The Future Trend Of China'S Economy Will Remain L Type For A Long Time.

In the first quarter of this year, China's economy has been improving for a short time, but this temporary improvement has paid a heavy price.

The price is that when the central government has put the economy into the "new normal" situation, it relies on the government to invest in projects in the first quarter, and relies on the central bank to issue notes and lend money to boost economic growth.

After the first quarter of the policy, despite the signs of economic improvement, the parties also expressed different views on these policies.

The authority's speech shows that the common sense of pformation and reform is still alive, recognizing that the practice of the first quarter will make China's economy more difficult in the future.

Stopping the first quarter is a major adjustment in economic policy this year.

In particular, the authorities did not shy away from the current issue and pointed out clearly the future trend of China's economy, neither U nor V, but L.

The L type means that economic growth will fall into a downward path, the downward path is at the bottom, and the L trend will last for a long time.

Moreover, the tail of type L, or difficult situation, will last for three or five years.

Why does it take so long? This requires a judgement on the current economic situation -- how the current economic situation is generated.

We used to say that China has created an economic miracle, and this economic miracle has kept China in the two digit growth of GDP for a long time.

But why did this miracle suddenly fail? Why did it not rebound for a long time after the fall of L? Actually, the formation of L has a long history.

Over the past decade, China's economic growth pattern has undergone great changes.

The change of growth pattern refers to the pformation of economic growth driven by folk innovation, especially institutional innovation and market forces, from the early stage of reform and opening up to the previous decade. The government's intervention has been increasingly moving towards the front stage. The internal driving force of the economy is lacking. It can only rely on a series of policies such as finance, money and credit from outside to maintain the economic growth rate by means of external blood pfusion.

There are different views on when this change occurs.

I think this turning point probably occurred in early 2000.

In the 2004 and 2005 before the financial crisis, this turning point has emerged.

As a result of the impact of the financial crisis, in 2009, we launched the four trillion investment plan, and made the government investment and bank lending to promote investment in the past decade, and then investment to stimulate domestic demand, so as to maintain the pattern of economic growth has been more prominent in front of us.

It will take a long time to clear up the consequences of this model over the past decade.

Therefore, the meaning of supply side structural reform is to clean up excess capacity, excessive inventory and bad debts of banks.

If we don't clean up the three mountains, we will not be able to move forward lightly.

After clearing up the "three big mountains", we can talk about where the new growth point is.

My understanding is that to return to the supply side is to abandon the old normal mode of stimulating domestic demand with the government to drive economic growth, but to turn to the economic growth mode with the core of the enterprise and efficiency as the core.

This is both the meaning of the supply side and the new normal, as well as the keynote of the authority's speech.

What is the reason for the formation? That is, in the past, investment growth led to economic growth over a long period of time, resulting in the formation of more and more capacity that exceeded demand growth.

At present, all trades and professions are facing the problem of excess capacity.

In most of the economically developed provinces of the country, there is a comprehensive overcapacity caused by investment.

The country's steel industry has an excess capacity of at least 40%, and the cement industry has an excess capacity of at least 50%.

In other words, 50% of the country's cement production capacity is now in a state of shutdown because there is no demand for cement produced, and the surplus capacity in the coal industry is 30%-40%.

However, it is not because there is no demand, but too much supply.

Why is there so much supply? Because in the past, investment driven capacity was too strong.

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What needs to be done? The main reason for the reform of supply side is to clear the excess supply.

Hebei has issued a hard target this year to cut hundreds of millions of tons of steel production capacity.

Who should be reduced? Private iron and steel enterprises in Hebei are worrying now, because the closure of iron and steel works is likely to close them first.

Private enterprises, because of the better cost control, do not mess up projects. Although the steel industry is gloomy, some private enterprises are still making money.

However, if the tasks of closing factories are down, I am afraid they will be closed first.

Therefore, it should be emphasized that although the policy of supply side reform is right, it is not proper to eliminate excess capacity by means of government administration.

Of course, we can not lead the elimination in accordance with ownership division. Instead, we should use market means: who is inefficient and who loses, and who will close.

The other reason why the supply side first needs to clear excess capacity is, if

Products can not be sold, backlogs become inventory, bank loans can not be repaid, not only the banks will be dragged down, but will even bring down the banking system.

The lessons of the global financial crisis in 2008 are still in sight. Once the banking system is out of order, it is a matter of great importance.

However, clearing over a decade of excess capacity will not be completed in a short time.

Therefore, the tail of the L type will be very long.

This is also the first meaning of supply side reform: eliminating inefficient capacity on the supply side and taking a long time.

In addition, behind the rapid development of infrastructure construction, it is likely that the proceeds will not be sufficient to repay bank interest.

Some local governments have already seen difficulties in paying debts or even unable to repay them.

Cleaning up the excess supply side, on the one hand is capacity, on the other hand is bank loans.

Closing factories means not only laid off workers need to be rehoused, but once the business is closed, it means that loans owed to banks need to be dealt with.

The quality of banks' assets has deteriorated. Closing a factory will probably cost billions or billions of loans.

Tianjin closes Bohai iron and steel factory, involving debt 200 billion yuan, involving 100 banks.

But if we do not take this step, the next high-speed economic growth will not come.

Therefore, it is not difficult to imagine the difficulty of reform.