from 'dismantling' to 'new-dual-structure'
more on finding certainty in uncertainty
This episode follows so hard on the heels of the last for the simple reason that having reintroduced the great Sun Liping, I posted the first of his growing lists of op-eds on ‘dismantling’ IN ERROR.
By posting the latest, really significant op-ed now we are, I think, improving the brew: readers can track how his outlook has shifted from 22 August 2022—that’s the one posted last time—and 21 May 2023. In other words, before and after the COVID lockdown reversal of 7 December 2022.
I’ll draw out some deeper consequences in a later episode…
Three views on the current economic situation
I was thinking all day long about surpassing Britain and catching up with the US. I was so anxious, the Great Leap Forward, the People's Commune, and the Cultural Revolution; in the end, getting enough to eat became a problem.Via reform and opening, genuinely solving public welfare, quietly and indirectly developing and working on the economy, the PRC became the world's second largest economy. This is very worthy of our deep thinking.
Editor’s intro: The 2023 China Qianhai Entrepreneurs Summit was held in Shekou, Shenzhen on 20-21 April 2023, under the guidance of Shenzhen Qianhai Administration Bureau and hosted by Co-Stone Capital.
Its theme was 'Re-discussing the Way of Innovation: The Future of the Country and Enterprises', the summit focused on the innovation environment, innovation spirit and innovation practice. Many heavyweight entrepreneurs, scientists, scholars and investors gave great speeches and in-depth discussion.
Sun Liping, professor in the Department of Sociology at Tsinghua University, a doctoral supervisor in sociology, and a doctoral supervisor in economics, delivered a keynote speech on 'Finding Certainty in the Age of Uncertainty'.
According to Sun’s speech at the Summit, the article only represents his own views.
The epidemic is basically over, and what to do next is a question of great concern to everyone. I want to talk about some personal views, but must declare in advance that I am a pessimist, and sometimes may talk too much about the problem. Based on this idea, I will mainly talk about three issues today.
Issue 1: some basic views on current economic trends.
As we all know, the data has come out now. The PRC’s GDP grew by 4.5 percent y-o-y in Q1, but how do you view this data? Now we all have a lot of differences, including the opinions of experts who are very different. To be honest, I don’t care too much about their opinions: domestic experts don’t tell the truth, and foreign experts don’t know it. I pay most attention the direction of funds, of capital. Viewed this way, we can see a problem, i.e., judgements about PRC economic prospects. There is an obvious difference between long- and short-term funds: the short-term is more optimistic, the long-term more pessimistic.
Firstly discussing the short term. Some time ago, the South China Morning Post thought that foreign funds were snapping up Chinese stocks at the fastest speed in at least five years. Beginning in November 2022, the pace of external funds entering China's stock market began speeding up. Going by the way things stand, there may still be a little gap with initial expectations, and the stock market is not performing so well, but personally speaking, I remain relatively optimistic about the short-term this year. Why?
The PRC’s GDP, we just heard, grew by 4.5 percent y-o-y in Q1 2023. How to view this figure? In my personal opinion, in two statements,
The actual situation may be better than 4.5;
Popular sentiment is worse than 4.5.
Here are my two thoughts on ‘4.5’.
Why might the truth be better than the figures suggest? The actual situation in 2022 may have been worse: the 4.5 percent increase was based on comparison with 2022. Our last statistical data for 2022 was, as you know, 3 percent GDP growth, but my personal opinion may have been worse: I suspect there was more water in the 2022 figure. Financial data, for example, give the sales value of Shandong Leiding Auto as over 2 billion in 2022, but how much did the government finally report? It was 6.7 billion, three times more. Of course, these two things are quite extreme, but I think there may have been more water in 2022 than previously. So I’d like to say the actual situation in Q1 2023 may have been a bit better than this 4.5 percent. This is my first statement.
