From the perspective of expenditure method accounting, economic growth is the sum of the three needs of investment, consumption, and net exports, so in economics, the final consumption expenditure, gross capital formation, and net exports of goods and services are often vividly compared to the "troika" that drives economic growth. These indicators are chosen mainly because they are directly related to the final demand part of the national economic account, that is, the component of GDP - consumption is the most stable source of growth, usually accounting for a large proportion of GDP; Investments often herald future capacity expansions and technological advances; Net exports reflect a country's competitiveness and the state of demand in the international market. This is called the old "troika".
The new "troika" was proposed by some economists and well-known scholars in the context of China's economic transformation in recent years and the original growth momentum has become weak, with the intention of finding new momentum that will determine the future development of China's economy. However, there is no consensus on what indicators or directions should be included in the new "troika", which is what this article hopes to discuss.
At the same time, how to correctly handle the relationship between the old and new "troikas" is also a key topic, which will be discussed in detail in this article.
Part I
What is the current momentum of the old "troika"?
1. Consumption and investment are still the decisive forces driving the economy
According to the National Bureau of Statistics, in 2023, GDP will increase by 5.2% from the previous year. Among them, final consumption expenditure, gross capital formation, and net exports of goods and services drove economic growth by 4.3, 1.5, and -0.6 percentage points respectively, and contributed 82.5%, 28.9%, and -11.4% to economic growth respectively. Strong domestic demand, composed of consumption and investment, is the decisive force driving China's economic development.
As shown in the figure, China's three major expenditures have contributed to GDP growth
Source: China Development Report 2023, National Bureau of Statistics.
According to the China Development Report 2023 published by the Development Research Center of the State Council, demand is still the most scarce resource in global economic growth and an important driving force for economic growth. From the perspective of the "troika", China's economic momentum has four major characteristics.
First, China has not yet seen the "Lewis second inflection point" (referring to the turning point where the transfer of surplus agricultural labor is completed and an integrated urban-rural labor market is formed), and the new type of urbanization is accelerating, and a large number of rural migrants have huge needs for housing, education, medical care, and elderly care. At the same time, the renewal and transformation of old urban communities, the upgrading of infrastructure construction such as underground pipe networks, parking lots, and public services will also release huge demand.
Second, the income level of Chinese residents continues to rise, with the size of the middle-income group exceeding 400 million, and residents' consumption is diversified, high-end, and service-oriented. At the same time, the Engel coefficient of Chinese residents is around 30%, which is much higher than that of advanced economies. With the development of the economy and the increase of residents' income level, the Engel coefficient will gradually decrease, and the consumption demand for more goods and services will be released. In the future, the proportion of China's service consumption will gradually increase to about 60%, which can drive the growth of household consumption by about 35%. In 2022, there will be 23.23 million newly registered cars in China, especially new energy vehicles, an increase of 81.48%, but the number of cars per 1,000 people will be 226, which is significantly lower than the 843 in United States, 634 in Germany and 625 in Japan, with great room for improvement.
Third, the green and low-carbon transformation will drive the expansion of both investment and consumption. Achieving the "dual carbon" goal is a broad and profound change, which is promoting the transformation and upgrading of China's energy structure, industrial structure, transportation structure, production and lifestyle, which contains large-scale investment and consumption demand. For example, a number of wind power and photovoltaic base projects are progressing in an orderly manner, renewable energy production, storage and transmission still need a lot of investment, most of the equipment in heavy chemical industries such as steel, cement, and petrochemical industries need to be green and low-carbon transformation, and the rules, technologies and market supervision for the "double carbon" goal will promote substantial changes in production and lifestyle, and green and low-carbon commercial services have broad development prospects.
Fourth, digital transformation will create new demand space. From the perspective of consumption, China has had the world's largest online retail market for 10 consecutive years since 2013, and digital technology has given rise to new consumption scenarios such as virtual reality and autonomous driving. From the perspective of investment, since 2017, the installation of industrial robots in China has grown by 13% annually, and the installed capacity in 2022 will account for more than 50% of the world's total. From the perspective of trade, digitalization is promoting the accelerated development of global trade in services and creating new trade opportunities, and many non-tradable services (such as education, medical care, etc.) in the past have become tradable.
