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According to the forecast of the International Monetary Fund (IMF), China's economic growth rate will be 6.6% in 2016 and will slow down to 6.2% in 2017. This year's series of stimulus policies have led the IMF to raise its forecast for China's economic growth. However, since China's current growth rate is very close to the potential growth rate, excessive stimulus will be counterproductive. The consensus is that the future China's economic recovery is not The “V†type, the sustainable “L†type will depend on the kinetic energy of the supply side reform.
Recently, at the "2017 China Economic Forum - Stable Growth, Risk Prevention, and Reform" seminar hosted by the Shanghai Development Research Foundation, Cai Wei, vice president of the Chinese Academy of Social Sciences, and Zhu Min, former vice president of the IMF, analyzed the current China's economic situation, and look forward to China's growth momentum in 2017.
Cai Wei: Long-term "L" type depends on reform kinetic energy
In response to the future Chinese economy, Cai Wei draws two basic judgments. First, we should not expect a “V†type of macroeconomic recovery. Second, we may pursue an “L†type of long-term economic growth. Track. He also found that there are two "L" growth trajectories in the short-term and medium-term.
After experiencing a number of "V"-type rebounds in the Chinese economy, why can't the "V" type of recovery re-emerge? "China's development to such a stage, the demographic dividend decline is an irreversible trend, which also leads to a decline in potential growth rate." Nickname.
In short, when China’s actual growth rate is less than the potential growth rate, that is, the production capacity is not fully utilized and there is an output gap, then it is possible to start from the demand side and use monetary policy, fiscal policy or even industrial policy and regional policy. Let it reach the potential growth rate. However, the current potential growth rate in China is declining, so this means that the reality does not allow or require China to achieve several “Vâ€-type rebounds in history.
According to his analysis, according to the basic form of the Cobb-Douglas production function, the potential growth rate is determined by the three major factors of technology, labor and capital, but these three factors are all population problems in the final analysis, and the population aging causes the demographic dividend to decline. As a result, the potential growth rate declines, which may be irreversible in the medium term.
“China’s working-age population aged 15 to 59 reached its peak in the sixth census in 2010, and since then it has been negative growth, which is an absolute reduction. The indicator that really determines our workforce is called the economically active population. On the basis of the working-age population, we must make an amendment to the labor participation rate. This indicator will also reach a peak in 2017 and will be negative growth from next year. That is to say, the negative growth of the absolute supply of labor has been determined." Cai Wei said.
At the same time, Cai Wei also said that another important indicator - unit labor costs are rising. The unit labor cost is equal to the wage divided by the labor productivity. "Wage wages rise, unit labor costs will certainly increase, but if labor productivity can be improved, it will not increase unit labor costs, and will not quickly lose comparative advantage. And China's labor shortage is very sudden, and labor productivity growth is at In the past few years, it has not been able to keep up with the increase in labor costs."
What is more noteworthy is that China's relative costs are getting higher and higher compared with other major developed manufacturing countries, which means that these countries can more or less relocate their manufacturing industries. But more importantly, those countries that are still enjoying the demographic dividend may replace China as a labor-intensive manufacturing exporter.
In addition, as far as another variable, capital, according to the calculations of a professor at Tsinghua University, China's return on investment has begun to decline significantly. Cai Wei said: "Because labor is no longer infinite supply, companies continue to use capital to replace labor, robots replace living people, but if people's quality is not improved, the substitution is too fast to bring a low return on capital, this is An eternal rate of iron in economic growth theory. In reality, China’s return on investment is declining."
At the same time, Cai Wei said, “The number of people aged 16 to 19 in rural China has peaked in 2014, and it has shown negative growth in 2015 and in the future. The transfer rate of migrant workers will definitely slow down. This is in 2014. It fell to 1.3% in the year and only 0.4% last year. It may be lower this year. Maybe it will reach zero. It is likely to become negative in the future."
He believes that the negative number is not because migrant workers do not want to enter the city, but because of the lack of new additions.
Therefore, according to Cai Wei’s calculation, the potential growth rate of the past and future Chinese economy was about 10% before 2010, from the “Twelfth Five-Year Plan†to an average of only 7.6%, while the actual realization was 7.8%. During the current “13th Five-Year Plan†period, the average growth rate is 6.2%. This is because the disappearance of the demographic dividend affects all variables of the production function, leading to large changes in the potential growth rate. “The growth of the working-age population from growth to negative growth is a sudden change, and the decline in potential growth rate is also instantaneous.â€
After the potential growth rate declines, we should change our understanding. "China's potential growth rate is only 6.2% in the five years from now. It shows that there is almost no gap in potential growth rate, so there is no need to return to the 'V' type of recovery." Cai Wei said.
