The National Bureau of Statistics of China announced the macroeconomic report for the first quarter of 2021 at 10 am on April 16. There are a lot of data. The most interesting is that China’s GDP in the first quarter of this year increased by 18.3% year-on-year.
This dazzling data is based on a strong rebound in the context of the outbreak of the COVID-19 pandemic last year and the devastating blow to the Chinese economy.
What does this 18.3% mean?
Just two hours after the report was released, Mr. Wu Xiaobo connected with Dr. Zeping Ren and discussed the data for more than an hour in the live broadcast room of the Zeping Macro WeChat video account and the Wu Xiaobo channel video account.
The following is the essence of their conversation.
1
What does 18.3% mean
Wu Xiaobo: In the first quarter of 2021, China’s GDP grew by 18.3% year-on-year. What does this mean?
Ren Zeping: It seems that 18.3% is very high. Last year, due to the pandemic, China’s growth rate in the first quarter was -6.8%, so it has a base reason. Excluding this reason, China’s compound average growth rate for two consecutive years was 5%.
But it sends a signal that from the recovery in the second quarter of last year to the fourth quarter of last year, China’s economy has returned to a normal level of growth.
The second point is that China is truly ahead of the world in fighting the pandemic and economic recovery this time.
The third is the impact of China’s economic recovery on China’s policies and the impact on China’s stock market.
Let’s first talk about its impact on China’s policies.
Since China’s economic recovery in the second quarter of last year, especially in the fourth quarter of last year, China’s economic growth rate has returned to more than 6%. At this time, China’s monetary policy has undergone adjustments, from the original easing to the so-called normalization of monetary policy.
This is why I talked about inflation expectations at the end of last year and the liquidity turning point at the beginning of this year.
More importantly, the style of China’s A-shares has switched.
After the liquidity turning point came out, the entire market switched from the original high-valuation sector to the cyclical product price increase beneficiary product, the low-valuation sector and the sector benefiting from the recovery of global trade. This is in the same vein as the big logic mentioned earlier.
But there is another issue worth noting here.
Now China and the United States are not on the same track. In terms of recovery, the Chinese economy is three quarters ahead of the U.S. economy, and the U.S. economy actually started to recover at the beginning of this year. China is in the process of normalizing its monetary policy, and because the United States has just begun to recover, its demand for easing monetary policy is still very strong.
This is why China’s stock market style switch even has a round of adjustments, but US stocks are still setting new highs. The reason behind this is that the cycle of economic recovery is different, and the degree of tightness of their respective monetary policies is also different.
In general, China’s economic recovery is still very impressive. I think that objectively speaking, this data is a tribute to Chinese companies, including Chinese medical professionals, for their contributions to various anti-pandemic fronts in the past year.
Wu Xiaobo: You first proposed the two macro-judgments of inflation expectations and liquidity inflection point. When you proposed them, it caused a lot of controversy in Chinese academic circles. I want to know, what kind of data model is your judgment on last year’s inflation expectations based on?
Ren Zeping: This framework is based on the so-called economic cycle.
The business cycle is generally divided into four stages: recession, recovery, overheating, stagflation, and then recession, recovery, overheating, and stagflation.
The recession is actually a very obvious recession from the second half of 2019 to the outbreak of the pandemic. Then from the second quarter to the fourth quarter, it recovered.
However, after the fourth quarter of last year, the economy returned to a normal level and then evolved. It must be that China has entered a stage of inflation and overheating, roughly from the end of last year to the first half of this year, so we made such a judgment.
2
CPI can no longer reflect the lives of ordinary Chinese people
Wu Xiaobo: Let me challenge you. You mentioned inflation expectations, but China saw from the macroeconomic data in the first quarter that the national consumer price (CPI) rose by 0.4% year-on-year in March, fell 0.2% in February, and fell 0.5% month-on-month.
However, let’s look at commodity prices. Some white appliances, such as refrigerators, air conditioners and washing machines, have increased by about 10% in the past quarter; movie tickets were 40 yuan last year, and now some movie theaters have risen to 80 or even 100 yuan; The price of mattresses has increased by 5% to 6% compared with last year.
I’m curious why people perceive the increase in commodity prices, but the data from the National Bureau of Statistics of China tells us that the national consumer price has risen only 0.4% year-on-year. Why is there such a big difference?
Ren Zeping: This is a good question. Why is the CPI only a few tenths?
Everyone now generally feels that it is actually impossible to have only this point. In fact, what we felt is that, except for pork, which has not risen, everything else is rising.
Wu Xiaobo: In the first quarter of this year, China’s pork production increased by 31.9%, and pork production increased on a large scale, but pork prices fell by 12.5%.