2. Difficulties faced by consumption, investment, and exports
1. Investment
Previous investments, especially large-scale infrastructure construction, such as real estate, roads, bridges, ports, aviation, high-speed rail, etc., have driven China's economy for decades. But now we find that there is no room for us to invest in large-scale infrastructure, and additional investment is wasteful. For example, the infrastructure construction of the Guangdong-Hong Kong-Macao Greater Bay Area has been basically completed, and the infrastructure of the entire southeast coast of China is even better than that of many developed countries. Including the high-speed rail that we have always been proud of, it is already an overinvestment, and there are few high-speed rail lines that can make money. If we continue to use traditional investment ideas, it will be harmful to the economy.
From a demographic perspective, the Chinese population is shrinking, which has a profound impact on investment.
Let's look at the example of Japan. Almost one-third of Japan's population is concentrated in Tokyo, while small cities on the periphery are beginning to fall into disuse. Hokkaido used to be very developed, but now some railways are abandoned. So let's stop thinking about investing in this area now. Of course, this kind of investment will also produce GDP, but this kind of GDP is the worst type, roads and bridges are demolished and rebuilt, built and demolished, GDP is there, but it not only can not increase national wealth, but damage national wealth, this kind of investment is really not needed.
2. Consumption
Consumption is also facing bottlenecks. Economists have been discussing the relationship between consumer society and economic development. But what is a consumer society? A consumer society is a middle-class society in an academic sense. In the poorest societies, a small part of the consumption is excessive, the spending power of the majority of the poor is insufficient, and it is the middle class that can consume sustainably.
How much is the middle class in China? Generally speaking, from the construction of middle-class society in Europe, America or Japan and the "Asian Tigers", when the number of middle-class people crosses the threshold of 50% or even 65%-70% of the population, this society can be called a real middle-class society. We say that there are 400 million middle class in China, but these 400 million middle class is less than 30% of the total population. Moreover, China's middle class is growing at the slowest rate among East Asian economies.
Japan and the "Asian Tigers" have reached 65%-70% of the middle class after their economic take-off for 20 or 30 years, and China's reform and opening up for more than 40 years, our economic growth is higher and faster than these economies, but our middle class is now only 30%. How exactly is this difference caused?
If by 2035 or 2050, our medium production capacity reaches more than 800 million, then China's economy is very promising.
But how to increase from the current 400 million to 800 million? After China's accession to the WTO in 2001, the economy maintained double-digit growth.
Because the economy is not very good, some places are generally cutting wages, and the more wages are cut, the less people will spend. The middle class generally feels that there are too many uncertainties in the future, and the more uncertain they are, the less they dare to spend, so everyone goes to save. In a southern city, the number of people who came in during the May Day holiday this year was three times that of 2019, but the consumption was only half of that in 2019. In other words, everyone came out, but if they didn't consume, they just joined in the fun.
3. Exports
Can trade still drive the economy?
In the past few years, the global epidemic has caused supply chain disruptions, shutdowns, and restrictions on logistics and transportation, resulting in not only China's foreign trade exports declining, but also Europe, the United States, Japan and South Korea. The pandemic has also led to drastic changes in global consumer behavior, with consumers in many countries choosing to reduce the purchase of non-essential goods, which is also an important reason for the decline in foreign trade orders. The recent Russia-Ukraine conflict, the Palestinian-Israeli war, and the associated offensive and defensive forces between the major camps have brought about the blockade of international trade.
According to the 2023 global trade in goods data released by the World Trade Organization (WTO), the volume of global merchandise trade in 2023 will fall by 1.2%, and the total global export volume in 2023 will be 23.8 trillion US dollars, a decrease of 4.6%, which is another decline after two consecutive years of growth in 2021 and 2022.
