Achieving a GDP growth target of 5% this year is somewhat challenging, and many people are anxiously asking me: with more than half of 2024 gone, and the economic growth rate still declining, can China's economy continue to forge ahead?

Indeed, for most economies, if they encounter a crisis or are impacted by external shocks in the short term, the economy is likely to experience negative growth, which is what we refer to as "recession." If it is not reversed over a long period, it may evolve into "depression." Thirty years ago, some countries in Russia and Eastern Europe saw a significant decline after implementing radical shock therapy, and economists defined this phenomenon as a "L-shaped" recession.

However, China still has an economic growth of about 5%-6% each year, so we are not in a recession, but only experiencing a slowdown in growth rate, which everyone needs to understand.

In the past, China's economy grew at high speeds like a sports car, but now it needs to switch to medium-high speed, which is a step down in terms of speed, bringing with it a series of "deteriorating macro-environment" and so on, which is actually the new economic normal we have been talking about in recent years.

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This is an inevitable manifestation of the development of the Chinese model to a certain extent. We cannot change it, so we can only struggle with it and reconcile with it.

Moreover, this is not a short storm, but a "climate change" that may last for a long time, and everyone needs to be prepared for a protracted war.

01 Recognize the situation, China has long entered the new economic normalSince the "deterioration of the overall environment," many people have been reminiscing about the past economic development model, feeling that the past economic growth model was the golden key to China's economic development.

That is to say, the so-called "Chinese model," driven by investment, with a focus on rapid and large-scale development, pouring resources into a few hot areas, and GDP soars. This kind of large-scale, extensive combat indeed promoted China's economic development, but now it is no longer viable - the times have changed, domestic resources are tight, and the international situation is also changing. If we continue to do this, it is tantamount to digging our own graves.

What is high-quality development? In simple terms, investment should yield returns, products should have a market, enterprises should make profits, employees should have income, the government should collect taxes, and the environment should continue to improve.

However, after running for decades, our resources are now insufficient, traditional industries and real estate investments have reached their limits, and environmental pollution is unbearable. In particular, there is an overcapacity issue, with steel production capacity of 1.2 billion tons and output of only 800 million tons. The existing housing stock can meet the housing needs of 1 billion people, but our urban population is only over 700 million. This is not only a waste of resources but also a market imbalance.

In addition, we have fallen into the middle-income trap, with the income gap among the people widening, the economy stagnating, and there are deep-seated issues such as slowing productivity growth, low capital allocation efficiency, and misallocation of resources, which I will not elaborate on today.

The outside world says we are "path-dependent," but this term is actually misused. True "path dependence" refers to the current path having low implementation costs, but our past development model actually had high costs.

With the changing international situation and shrinking external demand, we need to rely on domestic demand to drive economic growth. In the past, due to the WTO and globalization, China became the "world's factory." But now, with the information revolution, production and consumption patterns have changed. It is no longer a centralized global production but a distributed production that follows the market, which is also a huge challenge for us.

Therefore, we must change our way of living. In the past, we were "big and fast," competing in speed and scale, like a young man with endless energy. But now, we have grown from a young man to an adult, and we need to pay more attention to connotation, quality, and sustainability. It's like a person who used to grow up eating fast food and now needs to start paying attention to a healthy diet.In fact, the 2008 financial crisis provided us with a good opportunity to reflect on reform, but at that time, the "Chinese model" was resounding, and everyone thought that China could replace the United States. Before 2008, we did not advocate the "Chinese model" very much, but emphasized our uniqueness, you go your way, we go ours. Unfortunately, later on, we were overconfident and missed the golden period of reform - when we should have reformed, but instead, we strengthened the original economic development model.

So that 4 trillion stimulus policy, at the beginning, looked good, but by 2010, the "efficacy" was getting weaker and weaker. Because, to put it bluntly, the problem with China's economy is a chronic disease, and the current problem is not cyclical, it cannot be rebounded through short-term stimulation, but will go through an L-shaped growth stage.

This is not something that can be cured by a shot of chicken blood, it must be slowly adjusted through reform of the system, and deeply reflect and reform China's long-term economic development model. We can no longer simply judge heroes by the total output value, but from extensive to intensive, from relying on investment to stimulating market vitality. Otherwise, one day we will end up in a dead end.

02 Under the new normal of the economy, we must learn to do "addition, subtraction, multiplication, and division" operations.Do Addition: Discover and Cultivate New Growth Points

At the national level, it is imperative to promptly adjust the economic structure and inject new vitality into the economy. Policies should be relaxed to invigorate the market and allow it to take the leading role in resource allocation. Which of the current popular new technologies, industries, and products were thought up by the government sitting in the office? All of them were driven out by market competition and are the results of "letting go."

The government needs to accelerate the transformation of its functions and create a better competitive market environment, rather than frequently changing like the weather. For example, not long ago, it suddenly announced the establishment of a joint police-tax combat center, requiring private enterprises to bring out their tax bills from the past 30 years for public scrutiny. Some enterprises with a balance of 500 million yuan received a penalty notice of 300 million yuan, making it difficult to survive. Can the policies, economic environment, and legal systems from 30 years ago still be taken seriously today?

Those in power, law enforcement, and officials, can they themselves withstand a 30-year retrospective investigation? Some corrupt officials who are not clean themselves turn around to investigate hardworking entrepreneurs and small and medium-sized private enterprises that contribute 59% of China's taxes. Isn't this a huge joke?

The real wealthy vested interests have long fled abroad, while private enterprises that cannot go out or move their money are already struggling. Not receiving support is one thing, but adding insult to injury is another. Such policies must be carefully considered to avoid making those who work hard in their careers the victims of the economic winter.