In my second, everyone's actual sentiment may be worse than 4.5 percent. Many people, including all of you present here, may feel this way. Especially in terms of areas we have access to, the rebound is obviously weak. It seems that there has not been a very strong rebound as originally expected. But despite this, in general, because last year's situation was too bad, this year, in terms of numbers, I think there will be a good number. This is from a short-term perspective. My original optimistic view was that it was possible on June or Seven this year.
But in the long run, it should be said that it is not optimistic. As for long-term funds, until now, you may also feel that there is more hesitation and worry. Looking at long-term funds, I mainly look at the venture capital market. In the venture capital market, the U.S. dollar has always been dominant, accounting for 70 percent at the highest point. Now looking at the funds of venture capital, they are more hesitant and worried.
Caijing magazine published a long, weighty report a while ago. A partner of an investment agency said that in former times, he would fly to the US every year to raise funds, several times a year, but had not in 2022. It wasn’t due to the epidemic, he said, but because US investors were no longer willing to see him. Several US dollar fund investors said that while they are still active in the PRC, this was the last time.
So I’d like to say that there may still be a clear gap between short- and long-term in 2023,. This can be roughly seen from the consumption situation around us. In January 2023, when epidemic controls had just been eased, a question was discussed in a group of friends. The general environment was then still chaotic, but everyone knew that it might return to normal soon, and they were asking how they saw the consumption situation in 2023. At that time, I made three points:
demand for daily necessities will gradually return to normal levels
demand for instant enjoyment will have a retaliatory rebound
demand for consumer durables may be in a downturn for a long time
Almost three months have passed, and this is now largely borne out.
Consumption of all kinds was booming during the Spring Festival, above all tourism. This sentiment was even more obvious when I was in Hainan last winter. But it would have cooled down in a short period of time. Now there’s talk of deflation. Let me say first of all, this issue is not to be underestimated. To be specific, don’t underestimate the debt issue. How were Japan’s ‘lost 30 years’, from the 1990s to a while ago, lost? The main thing was, in a few words, the bubble burst, people were in debt, busy paying off debt, and not consuming. This was the basic problem.
There are different views on deflation. Officials come out to refute it, and scholars offer criticisms and arguments. So, what is mainly under discussion? Three points are most important:
The money supply has increased significantly during this period;
Prices are in a low state, which is quite odd phenomenon, a lot of additional money is issued, the money supply is quite sufficient, yet prices are in a downturn;
Why? The common people have no money in their hands.
I think these three sentences, in a sense, reflect the crux of China's current situation. Whether it is called deflation is another matter.
What is behind this phenomenon?
Tsinghua Professor Sun Liping: Three Views on the Current Economic Situation
I drew this diagram in the past two days. Friends tell me it really needs to be given a twist to make it more suitable and accurate. When twisted, it becomes a figure 8. What it shows is the formation of a new dual structure. I think that's the crux of a lot of our problems right now. Why is there so much money but the general public has none? Why is it so hot on the one hand, but so cold for the general public on the other? Why are economic growth figures so good, but the jobs situation so poor? The key is I think in this diagram.
So what does it show? I call it, for lack of a better word, the neo-dual structure. What’s that? One half is called the guó jì 国计 national economy; the other is called the people's livelihood. What is the national economy? It is used to do great things. People's livelihood is closely related to the lives of ordinary people. The entire PRC economy has in recent years been forming this dual structure. The national economy part includes important resources and infrastructure: high tech, including advanced manufacturing, military industry, and state financing platforms to solve 'bottlenecks'. All resources are concentrated here. They are all SOEs, it is said, but this isn’t entirely the case. They may also include some leading private enterprises. This is the focus of resource allocation now. The latter part is closely related to the lives of ordinary people. I call it the people's livelihood part. Most private SMEs are here, as are the PRC’s major job opportunities. And I also want to say that the dotted line may be moving. If it is based on the resources it occupies, the dotted line may move downward. If it is based on the population and labour force it covers, the dotted line may move upward. That is to say, the national economy part, sett to do big things in future. can cover the shrinkage of the population and labour force, but will take ever more resources; while the lower part related to people's livelihood covers ever more population and labour force, but has ever fewer resources.
