Abstract As the global economy continues to be uncertain, the eyes of the world are focused on China, and the Chinese are also full of concerns about their economies. They both want domestic economists to make analysis and predictions, and they are also concerned about "bystanders." "the opinion of...
As the global economy continues to be uncertain, the eyes of the world are focused on China, and the Chinese are also full of concerns about their economies, both domestic analysts are expected to make analysis and predictions, and they are also concerned about "bystanders." the opinion of. On March 22nd, at a symposium and reader meeting held by FT Chinese Network, Martin Wolf, deputy editor-in-chief of the Financial Times and chief economic commentator, and Chinese economist at the Chinese Academy of Social Sciences Yongding, a high-end dialogue was held in this regard. The forum was hosted by Wang Feng, editor-in-chief of the Financial Times Chinese website. First , the symposium began with Wolf's speech. Wolf first spoke highly of China's economic development achievements. He believes that if China can continue its development speed and trajectory since the late 1970s in the next two or three decades, it will be able to realize its dream of jumping into a developed country. At present, China's historic transformation process has reached halfway up the mountain, but there are still many difficulties and challenges in the future.
Former Chinese Premier Wen Jiabao once said that the Chinese economy is "unstable, unbalanced, uncoordinated and unsustainable." This sentence has been widely quoted by the Western media, and this time it was re-quoted by Wolff. And in Wolfe's view, these problems have become more prominent. In the words of Herbert Stein, former economic adviser to US President Nixon, "things that cannot be maintained forever are doomed to end," and China must take seriously the possibility of a halt to economic growth.
Wolff acknowledged that China's economic growth has been extraordinary for more than 30 years, and its growth rate is even higher than some East Asian countries and regions that have "take off" earlier than China, such as Japan and South Korea. The United States has always been the reference frame for China's subsequent growth in the country. At present, the gap between China's per capita GDP and the United States, which is converted by purchasing power parity, is equivalent to the gap between South Korea and the United States in the mid-1980s. As China continues to develop in this way, it will take another 30 years to reach the current level of prosperity between South Korea and the United States. And by that time China's economy will be bigger than North America and Europe, which will be a very dazzling achievement.
However, China has to overcome five obstacles in order to complete the long journey of catching up with the West. First of all, the extraordinary high-speed development always has a tendency to return to mediocrity, which is more common than long-term high-speed growth. Wolff, for example, said that in 1971, economists had high hopes for the four economies of Japan, Taiwan, Mexico and Brazil, but the latter two economies eventually stalled disappointingly. China needs to be wary of a similar fate.
Wolff believes that because China's economy is very large, if the goal of "becoming a high-income country" is to be achieved (that is, the per capita GDP value is about three-quarters of that in the US), the scale of China's economy will be in the next 20-30 years. It should be grown to about five times the current level, and this task is very difficult. Moreover, China will exert severe pressure on the world's environmental and economic carrying capacity, which requires China to significantly improve energy efficiency, especially in terms of carbon emissions. China's rapid growth will also impact global monetary and financial systems, as well as international institutions and international relations.
The third obstacle is China's political reform. According to the World Bank's rankings, China's current rankings in government accountability, effectiveness, regulatory quality, rule of law, and corruption prevention and control are still far from the expectations of being such an important country. If China wants to become a developed country, there must be a significant increase in these indicators.
The fourth problem is that China has reached the "Lewis Turning Point". Since the beginning of this century, China’s real wages have risen rapidly. Since 2012, China’s potential real growth rate has dropped to 7% or even lower. To adapt to the new reality of slowing economic growth and rising labor costs is no easy task for China. Wolff said, for example, when the speed of the bicycle slows down, it will become more difficult to ride.
The fifth and most imminent obstacle is the imbalance of economic structure: China’s growth is over-reliant on investment; domestic debt is rapidly accumulating, and this growth rate is unsustainable; domestic savings (not limited to household savings) are too high to be domestic Get effective use. These imbalances create two difficulties: it is difficult to continue to maintain high growth, and it is not possible to steadily slow growth.