At the enterprise level, there must be some clever thinking to "turn waste into treasure" and wit to "seize every opportunity." Grasp the pulse of the digital economy, but don't just talk about innovation; it's time to take real action. Try new methods and technologies, even small improvements can bring about significant changes.

As the old saying goes: "A tree moves and dies, but a person moves and lives." At this time, there must be a spirit of "daring to be the first in the world" to find new growth points.

Do Subtraction: Compress Backward and Excess CapacityAt the national level, a thorough cleaning is imperative to eliminate outdated production capacities and optimize the excess supply.

Previously, the government would intervene when it felt an industry was overheating with investment, and it would invest heavily when it thought a field was underinvested. If A couldn't do it, B would take over. There was never a consideration of whether A and B should be doing it, which is why we keep spinning in this vicious circle.

The government always wants to do things that can showcase its strengths. Although there is a lot of talk about "adjusting the structure," the main player in the structural adjustment is not the market but the government. For example, large-scale urbanization and emphasizing state-owned enterprises, because doing these things can better reflect the government's advantages.

However, the overproduction is due to not following market rules. It is better to give the market more power than to flood the market with fish. By actively reducing the volume through mergers and reorganizations, the excess production capacity can be suppressed, allowing the market to decide who goes up and who goes down, letting those who should exit do so, and letting those who should go bankrupt go bankrupt, to achieve survival of the fittest. What the government needs to do is not to stipulate which industries and specific enterprises should exit and go bankrupt, but to ensure that society will not be in chaos after the enterprise goes bankrupt.

At the enterprise level, it is necessary to learn to lighten one's own backpack, flatten management, cut off those unprofitable and unpromising businesses, or innovate business models, such as shifting from selling products to selling services/using the sharing economy model to reduce investment. In short, reduce costs and increase efficiency in all aspects, optimize asset allocation, focus on what you are good at, and outsource or cooperate with others, and invest funds in places with high returns.

Just like the saying, "less is more," sometimes doing subtraction well can lead to more gains.

Do multiplication • comprehensively promote model innovation

At the national level, the industrial chain needs to be optimized and upgraded, emerging industries need to be developed, and the digital economy also needs innovation.In the past, we relied on resources and low-cost labor to drive the economy, with heavy industry and low-end manufacturing taking the lead roles. Now, we must shift towards high-tech industries and services, relying on technological innovation as the driving force.

However, innovation has always been the exclusive domain of "aloof and mysterious" scientific research institutions, high and closed off. Little do we know, the problems we face now are global, and they cannot be solved by a few countries, governments, or companies working alone. We need to play a bigger game now, to refresh the old, aloof mode of innovation, which is the so-called "innovation of innovation." It must be open, bottom-up, and a social innovation model that everyone participates in together.

At the corporate level, there should be some wisdom of "borrowing the east wind," to use policies flexibly and effectively, to add fuel to their own development. Nationally supported scientific research projects, innovation funds, and public technology service platforms established, companies must actively use them, just like finding a sponsor, to seize every opportunity. As the old saying goes, "A good wind relies on strength, to send me to the blue sky."

Do division by enlarging the numerator and reducing the denominator.

In essence, it is to improve labor productivity and capital return rate, which is our ultimate goal.

As an economic entity, the ultimate goal of economic development is to benefit the public, or to maintain the power of a few? Other issues are technical, but if this premise is wrong, then the rest is in vain.

The formulation of economic policies should not be based on the promotion of officials, but should be based on whether the lives of 1.3 billion people have improved.

First, we must solve the national income issue, to make the wallets of the middle class and low-income groups full, so that they dare to spend money, willing to spend money, secondly, the quantity and quality of basic public services such as education and medical care must be improved, and educational equity must be promoted, which is our foundation.Enterprises also need to have a broader perspective and cannot focus solely on immediate gains. First and foremost, they should ensure that employees' wallets are full, which will make them more motivated and creative. Secondly, companies should pay attention to employee education and training. In addition, enterprises can collaborate with the government to enhance their image. In summary, they should have a "people-centered" sentiment and a vision that "benefits the present and benefits the future."

Ultimately, there must be a consensus throughout the country: what we want now is long-term development and sustainable prosperity, not just momentary pleasure. In this process, we need to have some patience and increase our tolerance for shifting gears and slowing down, first building a foundation and then rebounding.

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China's economy is now somewhat like a long-distance runner; although the pace is a bit slower, it is still running steadily on the track. To accelerate again, it is not as simple as taking some stimulants (economic stimulus), but rather fundamentally improving physical fitness (structural reform) and adjusting breathing rhythm (improving capital allocation), so that it can run more in the long term.

The new normal of China's economy is not the end of a cycle, but the beginning of a brand new era.

Under this backdrop, enterprises and individuals need to adjust their mindset and also have some new strategies to cope.

Especially for enterprises, innovation must be regarded as a daily necessity, while learning to transform and upgrade, keeping up with market demand to find new growth points, such as shifting from manufacturing to services, or from offline to online, listening more to the voice of the market, looking more at opportunities outside, and not just focusing on their own small piece of land to close the door and build a car.

Just like an orchard, the easy-to-pick fruits have been picked almost, and now we need to pick higher and denser fruits, naturally more effort is needed. We should start learning to use ladders, and even invent new harvesting tools to cope with this new normal.What we need to do is not to reminisce about the easy fruits of the past, but to learn to coexist with these risks. Only in this way can we, like surfers, no matter how the economic waves rise and fall, find our own rhythm and stand firmly on the crest of the wave!