Trade volume is a common indicator of trade activity, and in 2023, import demand fell sharply in most regions, especially in Europe. From the perspective of major market demand, imports from Europe, North America and Asia fell by 4.7%, 2.0% and 0.6% respectively. Among Asia's major export-oriented economies, China's exports fell by 4.6 percent. Exports from Korea, India and Viet Nam fell by 7.5%, 4.7% and 4.7%, respectively.
Even if the decline in China's foreign trade is geopolitical, we can look to developing countries for trade opportunities, but the European and American markets are irreplaceable.
From the regional structure of China's exports in 2023, it can be seen that the United States and the European Union each account for nearly 15%, totaling nearly 30%, as shown in the figure:
In recent years, the United States has vigorously promoted economic "decoupling" from China, exerting maximum pressure on foreign trade relations in an attempt to contain China's economic rise. Especially in the field of high-tech industries, the technological blockade of United States against China has reached an unprecedented level. Today, Sino-US relations are still in a state of tension, and even show a trend of increasing tension. Trade will not be very good in this case either. The Sino-US game will have a long-term and far-reaching impact on China's exports.
When we say that investment, consumption, and exports are facing difficulties, we do not deny their huge role in boosting the economy, but that we can find better solutions and better alternatives when their momentum is insufficient.
Part II
The new "troika" is discussed
A country is an economy, can it be understood as an enlarged version of a corporate entity? When considering the fundamental factors that affect the development of an enterprise entity, we usually believe that the five aspects of "strategic choice, model construction, product technology, market channels, and financial strength" are the key factors.
1) Strategic choice: it is the direction, positioning and goal setting of the enterprise, and the overall guidance of the development of the enterprise;
2) Model construction: there are both business models, development models and operation models, business models are how enterprises can meet customer needs and how to make profits, development models are the model selection of development speed and quality, and operation models are how to organize and operate to maximize efficiency and benefits;
3) Product technology: that is, the product/service is to meet the rigid needs, is distinctive, and brings a good experience to customers/users, which is behind the deep insight into the needs and the use of advanced information technology;
4) Market channels: how to solve the problem of how to reach users/customers with products/services, and how to occupy the market and expand the share? How to promote sales and enter thousands of households? Fundamentally, enterprises need to have a good market strategy and a sound and developed channel network;
5) Financial strength: The development of enterprises needs funds everywhere, and it is often not enough to rely on their own original accumulation alone, but with the help of external capital and the participation of financial elements, in order to efficiently promote product research and development, network construction, market share and even help consumers buy.
If we look at the Chinese economy as a whole as an enlarged version of a corporate entity, we can see some similar characteristics, but because it is too large and the influencing variables are too complex, it will be difficult for us to see the whole elephant's body, and various opinions and proposals will emerge. But fundamentally, we believe that there are some commonalities between the operation of the economy and the operation of the corporate entity, so the underlying logic can be used as a reference.
First, there is no doubt about China's strategic choices, development models, and organizational and operational models for large-scale economic construction, and China has made achievements that have attracted global attention, proving that it has proven its advantages in terms of national strategy, development model, and economic operation efficiency. The follow-up mainly depends on maintaining concentration and dynamic adjustment.
Second, product technology. To maintain the momentum of China's economic development, its foothold should be to meet the needs of all kinds of consumers (all kinds of users, customers), including toB, toC, toG, etc., and meet the needs of different regions, different groups, different generations, different genders, different cultures, and different fields. On the whole, technological upgrading can achieve product iteration and efficiency improvement, so the bottom layer is technological progress, and the key to determining technological progress lies in R&D investment, professional talents, and achievement transformation capabilities. The typical representative of this aspect is still Musk, new energy vehicles, launch vehicles, artificial intelligence。。。。。。 It integrates almost all cutting-edge technologies in various fields, and the speed of product technology iteration, the high efficiency of organizational operation, and the far-reaching ideas are amazing.