Then, as a focus, Wolff elaborated on the last challenge. The specific problem is that China's investment rate is higher than other high-growth countries, and China's demand is also dependent on investment. The decline in total factor productivity in China in recent years has a certain relationship with this high investment growth model. China’s incremental capital output ratio (ICOR) has risen from 3.5% in the late 1990s to 7%, which means that the marginal contribution of investment to economic growth has fallen by half. China’s capital output rate is even higher than all G7 members except Japan. All in all, China’s dependence on investment is indeed over-extended. Under this circumstance, China has more and more excess capacity and lower efficiency, which will undermine future development momentum and demand growth potential.
Another problem associated with this is the rise in debt ratios, especially as the ratio of corporate debt to GDP has almost doubled in the past eight years. China’s debt-to-GDP ratio has reached or exceeded that of the United States. If this continues, China’s debt level will reach an unprecedented level in history, and this is clearly unsustainable.
The more serious problem is that adjusting this state of relying on high investment hides huge risks. Wolff calculates that if China's capital output rate is only maintained at the current level, and the economic growth rate is 6%, the proportion of investment in GDP should be reduced by 10 percentage points to 35%, that is, most of the 1990s. The level of time, and this is still high by international standards. But if this process happens quickly, the proportion of demand will also fall by 10 percentage points, and China may fall into recession. But if this does not happen, China’s debt will continue to explode and resources will continue to be wasted. Obviously this constitutes the dilemma facing China today.
Wolff reasoned that in this case, the key is obviously to control the rhythm of adjustment, let it happen gradually, but not too slow. This means that for a long time, China should make investment growth slower than GDP growth, and let consumption grow faster than GDP growth. But at present, China's household disposable income accounts for only 60% of GDP, and Chinese households use about 1/3 of their income for savings. To make household consumption grow faster than GDP growth, the full and necessary condition is that the ratio of household disposable income to GDP rises, or the household savings rate declines. But in the current uncertain economic outlook, the latter situation is hard to happen. If it is the former situation, it means that the company's profits will be more converted into household income, which will squeeze the company's profits and thus affect the company's investment ability. In order to maintain corporate investment, the government should accelerate credit creation. Will credit growth lead to a financial crisis? Wolff said that China does not have to worry about this because the government has good solvency and controls the bank.
But increasing credit can also be a double-edged sword. Because leverage is added during the boom period, lenders will receive higher-than-expected returns, but if economic growth slows, both lenders and borrowers will earn less than they expected, thus reducing risk-taking activities. This means that even if there is no large-scale bankruptcy, economic activity will fall into a general downturn. The longer the credit expansion lasts, the greater these balance sheet effects will be, but traditional economics has not paid enough attention to these balance sheet effects.
In short, on the one hand, Chinese policy makers want to avoid a hard landing in the future. At present, they hope that the debt scale will not continue to accumulate. On the other hand, in order to avoid a recession in front of us, we must promote the short-term accumulation of debt. In short, China's current growth path is unsustainable, but moving to a more consumer-dependent path may also have many adverse effects in the short term. The continuation of this situation will ultimately lead to results, and Wolff has no answer.
2. After the Wolff speech ended, Yu Yongding responded. He first stated that he would be more optimistic than Wolf. The five obstacles to China’s long-term economic growth proposed by Wolff are real. However, at present, China no longer deliberately takes the United States as a catch-up target, but focuses on its own development, so that it can avoid unnecessary Chasing anxiety.
At the same time, Yu Yongding said that when we talk about the future, we must be very modest because the world is full of uncertainty. He cited the 1972 "Rome Club" report on "the limits of growth" as an example - the facts later proved that the "Roman Club" was too pessimistic about the exhaustion of resources. Yu Yongding believes that we still have to believe in technological progress and may change the overall economic development. Generally speaking, China should pay attention to the issues raised by Wolf, but we must also leave some room for ourselves and confidence. He believes that it is very important to summarize China's achievements. First, we must adhere to openness and reform. Second, we must ideological emancipation. Third, we must maintain political stability. Fourth, we must maintain world peace. war.
Specific to the current economic adjustment difficulties, Yu Yongding agreed that China's past growth methods do have a lot of problems, especially relying too much on investment and exports. He specifically responded to Wolff's analysis. He believes that Wolff's analysis is based on the "Harold Doma model", and the rate of economic growth is equal to the investment rate divided by the capital output rate. China's current capital output rate is around 3.5%, and it is increasing. In a few years, it is likely to reach 5%. Wolff’s prediction that the rate of capital output will rise is correct.
