The low CPI curve runs through China's macroeconomic data since 2023. In the first quarter of 2024, this curve slowly climbs and finally hits the horizontal axis of the growth rate of the coordinate system. On April 11, data released by the National Bureau of Statistics showed that CPI increased by 0% year-on-year in the first quarter, of which the year-on-year growth rate of CPI from January to March was -0.8%, 0.7% and 0.1% respectively.
Compared to the four consecutive months of negative growth from October 2023 to January 2024, the 0% growth rate can be seen as a symbol of recovery. But for an economy like China, which is still growing at around 5% per year and needs to continue to grow at a broad rate, 0% growth is still insufficient.
Throughout the course of China's reform and opening up over the past 40 years, it has also fallen into this situation several times. According to the statistics of Soochow Securities Research Institute, the CPI was negative year-on-year for 22 months around 1998, 14 months around 2002, 9 months around 2009, and two months in 2021.
In comparison with these historical turns, what signals have been released by the current low CPI curve? What kind of changes do it mean in China's economy? Do we need to take decisive measures? What kind of measures need to be taken? In response to these problems, on April 11, the Economic Observer Network interviewed Zhang Yansheng, chief researcher of the China Center for International Economic Exchanges.
Zhang Yansheng believes that between 2024 and 2027, China is likely to experience a period of structural adjustment similar to that of 1998 to 2002. What is needed during the adjustment period is not a package of economic stimulus policies, but a package of policies to solve the problems faced by high-quality development, including solving the shortage of demand in the short term, stabilizing and transforming the model of the real estate and other bulk consumer markets in the medium term, and solving the problems of momentum, structure, institutional mechanism transformation and risk prevention in the long term.
Zhang Yansheng said that in both periods, we are faced with problems such as insufficient demand and insufficient endogenous motivation after the impact of the crisis, and we need to work together to form a consensus and solve problems, and we must prevent bureaucracy, formalism, and only talk but do nothing.
|Interview|
Economic Observer: What problems does low inflation in 2023 reflect on China's economy?
Zhang Yansheng: Last year, the CPI, PPI, and GDP deflators were all at a low level, reflecting the obvious impact of the epidemic on China's economy. At the beginning of 2023, China's economy was expected to rebound with a vengeance, and people expected the economy to return to a reasonable pre-pandemic growth trajectory, but last year's economic growth proved that expectations have not been met.
The GDP growth target for 2023 is about 5%, and the actual growth rate is 5.2%, but this is achieved on the basis of the 3% year-on-year GDP growth in 2022; the contribution rate of domestic demand to economic growth in 2023 is 111.4%, which also indicates that the contribution of external demand to economic growth last year is negative; the contribution rate of final consumption expenditure to economic growth in 2023 is 82.5%, but the contribution rate of net exports of goods and services to economic growth is negative, and the contribution rate of investment is less than 30%.
The above data show that the growth of domestic and foreign demand last year was still in a state of low decline, and the recovery of economic growth is facing many difficulties. The judgment of the Central Economic Work Conference in December 2023 is also that "2023 is a year of economic recovery and development, and further promoting the economic recovery will still face difficulties such as insufficient effective demand and weak social expectations".
Economic Observer: How to understand that the CPI in the first quarter of this year still maintained low growth?
Zhang Yansheng: The International Monetary Fund (IMF) and other international institutions have been declining in their forecasts for China's GDP growth in the next few years, with the IMF's GDP growth forecast for China in 2024 at 4.6% in February 2024.
The trend of China's economic growth in 2024 still depends on the implementation of the major measures proposed by the Central Economic Work Conference at the end of last year and the various macro policies proposed in the 2024 government work report. This year's deficit will be 4.06 trillion yuan, with 3.9 trillion yuan of new local government special bonds, 1 trillion yuan of new ultra-long-term special treasury bonds, and 10.2 trillion yuan of transfer payments from the central government to local governments. From these, it can be seen that the government still "acts when it acts". It should be said that this year, China's economy has the conditions to buck the trend and walk out of a growth curve that is different from that predicted by international organizations and many economists.
I think it is very likely that from 2024 to 2027, China will experience a period of structural adjustment similar to that of 1998 to 2002. After structural adjustment in the next four years, China's economy is likely to enter a new stage of high-quality development. It may not be noticeable in the short term, but the changes will gradually become apparent over time.