From this dual structure, we can see a current problem in PRC society, which is hard to sum up or describe in a word. For example, in the deflation debate, some say 'yes', some say 'no'. Who is right? Probably both. You’re looking at deflation, but the money supply is quite sufficient. The PRC economy is sometimes described in cold/hot terms. Which is it? It’s cold viewed from below, but hot viewed from above, and just starting to heat up.
So we see a major change in recent years, formation of a new dual structure, which can explain our previous confusion. With such a large money supply, why do ordinary people have no money? The market stays cold and prices stay low—because a lot of money is circulating in that upper half. The two parts, the national economy and people's livelihood, for example, the upper body and the lower body, basically circulate in the upper body.
So, for example, in Q1 of 2023, social finance was CN¥ 14 tr, of which, over 70 percent went to the advanced manufacturing industry, and 12.6 percent was taken by government bonds to help it repay old debts. So, it can be seen that the M2 has grown rapidly, as has the money supply, but they are all playing in the upper, not the lower body. This is where our problem is now. But only in the upper body, the circulation of the whole body cannot be realised, and finally the upper body cannot circulate.
The above analysis can give us at least three revelations:
The deflation that we can experience in our lives is not a general sense of deflation. It is not feasible to discuss deflation in the way that general economics discusses deflation, because behind it is the problem of the new dual structure;
How to solve this problem? Using general methods to control deflation, such as increasing the supply of money or lowering interest rates, won’t solve the problem. If China increases the money supply, the vast majority will only circulate in the upper body. Let me make an analogy, just like a river, now look at the downstream of this river, there is very little water, does it mean that there is too little water in the upstream, and we increase the flow of water? wrong! There is a lot of water on it. Now this kind of deflation, I think of a word, is a kind of 'stasis-type deflation', which is all stagnated in other places;
If we focus on deflation, we may ignore the danger of inflation. While everyone feels that deflation means prices cannot go up, it is because a large amount of money may accumulate in the upper body. When this thing comes down, it will be hyperinflation, or even stagflation. Many current problems are hence difficult to summarise in a word: this is already a binary structure, and the upper and lower bodies are very different situation of. Many of the crux of the problem now actually lies in this.
Why am I optimistic about this year's short-term? It is because last year's situation was too bad, so there should be a good rebound this year. So why say the long-term may be more pessimistic? because now we have such crux. In the diagram, if you can't solve the crux of the problem, just treating headache via the head and foot pain via the foot, it’ll be insoluble. So everyone, carefully ponder this diagram. This is the first big issue I want to talk about today, which is my views on the current economic trend.
Issue 2: we may be going through a period of economic contraction that is not short-lived.
I don't like to use words like deflation and recession, because I can't summarise the two parts of the new dual structure, but if I want to sum up the totality composed of these two parts, I may have to use a vaguer word. Call it an 'economic contraction.' I think that in the next few years, we will face a period of economic contraction that may not be short. Why is this happening? Let me say a few reasons:
The first reason is that as far as China is concerned, the era of large-scale centralised consumption is over. Let's look at another picture. This is a schematic diagram, not based on relevant data, so many places are not drawn very accurately.
Using this picture, we can think about how we were going before and after reform and opening. I think it can be roughly divided into four stages.
Before the reform, there was a stage of scarcity, when everything was lacking, including food and clothing.
Post-reform, we first experienced the stage of supplementary lessons for basic life; we then entered the economic growth era, that is, in the late 1980s, we entered the stage of the three major items (colour TV, frig, washing machine), speeding up PRC economic growth.
Another round of development; but at the end of the 1990s, there were problems again, and the three major items were almost the same. At that time, the national operating rate of the three major items was less than 30 percent, and the words weak consumption and insufficient domestic demand were put forward at this time. I.e., things couldn’t be sold in the late 1990s, so there were three big mountains,
starting mortgage reform, buying a house by yourself
starting education reform, you have to spend your own money
starting medical reform, you have to spend your own money
so a period of faster growth began, entering the era of houses and cars. China's economic development in this period was the fastest, basically double-digit growth;
But now I want to say houses and cars have come to an end. Houses, we all know, are basically in surplus now. The production and sales of cars last year were over 27 million, and the ceiling is about 30 million.