So what do we expect now? "We proposed the 'L' type of growth, the first one is in the near-term," Cai said that the "L" type can be expected in just a few years, that is, there is a lower limit not to break through. There is no need to break the upper limit. Specifically, the potential growth rate determines the lower limit, and the breakthrough will lead to cyclical unemployment; plus the upper limit of the reform dividend, the growth rate beyond this level may be the result of the stimulus. “In 2015, it was close to the upper limit.â€
How can we achieve a long-term "L"-shaped trajectory? Cai Wei emphasizes that this depends on the kinetic energy of reform.
In the future, the more reforms are pushed forward, the lower the potential growth rate will be slightly slower. “Even in the best of circumstances, especially when the children born in our generation grow into labor, the population structure will improve. Will form a capital "L" type. The only source is to promote structural reforms on the supply side," he said.
Cai Wei pointed out that it is possible to effectively increase the potential growth rate through the reform of the household registration system, the “three to one and one reductionâ€, education and training reform, and adjustment of the birth policy. His research shows that if the future of China's economy really follows this situation, the per capita GDP in 2022 can reach 12,600 US dollars, which is the threshold of the high-income countries currently divided by the World Bank.
In the end, Cai Wei emphasized that both the short-term and long-term "L"-type trajectories must rely on reform and cannot rely on stimulation. The dividend of reform is real money, and only reform can break through the middle income trap.
Trump exacerbates China's uncertainty
In addition to China's own structural reforms, analyzing external shocks is now particularly important, especially after Trump's election to the US president has caused great uncertainty to the world and China.
Zhu Min said that the 2008 financial crisis moved the global economy from the original track in parallel to a low equilibrium level. After the crisis, global investment fell sharply, trade growth rate was rarely lower than economic growth, and global capital flow slowed down. At the same time, global inflation levels and real interest rates continue to decline. Through a series of data, he pointed out that the potential growth level in the future is also declining.
He said that at the moment, Trump has changed the market's expectation of the Fed to raise interest rates (he supports tax cuts, expansion of infrastructure and other measures to raise inflation expectations, the market believes that the Fed will accelerate interest rate hikes), but how the Fed will act, is not sure.
"If the interest rate curve goes up quickly, the global assets will be reconfigured. This is a huge risk." Zhu Min said.
Zhu Min believes that some of Trump's economic policies are certain. “In the campaign, he talked about countless commitments on economic growth, three of which he will implement after he took office: tax cuts, trade protectionism and increased investment in infrastructure.â€
It is worth noting that Trump said that he wants to cut taxes and expand fiscal expenditures, but where does the money come from? "So during the Trump period, the US fiscal deficit may be strengthened, and the US current account is expected to deteriorate. 3.5 By 4 percentage points, it can be seen that the United States will return to the fiscal double-burden model before the crisis. At that time, the dollar may go lower, which is closely related to China." Zhu Min said.
"When the United States needs to expand its fiscal deficit, it will face the debt ceiling set by Congress. If it breaks through this quota, it must go to Congress to approve more quotas. In 2011, because US debt reached the upper limit, Congress did not approve It caused a huge global crisis of confidence in the US economy, so the US economy fell in 2011 and 2012." Zhu Min said that Trump will face this situation when he is in power. As for whether the additional debt ceiling can be approved, the key moment is March 15, 2017. This is another political contest and a huge uncertainty.
"As a result, the uncertainty of US economic growth is on the rise. The US economy has a strong influence on the world, but can it last? No one knows," Zhu Min said. If the US economy rises or falls by one percentage point, Saudi Arabia will receive 0.5 percentage points. The impact of China will be affected by 0.35 percentage points, and the impact is huge.
Zhu Min also said that for the Chinese economy and enterprises, because the United States is on the demand side, China is on the supply side, when the demand is up, the supply side has just caught up, there is an expansion effect, because "Trump phenomenon" It is very likely that it will not last, so the United States is likely to experience a period of strong dollar, strong growth, and a fall in the dollar. If China's supply side is still moving on, it will be at a very low level.
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