Yu Yongding also believes that because China relies on investment, the capital output rate is getting higher and higher, and the efficiency of capital use is getting lower and lower. For a long time, in order to maintain a high rate of economic growth, China must maintain a high investment rate, but a higher investment rate makes the use efficiency of capital decline, so the capital output rate is further increased, which forms a vicious circle. Now China can no longer follow this path. But the adjustment is also very difficult, not too fast or slow. Slower problems are getting worse and worse, and economic growth will fall sharply. This is basically the same as Wolf's point of view.
At present, China's investment accounts for about 50% of GDP, and the consumption rate also accounts for about 50%. The ratio of current account surplus to GDP is slightly larger than zero, and the savings rate is more than 50%. In his speech, Wolff believes that the ideal state is that the consumption rate should be 65%, including 15% of public consumption, the investment rate should be 35%, the ratio of current account surplus to GDP is about zero, and the savings rate is 35%. Yu Yongding believes that this pattern will be very reasonable.
Wolff assumed in his analysis that China's capital output rate is 5%, so when the investment rate is 35%, economic growth can roughly maintain 7%. Yu Yongding thinks this assumption is too optimistic. Because, if China's investment rate is only 35%, it is unable to maintain the growth rate of 7%. The same is true of the reality. China’s investment rate is now around 47%, but the economic growth rate is less than 7%. Yu Yongding emphasized that Wolff assumed that the capital output rate is constant in his speech. In fact, the capital output rate is not a constant in China, but is gradually increasing and the efficiency is getting lower and lower. As the capital output rate continues to increase, the incremental capital output rate is very high, reaching around 7%. This has resulted in an economic growth rate of only 7% of the investment rate of around 49%, which is a big trouble.
Yu Yongding proposed that Wolff used capital formation divided by GDP when talking about investment rates. But in China, when people talk about the growth rate of investment, they use fixed-asset investment. When talking about investment rate, they use capital formation. These two are different concepts. This statistical problem has created a contradiction: the rational investment in fixed assets and the amount of capital formation are probably the same. Even if there is a difference, it can be explained. But now this difference in China has become extremely huge and cannot be explained.
"So, you asked me how much China's investment rate is. My honest answer is that I don't know how much Chinese investment is growing. I honestly answer it, but I don't know." Yu Yongding said.
But in the end, Yu Yongding expressed his optimistic expectation: "According to past history and logic, as long as the Chinese government can brainstorm and listen to the opinions of the public, as long as economists and the general public fully discuss it, then on the basis of everyone's wisdom, If we formulate a sound policy, then China can continue to overcome the current difficulties and get through the crisis."
3. After the two people's speeches ended, they accepted the questions of the moderator and the questions that the audience passed through the host. The following is a summary of the questions and answers edited by us:
Moderator : The two views on the current challenges facing the Chinese economy are the same. According to China's "13th Five-Year Plan" guidance, by 2020, China's GDP should double that of 2010. So what are we going to do in the next 30 years? How do you look forward to the "13th Five-Year Plan" and the next 30 years?
Wolf : Yes, we don't have any fundamental differences. Of course, this is unfortunate to some extent, because our views are too consistent. But to a certain extent, my good friend Yu Yongding corrected me a bit. I don't question China's ability to overcome challenges, because China has overcome many challenges in the past and believes that the future can be like this.
China wants to become a middle-income country, but China's growth will continue to slow down and tend to grow in developed countries. Based on China's goal, China will continue to invest, such as maintaining a ratio of 45% of GDP, which is 2-3 times higher than that of developed countries. But in the end, after becoming richer, China needs to reach a certain stable state. The growth may not need to be so fast, maybe only 1%, and the experience at that time will be completely different from the present.
But China's economic structure will make a big difference. I have written an article about why Japan’s situation in the past 25 years has been so bad because they have not adjusted their previous high investment model. Japan’s investment has been higher than that of the United States, but its growth rate is still very slow and very pessimistic. I feel that Japan is in a long-term imbalance. I don't have any specific thoughts on China's long-term goals. This is decided by the Chinese themselves. I don't know if the Chinese people are satisfied with only half of the US GDP per capita. If you want to be better, you must rely on excessive dependence. Make some changes in the investment situation. I agree with other aspects that Professor Yu said.