This time, it means that the growth driven by large-scale concentrated consumption is over.
We often say that China is a catch-up country, and this is the characteristic of a catch-up country. People have completed this journey in 100 years, and we may complete it in 30 years. Can we have another climax after we're done? What's the climax after the house car? Furthermore, I just finished running 100 m., and ran another 100 m. I haven't started panting, yet I ran another 100 m. Say you come to another 100 m., can you run? Therefore, you can see that we are now facing a very important change, that is, the era of large-scale centralised consumption that lasted for decades has passed. what does that mean? At least two things:
First, we have a leading industry that stands out from the crowd at every stage as in the past, and it may not be there anymore. It’s not that we don’t have leading industries in the future, but we may not have leading industries that stand out from the crowd as before and account for a large part of the entire economy; secondly, in the past, our enterprises could keep up with the trend, they could Gone are the days of earning money. In the era of real estate, as long as the house is built, it will not worry about being sold, but at such a stage in the future, such a phenomenon will no longer exist. I think this is the first change we will face in the future.
So I’d argue that we need a change in our whole thinking. On the people's consumption issue, we’ve formed the notion that Chinese people never like spending, preferring to save. So measures had to be taken to stimulate domestic demand, promoting consumption. This must, I’d argue, be reversed. In recent years, we spent almost a year's income to buy a colour TV, the same to pay for an initial telephone installation fee, and dozens of years’ income to buy a house. How have we not consumed?
Here’s another issue. In the graph, I’ve drawn two lines, one is economic growth and the other fiscal revenue. We can see that in the 1980s, fiscal revenue grew less than GDP, i.e., income of ordinary people’s incomes grew rapidly, promoting consumption. Fiscal revenue’s growth rate later outpaced economic growth. If such rapid growth of fiscal revenue were used to improve social security and relieve people's worries, we’d be able to enter a stage of routine consumption driven by tech progress in the next step. But the problem is that the money has been taken away, and social security has not been done well, making our later stages even more difficult.
Second is the increasingly severe international environment. Professor Yan Xuetong (see China Cornerstone Insights 'Yan Xuetong: Where will Sino-US strategic competition go') has already discussed it, so I’ll say no more. But I’d like to talk about a point of view in economic terms. All the world’s developed countries can be said to have developed from a state of poverty. This can be called a law. If a country wants to develop, it will not fight externally or engage in class struggle internally. Generally speaking, it will in 30 years reach a decent development level. But on getting to it, there’s a ceiling that I think we’ve now reached. Were the international situation better—better for us—e.g. in tech cooperation and export, the difficulties we encounter now may be less.
But our international environment has now undergone earth-shaking changes. I call it a dismantling process, as I proposed last April. People now use the term 'decoupling', which is only a partial and technical concept, while 'major dismantling' is a strategic and overall concept; the two logics are different. If changes in today's world are grasped as 'decoupling', making accurate judgments on many things becomes difficult . What we are now facing is a process of dismantling and reorganising after globalisation.
What then are the main lines of dismantling things? There are, in general, three. While there are contradictions and conflicts in the world pattern formed in the era of globalisation, we are aware overall we are fighting without breaking, no one will overturn the table.. Why? Because there are important foundations formed by dependence, which can’t be overthrown. There are three key points of dependence:
Europe’s dependence on Russia’s energy and resources;
Europe’s and the United States’ dependence on the Chinese market;
PRC and Russian dependence on the US/western high-tech, high-end equipment, and even finance and economy .
The world structure was originally based on such dependencies, and no one could separate from the others.