The structural adjustment period of the next four years will not be characterized by the implementation of economic stimulus packages, the impact of the epidemic on economic growth has already been felt, and it is too late to implement large-scale stimulus policies. What should be implemented is a package of policies to solve the main obstacles and problems of high-quality development, which can solve the lack of demand in the short term, stabilize the decline and model transformation of the real estate and other bulk consumer markets in the medium term, and solve the problems of momentum, structure, institutional mechanism transformation and risk prevention in the long term, and finally shift the momentum of China's economic growth from the support of factor input growth to the support of total factor productivity growth.
Economic Observer: What will be the potential growth rate of China's economy in the next four years of structural adjustment?
Yansheng Zhang: Before 2019, economists' predictions of China's potential GDP growth rate were around 5.5% on average during the 14th Five-Year Plan period, around 5% during the 15th Five-Year Plan period, and around 4.5% during the 16th Five-Year Plan period, but the average annual GDP growth rate from 2020 to 2023 was less than 5%.
If China can adhere to economic construction as the center and adhere to high-quality development as the last word in the new era during the next four years of structural adjustment, I believe that the potential GDP growth rate can return to the growth curve predicted before 2019, that is, China's economy will achieve the GDP growth target of about 5% in 2024, and return to a reasonable growth range in 2025 and the following years, and achieve an average annual GDP growth rate of more than 5%.
Economic Observer: The 2024 government work report puts forward a target of CPI growth of about 3%, while many domestic institutions expect it to be below 1%, what do you think of the annual CPI trend and such a target setting?
Zhang Yansheng: The forecasts of domestic and foreign institutions for China's CPI growth in 2024 are low, but this is based on the premise that China's macro policies do not take action. Judging from the trend of CPI throughout the year, insufficient demand is actually the main contradiction of China's economy at present. If the country does not introduce corresponding countermeasures for insufficient demand, insufficient endogenous power, insufficient macro policy support and other problems, the CPI growth rate this year may be below 1%.
Economic Observer: In 2023, RMB deposits will increase by 25.74 trillion yuan, and household deposits will increase by 16.67 trillion yuan. In general, residents' deposits have continued to increase at a high level in recent years, why is this happening?
Yansheng Zhang: Although the data has maintained growth overall, there are differences between regions and strata. If individuals or businesses are not optimistic about the next 3 to 5 years, they will increase their savings to prepare for the "winter" period that they may need to go through in the future. Of course, if various policies start to be implemented this year, thereby reversing people's expectations, the release effect of household deposits will boost consumption and investment growth.
Economic Observer: How do you view the "temperature difference" between the actual personal feelings and the growth of macro data, which has been frequently discussed before?
Yansheng Zhang: I don't think there's a huge contrast between the two. Last year, the global economic growth was not optimistic, so I personally felt "cold", and the feeling is consistent with the macroeconomic trend. Last year, China's economy was still a recovery growth, and did not really return to a reasonable range of economic growth, last year's total GDP was 126.06 trillion yuan, but the potential level can reach 130 trillion yuan, so my personal feelings are certainly not optimistic.
Of course, people in different regions and different industries will have different feelings about macroeconomic development. In the course of the survey, we saw that people in moderately developed and developed areas such as Taizhou and Shenzhen will feel "warmer" about economic development.
Economic Observer: Recently, the promotion of large-scale equipment renewal and consumer goods trade-in has been widely discussed, after the head of the relevant department proposed that the equipment renewal preliminary estimate is a huge market with an annual scale of more than 5 trillion yuan. How to promote trade-in?
Yansheng Zhang: There is great potential to promote large-scale equipment renewal. Taking the promotion of power generation equipment renewal as an example, in China's actual operation of power generation sets, power generation equipment has the problem of low energy efficiency and power, but at present, the efficiency and energy efficiency of various power generation equipment in the domestic market have reached the world's advanced level, so it is necessary to promote the renewal and transformation of existing power generation equipment.
On the other hand, the trade-in policy of consumer goods is actually an introduction, which is subconsciously intended to promote the efficiency of resource reallocation through a series of supporting policies such as major projects of new urbanization and new citizens. The urbanization of the rural transfer population, the new urbanization of small and medium-sized cities centered on the county economy, and the doubling of the middle-income population have gradually landed, and these policies can bring about a huge scale of consumer goods trade-in, including public services, home appliances and other fields will usher in a new round of renovation.
Finally, in the period of structural adjustment from 2024 to 2027, in order to get out of the impact of the epidemic and pandemic crisis and solve the problems of insufficient demand, insufficient endogenous motivation and lack of confidence, what we need more is to work together, form a consensus, and solve problems, and what we need to prevent is bureaucracy, formalism, and only talking but not doing.
We look forward to China's economy gradually returning to a reasonable growth range in 2024.
Image source: National Bureau of Statistics