Looking back at the past 40 years of rapid economic growth in China, the main benefits have come from three major dividends - the dividends of reform and opening up, globalization, and the demographic dividend. However, now these three dividends have turned into three major challenges - reform and opening up entering the deep water area, de-globalization, and an aging and shrinking population.
In the face of such a major change that has not been seen in a century, many people standing at the crossroads say they cannot see the direction of the future, especially those who have adapted to and understood the logic of China's economic growth in the past 30 years.
Because they were used to the days of integrating into the US dollar system, but now the economies of China and the United States are beginning to decouple, and our internal driving force and independent credit system have not yet emerged.
In fact, the reason why it is not clear is mostly because it has not been understood from a macro perspective of the country's top-level design arrangements. The Chinese economy does indeed have some difficulties at present, but this is just a gear shift period and a period of accumulation - in fact, the underlying logic of the Chinese economy has undergone a qualitative change, and the way of making money will also change accordingly.Today, let's analyze the changes in the underlying logic of our country's economy together.
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Understanding the central and local governments is key to understanding China's economy.
As is well known, China's economy in the past, which was characterized by its vast scale, mainly benefited from the "market economy." Behind the market economic activities, the biggest driving force is the government. It not only formulates policies but also directly and deeply participates.
We are a typical "political-economic complex," where policies and the economy are interlinked and cannot be viewed independently.If the regulatory policy objectives are correct, it can indeed concentrate efforts to accomplish great things, make up for market shortcomings, and promote sustainable and rapid economic development; however, as long as there is an error or deviation in the direction or timing of regulation, either the market loses its fundamental function of allocating resources, or it distorts the market structure, destroys the growth laws of industries, and brings endless troubles.
One situation is the government overstepping its role, where the government excessively intervenes in economic activities, directly participates in economic activities, and acts as an important competitor in the market.
Another situation is the government's absence, where the government provides insufficient public services, and distorted "marketization" phenomena appear in some public fields.
Another situation is the government's misplacement, where government functions are overlapping and overlapping, the division of authority is unclear, and there are often phenomena of mismanagement where it should not be managed, and no one manages where it should be managed. The relationship between the government and the market is "inextricable", and the relationship between the central government and local governments is "still chaotic", which is also the main problem troubling the central and local governments.
At the beginning, in order to develop the socialist market economy and mobilize the enthusiasm of local governments, the central government adjusted the relationship between the central and local governments to a new model of "centralized power, appropriate decentralization of local power", granting local governments a certain degree of autonomy, including administrative legislation, administrative approval, financial retention and other powers, in order to promote local governments to enhance their ability and confidence in economic development.
However, in 1994, China began to implement the tax-sharing system, and local fiscal revenue decreased, especially in underdeveloped areas. In order to persuade the localities, the central government made a compromise, and this compromise was to leave the land transfer fees to local finance, otherwise it would be too difficult for local governments. With the continuous strengthening of land finance, land revenue has become the main component of local finance, promoting the process of urbanization, supplementing local financial strength, and promoting a large number of infrastructure constructions.
It can be said that land finance is the secret of China's urbanization. Without "land finance", there would be no rapid development of urbanization in China today.
But at the same time, it has also led to a series of problems such as industrial structure imbalance, resource allocation imbalance, wealth distribution imbalance, local official corruption, etc., and indirectly promoted the rapid growth of implicit debt of urban investment enterprises and local governments, and the vulnerability of local finance highly dependent on land finance has also increased.
The process of urbanization focuses on scale and speed, and neglects consumption.Due to the management model that uses GDP as an assessment and evaluation indicator, many local governments are "eager for grand achievements," blindly pursuing economic volume. The larger the project scale, the more significant the effect on driving GDP, and the more taxes paid. Therefore, they do not care about the quality of the project and actual demand, only about whether the scale is large enough. This leveraged asset ultimately leads to an increasingly heavy debt burden on enterprises, and their operations become more fragile.