Ren Zeping: Let me give you a brief explanation, because it happens that this round of inflation and the pig cycle in China are misaligned.
In 2019, I put forward a sentence at that time, called “Excluding pigs, it would be deflation.” Because China’s economy was not good at that time, the price of pigs was rising, and everything else was fine.
Wu Xiaobo: At that time, the CPI reached about three to four percent. Then you raised this point. After removing the pigs, the CPI was less than one, or even negative.
Ren Zeping: Yes, it just happens that in 2020, the price of pork in China is falling, so this year is a typical “inflation after removing the pig”. You will find that except for the pork does not rise, everything else is rising.
China’s bulk commodity prices are rising, housing prices are rising, crude oil prices are rising, and everyone’s future renovation costs will also rise, because steel and copper have been rising recently.
Then let’s look at PPI, which is the China Industrial Product Price Index. The industrial product price index rose to 4.4% in March, 3% is the warning line, it has risen to 4.4%.
Wu Xiaobo: 4.4% was a sharp rise. The year-on-year increase in March was 4.4%, which was an increase of 2.7 percentage points from February. What do you think will happen to the prices of industrial products in the second quarter?
Ren Zeping: I estimate that the second and third quarters will continue to rise.
Wu Xiaobo: So it’s not good news.
Ren Zeping: Not good news. Why will it continue to rise in the second quarter? One is the resonance of economic recovery, the world, Europe and the United States, China, including Japan. And the United States has allowed the US dollar to overflow irresponsibly. It has launched a $3 trillion infrastructure stimulus plan to compete with China in the field of new infrastructure, but where the money will come from, most of it must be over-issued currency.
Returning to the topic just now, in the past few years, the impact of pork on China’s CPI has been too great, but for example, the more representative housing price index has not been included.
CPI is called the Consumer Price Index, which is a basket of household expenditures. In terms of residents’ expenditure, let’s be frank, how much can we eat with pork? But the proportion of other expenditures such as rent is getting higher and higher.
Therefore, the CPI indicator is less and less able to reflect the inflation that Chinese people really experience. Therefore, we must respect the objective situation, reduce the weight of pigs slightly, and then mention the higher weight in the latest consumer basket of the housing category, including the common people. In this case, when we look at the economic situation and the regulation of monetary policy, we can see them in a more accurate way.
Wu Xiaobo: All macroeconomic data are based on models. Then if there is a problem with this model, all your exported data will eventually have a problem.
Ren Zeping: Xiaobo is right. For example, the CPI has only risen by 0.4% this year. If according to the standard, 0.4% is considered deflation in China and it is not called inflation. What should I do? We must continue to stimulate through currency issuance this year, and once the monetary stimulus becomes troublesome, it will be heavenly if we stimulate it again.
Wu Xiaobo: You raised the liquidity turning point at the beginning of this year. There were a lot of controversies when you raised it. How was this turning point judged?
Ren Zeping: Since we have seen the so-called inflation expectations rise last year, from the perspective of monetary policy, because it needs to be adjusted counter-cyclically, then as the economy recovers, as inflation rises, monetary policy can no longer be excessively loose Otherwise, it will lead to more serious inflation and even overheating of the economy.
Therefore, as a responsible monetary authority, it has the responsibility to normalize its monetary policy at the beginning of this year. In fact, we finally recorded that the growth rate of M2 and social financing has fallen for two consecutive months.
3
The stability of the renminbi is China’s responsibility to the people
Wu Xiaobo: I would like to ask a question. What will happen to China’s RMB policy and monetary policy with the US government spending such a large amount of money today?
Ren Zeping: One is the appreciation of the renminbi. Because China does not have over-issued currency, it has maintained the stability of the currency. The party that issues more currency will definitely depreciate, and the party that prints less will appreciate.
Second, there will be a trend of capital inflows. Since last year, a lot of funds have flowed into China.
Wu Xiaobo: Last year, China’s foreign investment introduction was the first time that China surpassed the United States, becoming the world’s largest foreign investment importing country.
Ren Zeping: The reason is very simple. Holding the U.S. dollar is a depreciating asset, and holding the renminbi is an appreciation asset. Therefore, from the perspective of asset allocation, many investors are willing to hold appreciation assets, which is the renminbi.
In addition, China’s pandemic situation was well controlled last year, so when the world cannot invest and resume production, only China has this condition.
Another point that I think is very important is that the country, the government, and the country’s central bank must be responsible to the people.
The normalization of China’s monetary policy, according to the monetary authorities, is to maintain the stability of the currency. The stability of the currency is a kind of expression in the international arena, but internally, it is not the assets in the pockets of the Chinese people, and the cash flow assets can not be devalued, right? Can not be too diluted.
