Tengtai/text
Since 2021, the global economy has experienced a rare differentiation such as large inflation in Europe and the United States and the decline in China's economic growth rate. In addition, regional differentiation, residents' income differentiation and enterprise differentiation brought about by the major industrial differentiation in various countries are becoming increasingly serious.
Economic trends in the East and West
The US CPI is as high as 9.1%, the latest decline to 8.3%, and the EU's CPI also exceeded 9%, setting a new high since 1981. Germany's PPI was as high as more than 30%, setting a new high since 1951.
The reason for such a high inflation level in Europe and the United States is very complicated. From the supply side, there are both reasons for the impact of energy supply and the spiral rise in wages and prices. At the same time, there are also complex factors such as the epidemic affecting supply chain costs, trade protectionism, rising food and food prices, monopoly and head-to-head.
From the demand side, mainly in the face of epidemic prevention and control in Europe and the United States, the measures they have taken to stabilize the economy are mainly to make money to stimulate consumption, and stabilize consumption has achieved good results. In June 2020, US consumption began to turn positive growth, driving a strong economic recovery. By the fourth quarter of last year, the U.S. GDP growth rate actually reached 6.9%, and the unemployment rate hit a new low in several years. But as a by-product, it also brought about inflation that has not been seen in 40 years.
In order to deal with inflation, Europe and the United States have taken several measures to raise interest rates with significant interest rates. Why are such excessive interest rate hikes taken? This has something to do with their wrong judgments since last year. Since the third quarter of last year, when the US CPI has exceeded 5%, the Federal Reserve has insisted that inflation is a temporary phenomenon and does not require intervention. At that time, we published several articles in a row, believing that this round of inflation between the United States and Europe may be a long-term inflation for more than three years. The views of these articles are reflected in the book "Global Inflation and Recession" published earlier this year. At that time, some media also asked us, are you better than the Federal Reserve? Is it better than American economists? We Chinese scholars really need to be confident in this: since facing multiple rounds of inflation in the 1980s, at least two rounds of inflation in the 1990s, 2003-2004, 2007-2008, and several rounds of inflation from 2010, Chinese scholars have far surpassed Western scholars in tracking the observation indicators and research methods of prices and inflation. For countries such as the United States, they believe that inflation is the business of developing countries and has nothing to do with them. For more than 40 years, few people have studied inflation, whether in their government departments, decision makers, the Federal Reserve, or the American economics community. So last year they made a wrong judgment on inflation, and they did not start to change their words until November last year. After that, they acted too slowly. They only started to raise interest rates slightly by 25 points in March this year. They did not start to take excessive measures until more than 8% in July and August. Such actions come from both their judgment on inflation, as well as pressure from political, academic and social circles. But continuous large rate hikes will inevitably increase their risk of economic recession.
Looking ahead to the second half of the year and 2023, it is already a fact that the European economy fell into recession. Although the month-on-month growth rate of the US economy has declined, its year-on-year growth rate in the first half of the year is still as high as 3.2%. It is too early to say that the United States has entered a recession, but the probability of an economic recession in the US is getting higher and higher.
So how to judge the global economic situation in the next 1 to 3 years? Considering that interest rate hikes have impacted on energy supply, spiral upwards on wage prices, impacts on the epidemic supply chain costs, trade protectionism, food prices, and monopoly head-on are useless, it can only reduce some investment and consumption demand. So we predict that by the end of this year, it would be quite good that the U.S. inflation could return to around 5%. It will remain at a level of 3% or even 4% in 2023. To achieve their 2% inflation target, it will be at least until the end of 2023 or even 2024. If you face such a long cycle of inflation and interest rate hikes, the risk of stagflation in Europe and the United States will increase, and it will surely have a profound impact on the global economic, trade, politics, diplomacy and military landscape.