Looking back at the thirty years of market transition, the pace has been sometimes accelerated and sometimes braked, but the development model of over-consuming resources has never changed. This is because the assessment indicators are mainly market results, not the source of the market.
In pursuit of speed, blindly seeking economic growth points, regardless of the consumer group structure, over-developing the real estate and automotive industries, finally, a large number of inferior production conditions enterprises have flooded in, and inefficient production capacity has expanded, further low-endizing the industrial structure, and also causing great damage to the environment.
The economic structure focuses heavily on investment and production, while neglecting the population.
I have previously analyzed that the capital in our country operates through the logic of central bank → financial institutions → local governments and enterprises → fixed assets → residents.
However, both local governments and enterprises invest in "heavy assets" after getting the money, building infrastructure and high-rise buildings, because they are capital-intensive, fast economic growth, and can promote technological progress. The resulting problem is an unbalanced structure, and the people live very tired, with a general lack of "sense of gain."
All cities are expanding outward, with various new districts being built like mushrooms after rain, and the reputation of infrastructure mania is far-reaching. A large number of people have flocked to the cities, but there is no corresponding public service provided, such as education, medical care, etc. Government investment is concentrated on large infrastructure projects such as transportation and water conservancy, and the supply speed of residential land is far behind the population growth.Not only is the housing price rising, but the costs of education and medical treatment are also on the rise. The residents' debt is soaring, and after two decades of galloping, the regional and wealth gaps are actually widening instead.
To put it bluntly, the essence of land finance is land finance and financing, not profit. This is why, on the one hand, China's economy has created a growth miracle, while on the other hand, the contradictions of structural imbalance are continuously deteriorating.
This model of local governments driving the economy has greatly distorted the market's mechanism for allocating resources, forcibly driving the economy. In the end, there is a large overcapacity, inferior production conditions enterprises have to exit the market, medium production conditions enterprises' financial situation deteriorates, superior production conditions enterprises' efficiency declines, and a large number of enterprises reducing production or even closing is inevitable. This will lead to an increase in unemployment, a reduction in fiscal revenue, a large number of non-performing loans in banks, and the entire economy falling into a trough.
Paying a very high cost of resources and the environment, only a huge space for power and money transactions has been formed.
How to regulate the market economy well is the next compulsory course for China's economy, and there are three logical changes facing this: the first is to move from high speed to high quality, changing from "Made in China" to "Created in China", which is the underlying logic of our new era economy; the second is the transformation of enterprise development from diversified, resource-based enterprises to specialized, innovative enterprises; the third is the transformation of local governments from land finance to tax finance.
The era of "people-centered" market is in balance.Adjusting the Industrial Structure for Innovation and Advancing Toward High-Quality Development
The essence of high-quality development lies in pursuing a path of innovation and a path of green development. In the coming period, China's economic structure will undergo a historic transformation. New infrastructure, new energy, the digital economy, and high-end manufacturing will replace real estate and old infrastructure to become the new engines of the economy.
This includes increasing the intensity of industrial policies to encourage the rapid rise of new energy, new technologies, and energy-saving and environmentally friendly industries in the secondary sector; protecting patents and increasing the proportion of value distribution for knowledge and technological innovation; and focusing on the development trends of international research and development in science and technology-intensive emerging industries to cultivate green and intelligent industries.
Traditional manufacturing enterprises also need to undergo high-quality transformation and upgrading. Firstly, traditional manufacturing and all service industries should embrace the internet and big data, moving towards digitalization and intelligence. Secondly, the manufacturing industry should move towards service-oriented development.
Faced with the arrival of the ecological civilization era and the era of longevity, we will also build an ecological economic sector centered on dual carbon, clean energy, and technology, as well as a livelihood economic sector centered on health.
In addition, we must recognize a major trend: the Belt and Road Initiative for interconnectivity is the top-level strategy of this era in China. The vast overseas market will become a key choice for domestic enterprises to start a new growth curve.But it should be noted that "high cost-effectiveness and high production capacity" are no longer the key to competition. Instead, we should shift from "exporting products" to "exporting brand culture" and "exporting infrastructure", and infiltrate from the bottom of the "smiling curve" to both ends, creating brand value is the core.