But what was done in recent years was to dismantle dependencies. To what extent are they now demolished? My sense is that the first is that the dismantling of energy dependencies is basically complete. At the beginning of the Russo-Ukraine War, Russia said that Europe would not be able to live without Russia’s resources and Russia’s oil and gas, but what about now? Germany is the most dependent on Russian energy in Europe. On 1 January 2023, Germany announced that it would stop importing Russian energy. What if they didn’t buy it? Nothing. Europe's economy last year wasn’t bad, and it seems that this year can surpass last year. What does that mean? It means that the myth that it cannot be dismantled has been broken. Everyone must know the seriousness of this thing. The first myth has been broken. The second is the dismantling of industry chains, which is generally more than half of what Ku said. The third is that the dismantling of tech dependence is underway.
The most closely related to us is the dismantling of industry chains. Is it possible to dismantle it? Where have we come so far? I have been thinking about a question recently. I call it the critical point. Is there a critical point for the transfer of the industrial chain and the relocation of enterprises? If there is a critical point, has it reached the critical point now? Or if not, how long will it be? Before the critical point, it is extremely difficult for an enterprise to move forward, because it is embedded in the industrial chain, but once this critical point is passed, it will be a matter of course.
What then to make of this critical point? There are I think both subjective and objective aspects. Objectively speaking, for example, to assemble a lighter, if twenty-five parts are needed, all these parts can be found within half an hour's drive. This should be a very good industrial chain, and the cost will be very high. Low. If you move to one place, you can only find five parts. Although other conditions are good, taxation and other aspects are good, but now you can only find five parts nearby, and the remaining dozen parts don’t know where to go. Find, or the distance is very far, the cost is obviously much higher, this is before the critical point; but if we say 25 parts, we can already find over 20, and the rest can be found with a little more money , but the policy environment of others is better than yours, which means that this critical point has been passed, and it will be easy for the company to move there. This is an objective reason. The subjective aspect is a feeling of people. Because many companies, especially small ones, cannot do careful research and follow what others say to form an atmosphere.
The first myth of energy dependence has been shattered, and the critical point has passed. Now we have to consider the second myth, that is to say, what will happen to the myth that the world depends on China's industrial chain, and will it also be shattered. We must realise the importance of this issue. You can see that in the past two years, every important company relocation is actually a stress test objectively. Didn't you say you couldn't leave? The family has moved away, what's the matter? Some foreign firms' tone is getting tougher now: they find they can't survive once they leave China, as they originally thought. It may not be as good as before, but it is safer and the future prospects will be better.
We said earlier that the large-scale centralised consumption era has passed, and now we are facing such an international environment, what does that mean for us? So the process of dismantling is a key concept for us to understand many problems now.
In the process of dismantling, different countries face different problems. Western countries will face supply problems, while China will face demand problems. This Russia-Ukraine war has clearly demonstrated this point. Not to mention high-tech weapons, but some conventional artillery shells. Now it seems that the West has insufficient reserves and production capacity. The inventory is empty, and if I pay for it, who can help me to go to the international market to buy it. This is the problem facing the West. Whether it was masks or ventilators before, it also showed that they were facing this problem.
An analyst at Credit Suisse said some time ago that we’ll have to produce many things ourselves in the future, which means the supply problem facing the West. But the PRC is on the contrary. It facing is the problem of demand. The problem of demand is not the problem of whether the purchasing power of ordinary people is strong or whether the income is high or not. The problem is that China's production capacity is prepared for the world market. Let me give you an example: how many pairs of shoes are produced in China in a year? 10.6 billion pairs. How much can a person wear in a year on average in the world? Two pairs. That is to say, the seven billion people in the world need 15 billion pairs of shoes. How much do the Chinese need? over 2 billion pairs are needed a year. Then, we rely on ourselves to solve the problem of the production capacity of the world's factories. With a population of over 1 billion, we can solve the problem of 10.6 billion pairs of shoes, and one person needs to wear almost ten pairs. is it possible? impossible. Therefore, during the big dismantling, China first faced this problem.
