On August 16, the China Wealth Management 50 Forum (CWM50) held a closed-door seminar on “The Feasibility and Countermeasures of Building a ‘Dual Circulation System’ under the Current Situation”. Long Guoqiang, Deputy Director of the Development Research Center of the State Council, Yu Yongding, Member of the Chinese Academy of Social Sciences, Zhao Changwen, Minister of the Industry Department of the Development Research Center of the State Council, Huang Yiping, Vice President of the National Development Research Institute of Peking University, Bi Jiyao, Vice President of the Macroeconomic Research Institute of the National Development and Reform Commission, Ren Zeping, Chief Economist of Evergrande Group, expert on the connotation and essence of the domestic cycle and the domestic and international dual cycle, the opportunities and challenges of building a dual cycle strategic layout, and the key points and paths for promoting reform and opening up through dual cycles. etc. were discussed and exchanged.
As for how to build a “dual circulation”, Ren Zeping, chief economist and vice president of Evergrande Group, believes that first, it is recommended to vigorously develop “new infrastructure”. New infrastructure will help expand domestic demand in the short term, and increase effective supply in the long run. Improve the industrial chain , will be one of the main starting points of “dual circulation”; the future of new economy, new technology, new industry and new infrastructure has great uncertainty, it is recommended to leave the choice to enterprises and the market; second, it is recommended to fully liberalize The third is to promote the reform of the capital market, from indirect financing to direct financing.
The following is the full text of the speech
The proposal of the “dual circulation” strategy comes from internal and external challenges
There are two backgrounds for the “dual cycle”. One is external. The Sino-US trade frictions are long-term and severe, which has led to the reversal of the globalization process, fragmentation, regionalization, and even the risk of decoupling between China and the United States. The other is an internal challenge. Due to the accelerated aging of the population and the gradual disappearance of the demographic dividend, the challenge of shifting the growth rate and converting old and new kinetic energy is brought about. This is the biggest “grey rhino” internally.
Faced with these two challenges, the central government proposed the concept of “dual circulation”. My understanding of this concept can be summed up in one sentence, “increase domestic demand internally and improve the security of the industrial chain externally”. On this point of understanding, there is relatively much consensus in the industry.
What are the main starting points for constructing and implementing the “dual circulation” strategy?
First, new infrastructure is the main driver of the “dual circulation”. Recently, I have been advocating new infrastructure in China. Why is new infrastructure said to be the main driver of the “dual circulation”? Because the new infrastructure will help expand domestic demand in the short term, and the effect of stabilizing growth and employment is very obvious. Since the continuous recovery of domestic infrastructure in March, in July this year, the investment in infrastructure has increased by more than 8%, which has contributed greatly to the continuous recovery of China’s economy and the speed of recovery that is ahead of the world.
And more importantly, because it will increase effective supply in the long run, cultivate new growth points of China’s economy, and cultivate new economy, new technology and new industries , so compared to pure consumption, new infrastructure is more conducive to growth in the long run Effective supply, improve the industrial chain.
This time, the industry discussion on new infrastructure has moved from academic discussion to the national strategic level, and was later adopted by the central government and written into the “Government Work Report”.
The “two new and one heavy” mentioned in the “Government Work Report” , the first is the construction of new infrastructure, including 5G, next-generation information technology, artificial intelligence, data centers, new energy vehicles, charging piles, etc. I think the current macro research needs to be combined with the medium and micro.
The huge changes in future application scenarios and business models brought about by new infrastructure are very amazing, and the economic output value of these changes is in the trillions . For example, 5G and a new generation of information technology will bring about rapid technological progress and large-scale commercial applications such as Internet of Vehicles, driverless driving, shared travel, and online conference and office. For example, new energy vehicles, Tesla’s production is less than 1/10 of Toyota’s, but its market value has become the world’s largest car company, people’s original mileage anxiety and safety anxiety are rapidly being resolved by technological progress, the global The automobile industry is facing a century of great changes.
China does have the advantages of the national system. I think the advantages of the national system should be given more support for new infrastructure in terms of system, taxation, and financial business environment, and other aspects should be left to the market and enterprises. Because of the new economy, new technology, new industry, and new infrastructure, they will have great uncertainty in the future. It may be better to leave it to enterprises and the market to choose and judge.
Second, I have been calling for the full liberalization of fertility, which is a very important starting point for expanding domestic demand and increasing effective supply. In modern economic conditions, population is no longer a burden, but an important productive force. The study of population is very important in the field of macroeconomics, and will become more important in the future, but it is an area that is largely neglected.
The research team I organized has been doing some basic research in recent years, including international comparisons, challenges and responses to population aging in other countries in the past century. To put it simply, China’s “baby boom” refers to the group of people who were born in a concentrated manner from 1962 to 1976. China’s past high growth was caused by this group of people when they were young. The golden 20 years of China’s real estate are this group. When people get married and have children, they want to buy a house, and what we mean by an aging population is that these people want to retire . People born in 1962 are now 58 years old, people born in 1976 are now 44 years old, and the mainstream Chinese labor force is now concentrated between 44 and 58 years old. This means that the arrival of China’s population aging is accelerating, and China’s population Dividends are disappearing quickly.
I suggest that fertility must be fully liberalized as soon as possible, and the demand for this policy is imminent . Looking at European countries, including Japan, once they enter the stage of population aging, their potential economic growth rate will inevitably decline. There will be fewer producers and more consumers, which must mean that the government will incur high debt . Many economic structures in China in the future will undergo important changes due to the aging of the population. After entering the stage of population aging, innovation will be dimmed.
At present, the most innovative places in the world are China and the United States, which is related to the structure of the population. In 2019, 80% of the new economic unicorn companies are in the United States and China. The United States relies on immigration, and China relies on the previous baby boomers. However, countries with aging populations such as Japan and Europe have very little vitality in the new economy.
I think liberalizing fertility will help expand domestic demand in China’s economy and increase effective supply in the long run. It is of great significance to the “dual circulation” and has a long-term nature. I think this is one of the largest “grey rhinos” in China.
Third, speed up the reform and opening of the financial system. The “dual circulation” mentioned above is more of a consideration from the perspectives of expanding domestic demand, industrial chain security, and the real economy, and from both sides of supply and demand. Finance is the engine of the modern economy, just as Wall Street and Silicon Valley are mutually successful. The reason why the United States is strong can be analyzed from the economic level. The financial efficiency represented by Wall Street and the technological innovation represented by Silicon Valley are mutually accomplished.
The new round of opening, upgrading and reform of China’s future financial system, the most important thing is the transformation from indirect financing to direct financing, to support the future new economy, new technology, new industry and new infrastructure. This is easy to say, but very difficult to implement in practice. For example, the registration system, information disclosure and severe penalties are the three pillars of the so-called new round of capital market system reform, which means the upgrading of supervision and the shift of the focus of supervision, which means that the entire financial system will become more open and more Vigorous, more precise and direct financial support should be given to new economies, new technologies, and new industries.
The original text originated from the WeChat public account (Zeping Macro): Ren Zeping: New infrastructure and liberalization of fertility are important starting points for the implementation of the “dual circulation” strategy
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