This is a major change that has not been seen in a hundred years, and it is also a great opportunity that has not been seen in a hundred years. It is crucial to recognize this major trend.
2/ Balance the income of workers and solve the domestic demand problem
To implement a socialist market economy, we must fully respect market laws and create a good market environment for the market mechanism to play its role. The most important thing is to ensure the decisive position of the median value in the regulation of market supply and demand, and to ensure that the middle-income group becomes the main body of consumption, to ensure the continuous and healthy development of the economy, and to meet the people's growing needs for a better life.
The key to solving domestic demand lies in improving the consumption capacity of the masses. The income growth of the people must keep pace with economic development, and it must also be linked to the price index.
In short, it is to find a way out and reduce pressure for the common people, to pull up the minimum value, and to let every individual share the fruits of development. Regularly and plannedly increase the minimum wage standard and social security standard, expand the proportion of labor remuneration in the first distribution, and the proportion of social security in the second distribution. Let the labor of the people not only be rewarded in the compensation for variable capital, but also be rewarded in the business income.
The most critical thing is to create an absolute dominant position for medium-sized enterprises and middle-income groups in the market, to ensure that the median value becomes the decisive force of market value, and to expand the scale of our middle class, which depends on the strength of the welfare system.Therefore, it is necessary to concentrate financial resources at all levels to address the imbalance and equity issues in public service structures such as healthcare, education, and affordable housing, strengthen community economic theory research, actively develop a stable living economy, and alleviate the consumption concerns of the general population.
3/ Define the boundaries of central and local supervision, and transition from land finance to tax finance.
When the "risk signs" emerge, the central government must intervene to regulate, and "common prosperity" takes over from "moderately prosperous society" for this reason.
The most ideal relationship between the central and local governments should be consistent in responsibility and authority, that is, the financial power and administrative power should be matched. However, it is difficult to achieve this within a large country, so it is necessary to redefine the boundaries between the central and local governments.
The most important thing is to change the management and control model, manage and control, and evaluate the performance of the government with people at the center, establish a set of assessment and evaluation index systems and methods that conform to economic laws and the needs of human development, abolish the single performance assessment requirement of blindly pursuing GDP, break the local protection, and promote the circulation of resources and markets.
At the same time, it is timely and imperative to transition from land finance to tax finance by managing land.
Although "land finance" is an important tool in the initial stage of urbanization, once the original capital accumulation is completed and urbanization enters a stable phase, its historical role can gradually fade out, or even come to an end, especially at the critical period when China's economy is transforming towards high-quality development, it is the opportunity to bid farewell to land finance and truly achieve transformation and upgrading.China's economy is initiating a second growth curve of high-quality development, propelling the transition from high-speed growth to high-quality development. This will be the ultimate battle for China to return to the pinnacle of the world, and it will also create wealth opportunities that are completely different from the past.
Looking ahead, the traditional economy, represented by real estate and infrastructure, is receding and reshuffling, while the new economy, represented by new infrastructure, new energy, digital economy, and high-end manufacturing, is rapidly emerging.
The path of China's economic rise is changing tracks. Now is the time when the brief light before the sun is about to break through the dark clouds disappears, just like the period of consolidation before a stock reaches a new high, under the previous peak.
There is no need to reminisce about the past; the best era for China has just begun. Look, in areas such as electric vehicles, new energy technology, and artificial intelligence, we are catching up and even surpassing in some aspects. So-called bottleneck issues like chips, and the so-called pearls of the industrial crown, are also being picked off one by one by us.
Each era has different logic and different opportunities. Pessimists are entangled, while optimists move forward. Pessimists are right, but optimists make money. The future will still be a decade where good companies and entrepreneurs emerge in full bloom, and the world will ultimately belong to rational optimists.
As entrepreneurs, only by understanding the country's top-level design arrangements can we have the stability and confidence to navigate the turbulent years ahead in the next decade. It also allows us to better understand the position and mission of our generation over the next 20 years!