Like the United States, it has issued unlimited currency over the past year. In addition to diluting the foreign exchange reserves of China, Japan, the Middle East, and the world, it actually sacrificed the cash assets of its people, which is very irresponsible. This is why American populism, anti-globalization, and Occupy Wall Street movements will prevail. I think it appears to be over-issuance of currency, but in fact, it is the widening of the social class, social wealth gap, and the turbulence of social thoughts caused by the over-issue of currency.
4
Housing prices in China will become more and more differentiated
Wu Xiaobo: In the first quarter data report just released, there are three data about real estate. Let me read it first.
Real estate development investment increased by 25.6% year-on-year, China’s commercial housing sales area increased by 63.8% year-on-year, and the sales of commercial housing increased by 88.5% year-on-year. This is the fastest growth in sales, indicating that housing prices are still rising.
I have also observed a phenomenon recently. The so-called luxury houses or serviced apartments in large cities have recently risen very fast. There is data. In 2020, a total of 30,000 units of houses with a unit price of more than 10 million yuan in China will be sold. If you calculate it, it will be about four to five hundred billion. Of these 30,000 sets, Beijing, Shanghai, Guangzhou and Shenzhen account for 20,000, and out of 20,000. Shanghai accounted for 10,000 sets.
Then there is a problem. The currency is constantly oversupplied, and the investment in real estate is also increasing. What do you think of housing prices?
Ren Zeping: I think this is the case for real estate and housing prices. In the future, everyone will remember a word called “differentiation”.
As you all know, I proposed an analysis framework in the real estate field called: “In real estate, we should look at the population in the long term, land in the medium term, and finance in the short term.”
Putting it under such a framework and looking at the current and future real estate market in China, I think these phenomena are not unusual.
In fact, China’s urbanization is divided into two stages. The first is the population from rural to urban. The population of tier 1, 2, 3, 4, 5 and 6 cities has risen, so housing prices have also risen in general. But when the urbanization rate reaches about 60% or more than 60%, it is basically in a differentiated pattern.
The population flows from low-level cities, including rural areas and third- and fourth-tier cities, to metropolitan areas and urban agglomerations. Therefore, not only in the past two years, but in the next 10 or 20 years, everyone will see this kind of differentiation. This has happened in the United States and Japan.
Wu Xiaobo: I remember doing a survey in 2013 and 2014. In Jiangsu, such as Wuxi, Suzhou and Changzhou, housing prices are rising. There is a prefecture-level city called Zhenjiang. Zhenjiang has a population of 11 consecutive years. Net outflow, so its housing prices are stagnant.
Therefore, this differentiation actually took place six or seven years ago. According to what Teacher Zeping just said, the situation of such differentiation will become more and more serious in the future. Chinese young people will gather in super cities or a large city circle, and then big cities. The city will have a huge siphon phenomenon.
In some Chinese cities, if their industrial economy is not healthy, there is no good social security system, no good entrepreneurial atmosphere, or housing prices are still relatively high, it will force young people to flow out.
5
Exceeding expectations is a victory for China’s manufacturing industry
Wu Xiaobo: Relatively speaking, the renminbi is in a state of passive appreciation. This state is actually not good for exports. However, let’s check the data for the first quarter:
China’s total imports and exports of goods in the first quarter increased by 29.2% year-on-year, exports of goods increased by 38.7% year-on-year, and imports increased by 19.3%.
That is to say, China’s exports doubled its imports, and the trade surplus was 759.3 billion yuan. In general, exports in the first quarter were beyond expectations. What do you think of this phenomenon?
Ren Zeping: Because in the past year, the appreciation of the renminbi has indeed had a negative effect on China’s exports, but China still has many positive effects that offset its negative effects.
▷First, in the past year, most major manufacturing countries in the world have been unable to resume normal production, such as Germany and the United States. Only China has the ability to resume normal production, so in fact, it is China that has the ability to resume normal production and guarantee global supply.
▷Second, the strong competitiveness of China’s manufacturing industry. Over the years, through technological iterations, including China’s replacement of labor by machines, including various cost reductions, it has well maintained the strong competitiveness of China’s manufacturing industry.
▷Thirdly, I think it is related to a problem that Xiaobo has long advocated, the rise of new domestic products.
Wu Xiaobo: Let me add two more points. The first point is that after the pandemic last year, China is the world’s largest manufacturing country, so China’s supply chain is unbroken. Because China was the first to control the pandemic, China’s entire production system is still recovering completely.
In April last year, I started investigating the first automobile factory in China. Wuhan had not yet been opened on April 8, but the automobile factory in Wuhan had already resumed work in March. By June, the production capacity of all vehicle companies in China had recovered to 80% of the same period last year. So I think that the integrity of the supply chain is a major benefit China has given to this round of global trade and global manufacturing.