The third reason is the scarring effect of the epidemic. The concept of the scar effect of the epidemic was proposed by an economist in the United States, which means that the impact of the epidemic will not pass quickly, just like the scars left on your body, it will last for a long time, including The impact of people's mentality, the impact on entrepreneurship, the impact on human capital, the impact on the job market, and the impact on enterprises. It turns out that although I emphasised that the impact of the epidemic may not be short-term, I really didn't expect it to be so big. Recently, I have seen many netizens sharing, saying that the concept of life has changed, including changes in consumption habits. The epidemic has made people rethink the meaning of life. What is the value of life? People will rethink such questions.
One person would think, I get off work at ten o’clock every night, sleep until ten o’clock in the morning the next day, and then go to work again, and I don’t have time to go out for a meal. I just earn tens of thousands of dollars, is it worth it? when? Some people say that I should pay more attention to life itself. Some people say that I don’t buy anything that is not necessary, and I don’t buy expensive things if I have cheap ones. It takes about two years to change one, and these effects are very large. Just now I said that Japan has lost 20 years or 30 years. A very important change is the change of people's psychology. In order to pay off debts, I spend as little as possible. I should not be burdened by so many debts. So for the whole society, what kind of society does it enter into? low expectation society.
So from these aspects, my personal opinion is that we will face such an environment in the next few years. This is the second biggest problem we are talking about: we may have to face an economic contraction that will not be not short-lived.
Issue 3: the PRC’s rapid economic growth stage is not quite over: calm down and do our own things well.
Now let's talk about the other side, at least in the sense of potential. The PRC’s rapid growth stage has not yet completely passed, it depends on whether we can realise this potential. It is also important to realise this. The reasons are as follows.
PRC industrialisation is incomplete. A student of mine works in real estate. Returning after visiting Germany, he told me that on arrival there, he hadn’t grasped what industrialisation was. Among other things, you open and close other people’s doors, and you open and close the windows. The feel is different, the quality is different, this is industrialisation. Where we have is much worse. Driving in the Beijing-Shoushan District, in some sections the manhole covers go 'dang bang bang bang', and this is still Beijing.
Urbanisation is not really complete. We now have 290m. rural workers who have moved to the cities, but few have integrated there. Nor would this take place overnight. It will in my view take at least three generations. The first generation comes to work in cities, like Shenzhen, where even small and medium-sized cities cannot afford housing and cannot settle down. I once put forward an idea, asking if it were possible to set up vocational ed for migrant workers’ children, allowing them to compete with urban children for college entrance exams. They cannot compete, but let them go to better vocational technical schools. Let them have a skill, this second generation is a little closer to the city. By the third generation, they have provided for their children to study well, went to college and became white-collar workers, and truly integrated into the city. However, this is a very long process. But every step he takes will be a huge need. Suppose a family wants to migrate to this city, they’ll need at least a suite, even just renting a room, at least two beds, at least one dining table, at least three bowls, and three pairs of chopsticks are needed for a family of three. . So, I say the process is not fully completed.
Globalisation is not really complete. The BRI is a very good idea. Absent strong political and ideological factors, China's going global is just the beginning, and there is a lot of room for it.
Huge regional differences remain. The Pearl and Yangtze River deltas have developed, but too many places remain that have not. The Southwest just started to move in recent years, and then there are Northeast and Northwest China. These are where there is potential.
Upgrading and transforming residents' consumption. This is a major factor for our grasp of the next-generation consumer market. Let's focus on this.
I just said that the line in the picture has almost come to an end, but when it comes to the end, we are actually facing two very important transformations. One is the transformation from the housing-centred stage in the city to the post-home ownership era, and the other is the transformation from the past state of food and clothing in the countryside to the stage of traditional durable consumer goods. If it is successful, it will release a huge new demand, especially in the city's transformation from the house-centred stage to the post-home ownership era. If we can create all kinds of corresponding economic and social conditions and realise these two breakthroughs and two transformations, two huge new demands will be released, new development drivers will be formed, and the Chinese economy will enter a new era. stage. In this regard, the space for China's economic development in the next ten to twenty years should be very broad. Of course, if these two breakthroughs and transformations cannot be realised, we will fall into the middle-income trap we started talking about a few years ago. In other words, the hand we have is actually good, at least in theory and logic. The key question is whether we can create conditions conducive to the realisation of these two transformations at home and abroad.