Third, market channels. From China's own point of view, it is necessary to build a unified national market and open up the external blockade to the global market (the Belt and Road Initiative has achieved great results), that is, the internal and external circulation mentioned by the top level should be unimpeded. In addition, the market is not only a regional concept, but also the question of who the consumer is and how to improve the consumption power, so in recent years, all walks of life have been mentioning the lack of consumption, and the fundamental reason is that there is no consumption power, and no matter how good the products and technologies can not realize the value. From the perspective of channels, China's e-commerce or online formats are already very developed, but at the same time, offline physical stores are difficult to sustain. This also requires the full flow of population from the perspectives of urban development and breaking the division of household registration, and the population is clustered in core cities, and a large flow of people means a large flow of money. As mentioned above, China's middle class accounts for a relatively small proportion in the world, coupled with the heavy burden, personal income has fallen sharply with the overall economic involution or even unemployment, and the result is that neither dare to consume nor have too much money to spend.
Fourth, capital and finance. Except for a small number of emerging companies that can enter the capital market, most of them are actually difficult to raise. One is that there are no decent assets, and the other is that there is no stable profit, which is especially true in innovative enterprises, but China's scientific and technological innovation requires a large number of small and medium-sized enterprises to boldly try and spontaneously emerge innovative thinking. Many people criticize China for too little original development, but in fact, we need to look deeply at what the root cause is. At present, domestic direct financing is still pitifully small compared with indirect financing, in this case, how can emerging enterprises get out? Zheng Yongnian, a well-known economist, pointed out: "Financial construction is very important. Finance should support the technological transformation of enterprises, which is manifested in venture capital in the United States. We do not have enough understanding of the importance of finance, and we do not fully explain the relationship between finance and the real economy. We cannot separate finance from the real economy. The excessive financialization of the real economy and the excessive virtualization of finance like the United States have certainly led to too many negative effects, and we must prevent similar situations. At the same time, United States problems do not mean that we do not emphasize finance, because without finance, the economy will not have enough blood. Can China become a world economic power next? It is necessary to look not only at the real economy, but also at finance; Without finance, it will be difficult for China's economy to achieve sustainable development internally or to go global. ”
By referring to the key development factors of corporate entities, we have summarized the key factors that determine China's economy:
Strategic choice, economic model, scientific and technological level, internal and external markets, and financial construction
If we must use the term "troika", then we regard the strategy and model as a mature part, and focus on the gap items - the level of science and technology, the internal and external markets, and financial construction - referred to as "science and technology, market, and finance", which is the new "troika" as I personally understand it.
There are many major variables or decisive factors for China's economy, "science and technology, market, finance" are the three major strategic options that we believe can bring new momentum to China's economy in the future.
As mentioned above, whether it is the old or new "troika", there are a large number of supporting constructions to be completed behind the continuous improvement of the kinetic energy of each troika, which is a major issue that affects the whole body.
Finally, we believe that the old and new troika of "technology, market, and finance" and "consumption, investment, and export" is not an antagonistic relationship, nor is it a completely replacement relationship, but a relationship between the two are integrated with each other.
In addition, some views include green development, industrial upgrading, basic research, digital transformation, and consumption upgrading into the new troika, and the author believes that the factors that have the greatest impact on the future of China's economy should be found from the basic business logic and major constraints. Each of the three major items of scientific and technological breakthroughs, the dual circulation of the global and domestic unified markets, and the construction of a financial power has huge potential; Things like green and sustainable, industrial upgrading, basic research, and digital transformation have to rely on science and technology to solve them. As for the "consumption upgrade", the fundamental is to open up the internal and external circulation, the product/service efficiently meets the demand, the enterprise efficiency has improved, everyone's income is higher, the psychological expectations are stable, and there is naturally a consumption boom.
The content of this article is only for its own research and progress, and the views are not yet mature, welcome to discuss.
Bibliography:
1. "Zheng Yongnian: The traditional "troika" has failed, what will we invest in the future? Source: Guangzhou Guangdong-Hong Kong-Macao Greater Bay Area Research Institute, author Zheng Yongnian;
2. China Development Report 2023, written by the Development Research Center of the State Council and published by China Development Press.
(Source: Huajunce WeChat public account.) Thanks to the original author, just for knowledge sharing. ）