The second point is, let’s take a look at why China’s economy is declining? In addition to the three major factors clearly proposed by the Central Economic Work Conference that weakened the expectations of supply shocks and contraction of demand, as well as the multi-point scattered impact of the epidemic that has appeared this year, there are also reasons why we have focused on investment, production, consumption and service industries in the past two or three years in the face of the impact of the epidemic. This is not only a matter of decision-making concepts, but also a matter of traditional concepts of the people. We use trillions or even tens of trillions to invest in infrastructure, which is easy to pass. Not only is it easy to pass from the central government, but it is also unimpeded in the Development and Reform Commission, the Ministry of Finance, and local governments at all levels. But if someone proposes, for example, spending trillions or even hundreds of billions to issue consumption coupons to the people, the challenge of this decision-making concept will be very and difficult to accept.
Europe and the United States do not have the ability and mechanism to expand capital investment. Maybe they should learn from China how to expand investment; but our decision-making departments may also learn from Europe, the United States, Hong Kong, Taiwan, Japan, and Australia how to stabilize consumption by issuing consumption coupons or similar measures.
Under the current circumstances, consumption has become the main reason restricting China's economic recovery. From the demand side, consumption contributes more than 65% to GDP, far greater than investment and far greater than import and export. From the supply side, the service industry accounts for more than 54% of GDP. If consumption does not return to normal levels, if the service industry does not return to normal levels, it is difficult to expect our Chinese economic growth to return to its pre-epidemic level.
Under the premise of coordinating multiple target economies such as epidemic prevention and control, price stability, and foreign economic stability, we predict that the GDP growth rate in the second half of the year should still exceed 4%.
How do you view the model of stabilizing growth and the impact of macroeconomic management concepts on future economic differentiation? As long as the concepts and models of macroeconomic management in the East and the West exist, the trend of economic differentiation in the East and the West will continue further.
The impact of large-scale industrial differentiation
What we deserve more attention is the large-scale industrial differentiation within various economies and the differentiation of regional, enterprise and residents' income.
The growth of China's economy over the past 40 years has been very universal. Perhaps the Gini coefficient is expanding, and there are distribution inequality or even unfair expansion, but this is two dimensions of balance between economic growth. In the past 40 years, all regions of China, whether in the east, west, south, or north, have been beneficiaries of economic growth, and no region, industry, or class of population has been lost.
In sharp contrast, in the past 30 years, the economic growth of the United States has been led and participated by a few industries, a few regions, and a few populations. In terms of industry, it is mainly the growth of a few industries such as electronic information, culture and entertainment, pharmaceutical industry, intelligent manufacturing, and finance. Most traditional manufacturing and traditional service industries have become bystanders of growth, or even damaged ones. Regionally, this growth is mainly concentrated in a few areas such as the California Bay Area, the Boston Bay Area, and the New York Bay Area, and many Midwest regions have also become bystanders of growth. It is precisely because of this uneven growth that the proportion of the middle class in the United States has dropped from 70% at its peak to 50% now. This is also the reason why Trump was elected. He saw this imbalance of growth and was successfully elected president by inciting social contradictions. However, he could not change the imbalance of growth and stepped down in disgrace.
Assuming that China's economic growth in the next 30 years will be difficult to maintain the universal growth that has benefited from all regions, industries and classes in the past 40 years, and will largely slide towards the growth model led by a few populations, industries and regions in the United States in the past 30 years. What challenges will this bring to our economic and social governance? From this perspective, let’s re-understand the issue of common prosperity. Private entrepreneurs may have a new perspective or a deeper and different understanding.
Deep transformation of China's economy
From a macro perspective, China has two deep transformations that must be completed. The first deep transformation is the driving force transformation of a growth structure dominated by investment-driven to consumption-driven.