Rapid economic growth phase has not passed the second factor, what can make us a little optimistic? It is the prospect of the future heralded by the current technological revolution. In July 2021, Rich Karlgaard, publisher of Forbes magazine, wrote an article titled 'The Roaring 21st Century 2020s: A Prosperity May Come After the Epidemic'. This is the most optimistic article I have seen so far. On February 1, 2021, the January issue of The Economist Business Theory published a cover article titled 'Three Reasons to Be Optimistic About the Next Decade'. The article believes that outstanding scientific research breakthroughs, a surge in tech investment, and stepped-up popularising of digital technology during the epidemic have jointly ignited human hopes for a 'new era of progress' that will greatly improve living standards. The 'roaring 20s' that opened up the golden age in many fields a hundred years ago may be coming again. The emphasis here is also on the power of the technological revolution.
Now there is a term called 'magic 100 days', which means that from November 30th last year to March 7th, in this 100 days, three major events happened: one is the launch of ChatGPT; The second is nuclear fusion, and the third is greenhouse superconductivity. In the past 100 days, the world has made great progress in the three major technologies. Therefore, many people are now looking forward to whether we are already on the eve of a technological revolution? Will the eve of this technological revolution bring the whole world a roaring 20 years? Why do people use the word 'rant' when talking about this issue? Roaring for 20 years, this is the United States and the West experienced two decades of rapid development driven by the technological revolution after the First World War. At that time, the economy was very prosperous and the whole society was very prosperous. Young people were there at night Dancing to jazz, it was a hot day, kind of like our 80s. So, people say, will the scientific and technological revolution bring us another big reaction?
There is another interesting statement. Some people say that historically, every major epidemic will be followed by a major prosperity. He specifically talked about the Spanish flu. Everyone knows that the Spanish flu killed about 30-40 m. people in the whole world. At that time, the entire world population was only 1.7 billion, with approximately 1 billion people infected. At that time, the economic loss was very large and the impact was great, so some people said that the First World War ended because of this. Why? Because everyone was recruited, and so many people died, there were not enough soldiers on the battlefield, and they couldn't fight anymore, so the First World War ended hastily. Then followed a big economic development. Why is there such a development after the epidemic? He talked about some reasons. For example, consumption stopped during the epidemic, and then rebounded in retaliation; because consumption decreased during the epidemic, savings will increase; and after such a big disaster, entrepreneurs are more adventurous. wait.
But I think these explanations are insufficient. In terms of timing, after the Spanish flu, there was indeed a very big economic boom. But I think there may be two main reasons. The first one is that after the end of World War I, returning to a peaceful environment, soldiers also returned from the front and returned to factories, and the production capacity during wartime was also transferred to civilian use. This is a very important reason. The more important reason is that at the end of the 19th century, the potential formed in the technological revolution was not really brought into play until this time.
So now there are many predictions about the future, and some people even think that the US economy may have a growth cycle that lasts for over half a century. As you all know, there was widespread inflation in the West a while ago, and then the Federal Reserve raised interest rates violently, with a large range and fierce action, which was rarely seen before. But we can pay attention to a phenomenon, the Federal Reserve has raised interest rates so drastically, have you heard how many companies say that I can't take it anymore, and I'm going to go bankrupt? With the exception of a few businesses such as Silicon Valley Bank, which is closely tied to rate hikes, relatively few. Why? It shows that the quality of American companies is very good. Then, when interest rates come down and the power of scientific and technological achievements emerges, it will enter a period of rapid economic development.
Of course, now China should be said to be highly integrated into the world. Of course, China is connected with the situation of the whole world. If there is progress in the scientific and technological revolution, it is also a very important opportunity for us. How China cannot and will not miss the opportunity of this technological revolution.