The second point is the issue of new domestic products you just mentioned.
I went to research last year and found out that China’s exports are all foundry, that is, they all use other people’s Brands, a large number of products exported from China now have their own brands.
Today, there are tens of thousands of independent brands in China that are sold globally. These brands, through their own low-cost and high-quality methods, achieved a new brand raid. This is the most fundamental reason why Chinese products can export beyond expectations: China’s competitiveness, China’s channel capabilities, and China’s brand building. The ability has withstood the test in this round of the new crown pandemic.
6
Grasp the switch of Chinese stock market style
Wu Xiaobo: What do you think of the decline in China’s stock market in the first quarter? What is your judgment on the market outlook?
Ren Zeping: I mainly talk about the style of the Chinese market.
For this year, if China continues to be on such a major trend as inflation expectations and liquidity inflection points, then everyone should pay attention to the fact that the style of the Chinese market will still change significantly this year.
It turns out that those high-valued sectors may still be under pressure in the context of rising interest rates, because rising interest rates kill valuations; but because inflation is expected, then for cyclical products, for those benefiting from price increases, For those benefiting from the recovery of global trade, I think it should be positive.
As for carbon neutrality and carbon peaks, they are all conditions for compatibility, they are all catalysts, and they do not change the general direction.
This is my view on China’s stock market this year: structural opportunities and structural risks coexist.
Wu Xiaobo: What should be done to ordinary Chinese stockholders and ordinary Christians?
Ren Zeping: Grasp this switch of market style. That is, when you are choosing fund managers, you must also choose those who can quickly make decisions and make style changes, or those who are good at being the fund managers in the beneficial sectors I just mentioned.
Wu Xiaobo: Here I would like to remind everyone that Chinese stockholders have a problem called ADHD: buying stocks every day, they go up and down and panic; well, now they buy funds, the basic people also have ADHD, and their professional skills are obviously thanks. I gave it to those fund managers, but I still went to see it every day to see if the fund went up or down.
When Americans buy a fund, its adjustment cycle is 16 months, while in China it is two months, which is about 8 times the difference.
The capital market is becoming more rational, the industry is becoming more rational, so our investment philosophy should also become more rational. ADHD is a common problem when you were in elementary school when you were a child. If you are in college and still have ADHD, isn’t it a troublesome thing?
7
What to expect next in 2021
Wu Xiaobo: What do you think of the future? What advice do you have for Chinese business operators and ordinary Chinese new middle-class families?
Ren Zeping: I have a few judgments.
The first one, in the short term, the first quarter may be the top of the Chinese economy, or enter a top range, while the growth rate in the second and third quarters may gradually slow down.
Because it is impossible to be 18.3%, the Chinese economy will gradually return to normalization in the future, and the base effect of the pandemic will gradually fade. However, there is no need to worry too much about this slowdown. For example, it is normal to drop from a few eighteen percent to 10%, 8%, and 6% in the future.
The potential growth rate of China’s economy in the future is about 5% to 6%.
The second judgment is that China’s monetary authority is relatively responsible. Relatively speaking, the currency is actually over-issued, but it’s okay, so the renminbi assets are relatively stable.
Third, from a longer-term perspective, including the response to the pandemic this time, including the previous response to Sino-US trade frictions, I think China has responded relatively well.
Because it is mainly dealt with through reforms. Especially the trend of China’s growth this round, or the national fortune that everyone talks about, is indeed still on the rise.
Therefore, for Chinese entrepreneurs and Chinese people, I think we must have confidence in China’s economic growth and China’s development.
Because no one can choose the front line, and our camp itself is very good, we will be fortunate to witness that in the next 10 years, China will surpass the United States to become the world’s largest economy.
Wu Xiaobo: We talked about the national fortune here. We have data in our economic history research, which is that China was the world’s largest economy for a long time during the period of agricultural civilization, but by 1828, China’s economic aggregate was surpassed by the United Kingdom.
It is almost 200 years since 1828. Today, China’s economic aggregate is 70% of that of the United States. If this rate of development is maintained, China’s economic aggregate should have a chance to surpass the United States around 2028 or 2030, that is, 200 years later, this country will become the world’s No. A large economy.
So I think everyone is a son of the era, and a product of an era. Then the confidence in oneself comes first from the confidence in the growth of this country and the national economy.
If you think that the elevator has started going down and has stopped running, can you run through the elevator no matter how fast you run? If we are optimistic about the country’s economic development in the medium and long term, then the remaining question is what should we do. Is there any constructive and rational way in which we can stand still in the elevator and run forward, or is it In the elevator, I take off my shoes and run forward, so I can faster than others.
Source: Zeping Macro