A macro question worth thinking about is, can China's basic construction still promote rapid economic growth? Many scholars or decision-making departments take it for granted that in the future, fixed asset investment will only maintain a growth of more than 5%. Last year, our total fixed asset investment in infrastructure was 55 trillion yuan. If the growth of 5% per year in the future, it will be 85-90 trillion yuan in ten years. Do we need such a large-scale investment in capital construction? Do you still need to build so many houses? Do you still need to build so many factory equipment? When the stages of rapid industrialization and rapid urbanization have passed, the reasonable proportion of fixed assets to GDP is 20% to 25%, which is the path taken by all developed countries. Even in countries like India, fixed asset investment accounts for only 27%, while China's fixed asset investment accounts for more than 40% of GDP, twice as high as others. Assuming that China's GDP will be around 150 trillion in ten years and the proportion of fixed asset investment in GDP returns to a reasonable and normal scale such as 20%-25%, then the fixed asset scale in 10 years should be 30 to 40 trillion. How can it maintain a positive growth of more than 5% in the future?
From a micro perspective, the multiplier effect of fixed asset investment is getting smaller and smaller. Since 2014, some northern provinces have seen a situation where the total GDP of the whole year is less than their total fixed asset investment. Why is this? Even if one dollar of fixed assets is invested, it will not produce a dollar of GDP, and the multiplier effect of investment is less than 1. From a micro perspective, it goes without saying that real estate investment is facing huge negative growth; in terms of infrastructure investment, the national highway value difference last year was 740 billion yuan, the newly announced debt of China Railway Corporation was 6 trillion yuan, the loss in the first half of the year exceeded 80 billion yuan, and most of the more than 2,000 characteristic towns were vacant. In this case, it is unrealistic to continue to rely on infrastructure investment to drive growth.
So in 2020, we made great investments in the face of the impact of the epidemic. By 2021, this model will not continue. The special bond indicators issued by the central government cannot be implemented at all. There are not so many projects. The bridges and roads that should be repaired have been opened to traffic, the buildings that should be repaired have been moved in, and the factory buildings do not need to be renovated soon. In this case, we must switch from investment-driven to consumption-driven as soon as possible.
consumption drives 2/3 of economic growth. According to the calculations of relevant research institutions, in rural areas, more than 5 and more than 3 in urban areas, 1 yuan of stable consumption funds can generate an economic cycle of 3 to 5 yuan. How to boost consumption and increase residents' income? Issuing consumption subsidies or consumption coupons? Or reduce interest rates and increase residents' consumption tendencies? We need to complete a major transformation from the perspective of decision-making.
The second macro-in-depth transformation is to promote the transformation and upgrading of the manufacturing industry through the innovative development of the service industry. Many of us realize that manufacturing is very important and is a reflection of the competitiveness of a big country, which is undoubtedly correct. However, manufacturing is important and does not necessarily regard the proportion of manufacturing as an indicator of high-quality development. If ranks the proportion of manufacturing as a local development indicator, then Beijing and Shanghai are at the bottom of the country and ranked last. If the proportion of manufacturing in GDP is used as an indicator of high-quality development, then the most backward regions in the United States are New York, Boston and California, which is obviously absurd.
Why is manufacturing so important, but the proportion of manufacturing cannot be used as an indicator? Facts show that in the 1980s, the service industry accounted for 20%.At that time, the manufacturing industry was not good; in the early 1990s, our service industry had increased to 30%, and the manufacturing industry had just started; in 2001, our service industry accounted for 41%, and our manufacturing industry was already very competitive in the world; now our service industry accounts for 54%, and China's manufacturing industry has become the world's leader... Why is the increase in the proportion of the service industry accompanied by the strength of China's manufacturing industry? Let’s take a look at agriculture: What brings about the improvement of agricultural productivity? Is it because farmers' efficiency in working has improved or their working hours have been extended? None of them is the improvement of agricultural productivity brought by industry: industry provides agriculture with fertilizers, agricultural machinery, cement drilling technology, pesticides, and seed gene technology, and then agriculture develops greatly. Industry not only increases agricultural output, but also reduces the proportion of agriculture, reducing the proportion of agriculture in GDP from 70% decades ago to 7%.
