is also possible.
However, in some places, it is not a mistake from the starting point of view; when we live in the city, we cannot look at these problems. Most rural areas must be concentrated, otherwise the efficiency of providing public goods is very low and the cost is too high. Moreover, many rural areas are almost empty. Continuing to retain some old houses is a waste of land. Combining villages and living together can save land to a certain extent. Promoting "farmers go upstairs" will also be a more intensive use of land to some extent. Of course, some places have a little more land, allowing people living in the town to build a bungalow, but in the so-called rural areas near the suburbs of many cities, the so-called farmers no longer farm, so "upstairs" can also be considered.
Observer Network: Back to the macroeconomic aspect, there have been more discussions about inflation recently, but not long ago, when people talked about anti-epidemic relief funds and judging China's economic situation, most of them were worried about deflation; in addition, when talking about inflation and deflation, we must consider the domestic and foreign levels. If the global currency issuance, will China face imported inflation pressure? What are the solutions?
Yao Yang: In general, there is no major change. Of course we should be worried about deflation last year. I personally think that looking at CPI is not very accurate. We should mainly look at PPI (producer price index), which directly reflects the production side and then transmits it to the consumption side. CPI data statistics depend on "a basket". Many indicators need to be considered. It is more troublesome to consider how big each proportion is.
PPI is relatively fixed, and the statistical accuracy is relatively high. Last year, our PPI has been negative, and now it has turned positive, which means that China's economy may indeed be at a turning point, from deflation to weak inflation. The CPI increase set this year is 3%, which is probably a high limit.
In addition, the imported inflation that everyone is worried about is mainly because commodity prices are rising, but how much can the rise in commodity prices be reflected in prices? Commodities account for all raw materials not as large as expected, but are actually a smaller number.
On the other hand, we must also consider the appreciation of the RMB. My judgment is that it should be able to rise a little more this year, and it is possible to rise to about 6.3 or 6.4. The appreciation of the RMB can deal with inflation.
Overall, inflation pressure will not be very high in at least the first half of this year. Under this circumstance, our fiscal and monetary policy, especially monetary policy, should not withdraw urgently, so this government work report also mentioned that monetary policy should not make sharp turns. I think even if you want to withdraw in the future, it will be a relatively slow progress.
Observer Network: Now we are discussing fiscal and monetary policy, mostly in terms of short-term macro-control. Then another major event in this year's Two Sessions is the "14th Five-Year Plan". If we consider the realization of long-term goals, how should we coordinate when formulating short-term macro-control and long-term economic goals? Furthermore, there are many financial and financial tools in various science and technology. What changes will these bring to traditional macro policies and economic goals?
Yao Yang: The first problem is the relationship between the short-term and long-term. The short-term depends on monetary policy and fiscal policy, and the long-term supply side. Regarding the latter, our country mainly relies on reform and technological innovation. In the 14th Five-Year Plan, there is a lot of content about the supply side, while the government work report will propose short-term measures, and there are still big differences in the areas involved between the two.
Some of the advanced methods we just talked about, such as Internet finance , digital RMB, etc., are all very good innovations, especially Internet finance, which are discussed a lot now.
I wonder if you have noticed that the Prime Minister mentioned in his government work report that we should prevent risks, but before that, there is another sentence, which generally means that we must take into account the development of Internet finance and international competitiveness. The sentence
is very important, it has content. Some time ago, the so-called anti-monopoly in China emphasized that the so-called anti-monopoly now means that we must reach a balance to some extent. Internet finance is a new thing. Regulatory should not rush to draw conclusions or classify it - either to technology companies or financial companies. In fact, they are creating a new form - technology finance. New regulatory measures are needed for technology finance, rather than trying to kill it.
Recently, China Banking and Insurance Regulatory Commission published a draft for soliciting opinions on loan assistance and joint loan . I think some aspects are worth discussing. For example, small and medium-sized banks can only conduct business in their own territory and cannot exceed their own territory, that is, they cannot exceed their province. This is obviously contrary to Internet finance. It is obvious that loan assistance and joint loans cannot be done, because their advantage is that they must be carried out across provinces and nationwide.
I think if such a measure is released, it will basically be a lame leg of Internet finance. This should not be our development direction. You can increase regulatory requirements or even make their own funding requirements like banks. These are all OK, but if you use administrative means to limit their business scope, you will be a bit self-defeating.
Internet finance has finally become a place where China can surpass the United States. If it sets its own restrictions and ties itself, it is obviously inconsistent with the attention to international competitiveness mentioned in the Prime Minister's work report.
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