Yu Yongding : I will add it. If China sets a high economic development target, because China's capital output rate is constantly improving, and now the efficiency is relatively low, China's investment ratio should be higher. Wolff’s assumption is that there will be a very stable rate of capital output, but my view is that if China’s reform fails, such a rate of capital output will continue to rise. If we set a very high percentage, you have to guarantee such a high proportion of investment. I don't think China should do this. I agree with you. The investment ratio should be reduced to 35%-40%, but we will reduce the rate of GDP growth. I want to emphasize that we cannot drastically reduce investment. I agree with you that we have to spend a long time, perhaps ten or twenty years, to do this step by step, and then we can continue to improve consumption and other elements.
Wolf : I am very interested in how the government should respond to potential risks. In the past, the government’s response was to increase government investment. I was thinking, is this a Western way of view, is this the only thing that should be done? Because China can also increase investment in public consumption, such as rectifying the environment and increasing investment in medical care and education, it can further improve social security and pensions. In other words, the government can take corresponding measures to increase the stimulus to consumption. In my opinion, in the face of China's current situation, the government does not seem to be prepared to take quick response measures. My second suggestion is to consider other measures besides investing, because there are already enough investments. Some infrastructure projects that have been established in the past are not necessary. For example, the number of international airports in China is now too large, and the number exceeds the sum of other countries. I don't think I should build such an international airport in the future.
Moderator : Professor Yu Yongding recently published some articles and accepted some interviews. I don't know if my interpretation is correct or not, but I think your basic point is that China now needs a more radical expansionary fiscal policy, or you seem to suggest increasing investment. So, what is the difference between the new expansionary approach you proposed and the 2008 government practice?
Yu Yongding : Because I believe many people will have the same point of view. In fact, in 2008 and 2009, I wrote an article criticizing the practice at the time. I think that after the slowdown, the quality is higher. I think the government should pay more attention to efficiency, and should not directly use this stimulating package of policies, which will cause long-term problems.
But now, the government is facing a big crisis and the growth rate has slowed down sharply. In this case, you must take decisive measures, or else it will take a long time to recover in the future. The problem now is that the government is doing too much and too fast, and it has produced many unintended consequences, that is, the local government has not played its own responsibility. The Chinese government has not fully used the financial tools, but has used excessive credit tools. This is not correct. There is a possibility that China's growth rate will slow down significantly in the future, which may bring bottoming out risks, and you must take action at this time. At present, real estate investment has been greatly reduced, which has greatly affected the growth of GDP. In this case, we need to take action on infrastructure.
For example, Beijing's subway system is already very backward compared to other countries. Especially during the "two sessions", I raised this issue in the CPPCC. I suggest that the Beijing subway system be rebuilt because the current risk factor is relatively high. I believe everyone has a similar experience. At some sites you have to go a long way, and the aisles there are very narrow, which is risky. Now that cement prices are relatively low and steel prices are not high, why don't we consider rebuilding the subway system? There are many things that can be done because this does not affect our efficiency. Even if these measures do not produce much economic benefits in the short term, their social benefits are enormous. I think the government should take such actions to further prevent the downward trend in growth and on the other hand improve China's infrastructure. However, I also realized that this kind of approach cannot fundamentally solve the problems faced by China. It can only be said to be a matter of expediency and give the government some buffer space. But now, we must take special care when taking such actions, and we must fully mobilize fiscal means, such as issuing government bonds, instead of letting commercial banks further increase lending to enterprises. This is my point of view. Few people agree with this point of view.
Moderator : Do you have a policy initiative that advocates government tax cuts? As far as you know, what is the reaction of the decision-making layer?