So as an enterprise, we may now need to study the consumption characteristics of residents in the new stage. When we mentioned the three big items and houses and cars, there were outstanding leading industries at that time, but they no longer exist. Let me ask everyone, what do you want to consume now? You don't have the question of money anymore. If I want to ask ten people, maybe eight answers will be answered, and I don't know very well. What does this mean? It shows that the era of concentrated large-scale single consumption in the past has passed, and the future will mainly be diversified, personalised, and even highly flexible consumption. In the past, rigid consumption accounted for a large proportion of consumption. The characteristics of future consumption may be completely different.
An enterprise must strive to identify what the needs of consumers really need to meet. As stated, in terms of potential, the PRC’s period of rapid economic growth is not over. In the new stage, new needs need to be identified, the needs that ordinary people really need to meet. At least, the needs in these aspects are obvious: first, the most urgent livelihood issues. Second, the need to improve sexual needs or improve the quality of life. Third, the needs of poor areas and low-income groups. Under such circumstances, new development ideas are needed to allow residents to share more development results, stabilise expectations, create consumption scenarios, and change from stimulating demand to driving demand. But even so, we must see that in the future market, products will become more and more personalised and unpredictable. The large-scale production in the past, and the production method that is almost immutable, is becoming more and more unsuitable.
In the period of economic contraction, we still need to live in one thing, that is, the slow lane runs tight. This is a concept I proposed in 2020. Several factors further exacerbate this tight run. First, China has taken a step back in opening up, and the outside world is facing a severe situation and competition, especially the rise of India, Southeast Asia and Mexico amid the epidemic. Second, in 2022, the U.S. dollar-denominated GDP gap between China and the United States will further widen, and what we have been thinking about these years is to catch up. Third, due to the impact of the epidemic and changes in geopolitics, foreign capital has been withdrawn and the industrial chain has been transferred outward. Fourth, government and corporate debt. Fifth, ordinary people are seriously unemployed, their incomes are falling, and their expectations are getting worse. In this case, what is likely to happen is a tight run.
A few days ago, a friend called and asked: Will the economy be good next year? I can only express such an opinion based on common sense and some past experience: good is bad, and bad is good. Such a statement is a bit mystical, and it is easy to cause misunderstandings, but I really can't find a more suitable expression. Why do I say this? An important manifestation of tight operation is high indicators and strong start, which means that more power is involved in economic activities. And the result may be a new round of Great Leap Forward. Some people say that some local governments are now bewildered. What I mean is that during an economic recovery period like this year, there is no need to forcefully pursue a high target. Instead, we should restore our vitality and make up for our shortcomings. It's like the reply after being recruited in this wave of epidemic. The same goes for the economy. The three-year epidemic has dealt a severe blow to both the economy and people's lives. Therefore, the economic recovery period is first of all a period of rest and recuperation. It is necessary to recover the damaged vitality and make up for the shortened shortcomings. So, what I worry about is such a situation, or going to the other extreme. Will it increase the intensity of economic stimulus in order to regain the lost three years, leading to a new round of economic overheating, higher inflation, and rapid rise in asset prices? And then a bunch of bad endings?
We live in an era of high uncertainty. In such an era, many things need to be returned to the basics, and economic development must be based on a solid foundation of people's livelihood. Looking back at PRC history, it can be roughly divided into two paragraphs. The first paragraph I call it intentionally planting flowers but not blooming, and the latter one is unintentionally planting willows and willows to make shade. All day long ago, I was thinking about surpassing Britain and catching up with the US. I was so anxious, the Great Leap Forward, the People’s Commune, and the Cultural Revolution ended up with food problems; quietly, unintentionally, it became the world's second largest economy. This is very worthy of our deep thinking.
Sun Liping, "It is confusing; why do many people feel that the rebound is not as expected?”, Fenghuang wang, 21 May 2023 [孙立平：“扑朔迷离，为什么很多人感觉反弹不如预期？”，凤凰网，2023年5月 21日 (in Chinese).]. —Translation © Daev Keli 2023
Thanks for reading Beijing Baselines! Subscribe for free to receive new posts and support my work.