The relationship between service industry and industry is the same. From a micro perspective, the development of manufacturing comes from the efforts of manufacturing enterprises themselves, and from a macro perspective, it is inseparable from the great development of service industry. The education and training industry provides talents for the manufacturing industry, research and creative industries create new products for the industry, trade logistics promotes the refinement of industrial division of labor, and advertising and media industries create new markets and new demands... Therefore, we cannot attack others because we are manufacturing industry, and we cannot confront the development of the service industry and manufacturing industry! Instead, we must correctly understand how to promote the high-quality development of the manufacturing industry by improving the development of the service industry.
Not only that, in the future, only the service industry will be the main area to solve China's employment. Our current employment structure is as follows: the industrial population is 217 million, accounting for 29%; the agricultural population is 170 million, accounting for 23%; the service industry is 358 million, accounting for 48%. In the future, more and more agricultural workers will have zero marginal productivity, and in 10 years, agricultural employment will definitely drop below 100 million. An industrial robot will replace more than 25 workers, so in the future industry will also generate tens of millions of industrial surplus labor. What solves the employment of all these surplus labor, including young people? Only rely on modern service industry.
The direction of enterprise innovation in the new era
Finally, let’s talk about the direction of enterprise innovation and transformation in the digital economy era. Against the backdrop of the risks and challenges of global inflation and recession and the deep transformation of China's economic growth momentum, we must not only see the impact of many old supply, but also see that many new supply is creating new demand and bringing new economic growth. As for new energy vehicles, the growth rate last year exceeded 150% year-on-year, and the year-on-year growth rate this year is still nearly 100%, reaching about 5.6 million to 6 million vehicles. As the world's largest electric vehicle market, China has led the world in many technologies such as power batteries, power zones, power banks, software and hardware, intelligent driving, automotive lightweighting, spare parts, etc.
Our photovoltaic, wind energy, and energy storage have grown by more than 100%. Not only is China's household storage in Europe in short supply, but some orders are scheduled to be six months later. Just this month, Tesla is about to release its humanoid robot, which is another big market of ten trillion levels. If in the future, many scenarios such as kitchens and logistics can be solved by human-shaped robots for C-end, the market size will far exceed that of previous new energy vehicles. In addition, there are new growth brought about by the industrialization of the digital economy and the digitalization of traditional industries.
From the perspective of technological innovation evolution, China has already met the conditions for concentrated explosion of technology and product innovation in basic science reserves, talents, especially engineer dividends, a strong manufacturing supply chain, a super-large-scale market, etc. So we entrepreneurs need to see the impact and also see where new opportunities are.
The global economy is more difficult than it is now. There have been two times in the past 30 years. Once, it was the most difficult time in the world in 1997 and 1998. The Internet era opened up new economic growth; the other was when the global financial crisis caused a recession in 2007 and 2008. Mobile Internet once again changed people's lifestyles and brought new economic growth; from 2022 to 2023, the global economy faced the risks of inflation and recession, and even stagflation. The third generation of the Internet, such as the metaverse we are discussing now, will change our lifestyles again and open up new economic growth? So in the digital age, we should not exclude new things, but should pay close attention to the guidance and changes of metacosmic technology in lifestyle.
We also need to grasp the laws of wealth and value creation in the digital age. This world is originally a binary world, with both material wealth and information wealth. How can create soft value in the digital economy era and help the transformation and innovation of the real economy? To help the innovation and transformation of the real economy with a soft value strategy and meet the people's needs for a better life, we must first attach importance to the value creation of R&D creativity, and carefully study Huawei's IPD strategy and Haier's maker model, and transform the R&D department from a cost-effective department to a value creation center and a corporate profit center. also needs to pay attention to the soft value creation on the demand side, such as online car-hailing or shared bicycles, using scenario innovation to lead and change people's lifestyles, and also attach importance to leading cultural trends to enhance customer experience value, etc. While we were still exploring the direction with a compass on the original sea, someone had already used satellite navigation to run towards a wider sky!
(Compiled according to the author's speech at the "2022 Top 500 Private Enterprises Summit in China" by the All-China Federation of Industry and Commerce, there are deletes.)