Yu Yongding : I only represent individuals. I don't know what the government thinks, but I think there are some trends that deserve our attention. Many people now believe that China is facing a populist threat because wages are rising too fast and surpassing the growth rate of labor efficiency. Going back to your previous question, I said that this kind of expansionary fiscal policy mainly refers to government expenditure. Of course, there are certain measures for tax reduction. As in the United States, there are some policies that are unsuccessful to me. I think we can learn from the failures of the United States. We can cut taxes, and we can have more taxes for the rich, such as learning from some British practices. Some rich people should make a greater contribution. Why is it that populism has risen now because the gap between the rich and the poor is too great, and the wealth and prosperity created over the years have not been fully shared among the public. Therefore, it is necessary to re-adjust this wealth now, otherwise the situation we face is very dangerous.
Moderator : Do you use the success of China's high-speed rail as an example of government-supported infrastructure construction? Five or six years ago, people thought that the high-speed rail as part of the 4 trillion plan was a waste, and it was completely unnecessary. But now most people are holding a commendation attitude. What has changed?
Yu Yongding : Actually, there has been no change. At that time, I thought that the high-speed rail was useless, so who would take the high-speed rail. It seems obvious that I am wrong now, because migrant workers are now taking high-speed rail. Therefore, although the 4 trillion package has caused many problems, it still has some aspects that are effective.
Wolf : I think this is more effective than real estate investment. I am very amazed at this scale. In any case, China's high-speed rail is also a huge achievement, and it is an area that has been effective compared to other countries. This is the advantage China should seize. So, I am not worried about this.
When it comes to tax cuts, I am not an expert, but my impression is that China's tax system is not perfect. It does not cover many people. It also has certain randomness. The people who benefit are limited. Therefore, it is more effective to improve the tax system. . Therefore, I agree with the issue of wealth distribution that Yu Yongding said. I hope that the government will increase investment in the social field. If China really wants to avoid the zero interest rate trap in the West, it must have a plan to increase spending in the public and private sectors. Given the current high savings rate in China, the risk of falling into the zero interest rate trap still exists.
Moderator : The next question is from the audience. Is it possible for China to cross the middle income trap? How likely is it to be successful?
Wolf : I personally didn't do much research in this area, so I mainly listened to the research results of others. I am not entirely sure whether the middle income trap exists because the concept is sometimes based on experience. However, the smooth transition from low-income to high-income countries is rare. There is only one case in South Korea after World War II. This is the real situation.
Can China complete this change? My point of view is that China's human resources and territory, entrepreneurial creativity are all advantages, and China has some technical advantages, which are optimistic. But what is pessimistic is that China’s economic efficiency is relatively low, and it is necessary to invest a lot to maintain high growth. If the growth rate is lowered, people lose confidence in the future, and the business conditions of the company will deteriorate. Demand will also fall, which will fall into the middle income trap. Therefore, I believe that China's opportunity to cross this trap does exist, but it requires policy reforms to improve efficiency while ensuring macroeconomic stability and ensuring growth rates. These are all challenging.
Moderator : There is a question to ask Wolf. Are there examples from other countries in the world that show that they have successfully solved the high debt problems China is currently facing? In addition, China's local debt is currently very serious and has not yet been resolved. Can you make some suggestions to help China overcome this problem?
Wolf : I don't know the specific debt ratio, but I know that in terms of debt ratio, only Japan and China are equivalent in developed countries, mainly because Chinese companies have much higher leverage than most Western countries. The situation in Japan shows that high-indebted companies are dangerous and need to constantly respond to debt payment pressures and cannot invest, thus stagnation. China needs to avoid this situation. However, China’s local debt problem has its own unique features. According to my understanding, technically, local debt is owed by local governments, but it is also government debt, and the Chinese government as a whole has the ability to pay. I don't think the current level of debt of the Chinese government will cause a debt crisis. However, China needs to consider not accumulating debt to an unsustainable level in the next decade. In that case, the problem will be much more troublesome.
Moderator : There is a question asked Professor Yu. If the current proportion of investment and consumption in GDP continues, what is the worst situation?
Yu Yongding : I think this may worsen China's problems because the level of Chinese corporate debt is already high, which will aggravate debt problems and may lead to financial crisis. In order to avoid this situation, we need further reforms to encourage further innovation and efficiency. In this way, we can guarantee that China's growth rate will remain at 7%, and by 2020 corporate debt will remain within 200% of GDP. We must take precautions in advance to avoid possible crises. (Note: According to Martin Wolf and Yu Yongding's live speeches. The article only represents the speaker's point of view.)
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