Xie Guozhong: Soft Landing Or Trap &Nbsp; Hard Landing Is Usually A Good Thing.

A hard landing is not necessarily a bad thing, and a soft landing is not necessarily a good thing.

A debate is brewing in the financial market to speculate whether China's economic slowdown will be a soft landing or a hard landing.

I believe that unless the pressure on RMB devaluation comes, then it will be

The soft landing is due to the soft character of China's credit system.

When borrowers are unable to repay, their assets are usually not forfeited and liquidated, and the failure to receive them is a major reason for a hard landing.

In China, both parties are generally owned by the government, so resetting loans is a natural process.

As long as money grows correspondingly, it will continue to plate into demand, and the growth of nominal GDP will be consistent with that of M2.

However, a soft landing may delay the structural adjustment needed for the new growth cycle.

The debtor survives by procrastination and hopes to get rid of the predicament through a new round of monetary easing.

So the dominant economy is always the same enterprises.

As these enterprises are inefficient, the next growth cycle is bound to lack vitality.

Only by vigorously reforming can we avoid such a fate.

Hard landing is usually a good thing.

The hard landing in Southeast Asia in 1998 showed a two digit decline in GDP and a depreciation of 30% to 50%.

But the subsequent reforms laid the foundation for the region's economic prosperity.

Without a hard landing, there will be no reform. Without reform, the economy of the whole region is certainly far from the present.

South Korea is a typical example.

South Korea comprehensively reforms its financial system to cut the black box operation between enterprise groups and banks. It is these black box operations that have led to the accumulation of non-performing loans.

Enterprise groups reduce their size and focus on main business.

Although the Korean government is still very concerned about protecting its own industries, the reform system is undoubtedly more conducive to improving efficiency.

If South Korea avoided Asia at that time

Hard landing is usually the best catalyst to promote structural reform and improve development level.

Although there are counter examples such as Thailand.

However, there are enough positive examples to make us face the hard landing.

Hard landing is usually a good buying opportunity.

Soft landing is usually not a good thing.

Since the bubble burst 20 years ago, the gradual decline of Japan's economy has led to a soft landing.

Japan has experienced the biggest bubble in human history.

As a country whose population accounts for only 2% of the world's total population, its real estate value once accounted for 40% of the total value of the world's real estate.

But the bubble did not suddenly break down. In the next 20 years, real estate prices dropped by about 7% a year, with a cumulative drop of 80%.

But there is no large-scale bankruptcy, which is a typical soft landing.

No one takes Japan's example as an example, rather, it symbolizes failure.

A soft landing is like falling from Mount Everest without fracture. It's all internal injuries.

Real estate prices have not only experienced 20 years of stagflation, but also destroyed Japan's financial and Japanese people's hopes.

After Japan's bubble burst, there should be a two digit economic downturn.

But Japan did not see major fluctuations, mainly because the government used a lot of money to fill the loopholes and rescue the private sector.

20 years later, its debt ratio reached two times that of GDP.

The backlog of debt may lead to a bigger crisis. Once it breaks out, it will prove that Japan's soft landing is only a specter of 20 years.

Japan also paid another price for a soft landing: a sustained economic downturn that could make Japan poorer again.

Japan's soft landing has turned into a vicious circle, for the following reasons:

First, real estate prices are decreasing, and the stock market is rapidly collapsing. The assets of the younger generation who can not afford real estate and hold shares are washed away.

Second, the pensions of the elderly generation who own the property are benefited by the appreciation of the yen. They control most of the wealth, and the young people can not share it with them, thus postponing the time of childbirth, resulting in a decline in population and a further downturn in the economy.

If Japan allowed the housing market to be adjusted like the stock market, Japan's population should have increased.

China avoided a hard landing in 1998.

However, structural reforms, reducing the size of the state-owned sector, promoting the reform of commercial housing, joining the WTO and speeding up infrastructure construction have laid the foundation for China to become the world's factory.

Few countries have made such a wise move before.

Since then, China's GDP has increased by two times, showing the positive impact of wise decision making.

The rapid expansion of the state sector is the root cause of China's economic problems.

Reducing money supply can slow inflation, but it can not solve the fundamental problem.

The state sector has the priority of possession of all resources, reducing the supply of money may further increase its share of resources, thereby reducing economic efficiency, but the increase in money supply will lead to inflation.

This vicious cycle may lead China to a vicious circle of low growth and high inflation.

China's difficulties lie ahead.

In the short term, soft landing is good news.

However, if the authorities postpone or refuse reform due to the pressure slowdown, the soft landing will become bad news.

China avoided such a fate through various reforms after its soft landing in 1998, and now we must make the same wise choice.

China's reform task is heavier than in 1998.

From the outside, China's share of the world economy was relatively small, and it could promote rapid growth through exports. Internally, China has abundant labor resources, undeveloped land and natural resources.

Reducing costs and liberalized FDI is a clear path to economic growth.

At present, the global economy is stagnant and resources are scarce. China has become the world's second largest economy and the largest exporter, and it is a full employment economy under the background of global economic weakness.

To maintain growth, we need to improve efficiency, while improving efficiency requires fundamentally reforming the management system.

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Investment driven development has done both good deeds and bad deeds to China's economy.

China's infrastructure is better than most developed countries.

Multinationals enjoy the first World Infrastructure in China, but only pay third of the world's labor cost.

On the other hand, investment has led to long-term overcapacity, low profitability and a weak stock market.

China's stock market is unbearable.

Believing that good economic performance will boost the stock market, hundreds of millions of people swarm into the market.

Although nominal GDP has increased 20 times over the past 20 years, investors have suffered a lot.

Other assets, such as antiques, works of art and land prices, are growing faster than GDP because of their limited supply.

Investment in the stock market turned out to be a charity that subsidized government investment.

The negative impact of investment driven development is the low profitability.

Exports will eventually increase demand for supply, so more supply will come into being, resulting in low capital returns and high GDP growth.

Western demand for China's exports is maintained by a huge credit bubble rather than income growth. The financial crisis has ended this situation.

When exports began to grow in 2009, it seemed that the balance had been restored. Behind it was the western government's high deficit spending.

Now that Western governments have cut their deficits, China's exports will continue to be weak in the next few years.

If China keeps its current mode, it will not be able to divert excessive investment through exports and eventually lead to the accumulation of bad debts.

The central government may be forced to get rid of the banking system again and again.

Way of reform

The 2008 crisis meant the end of China's investment and export oriented economy, but it also provided opportunities for China to become a world economic center by developing consumer demand and attracting investment and talent.

If China changes its mode, although it will experience short pain, its economy can catch up with the United States in 15 years.

To this end, we need to shift the consumption power from the state sector to the family sector and bring the essence of the global economy into China.

The simplest and most effective way to rebalance China's economy is to reduce taxes.

China's personal tax and consumption tax are very high even according to the standards of developed countries.

China's middle class has just risen, but the personal tax is the most progressive.

China's logistics costs are extremely high because of the various charges in the logistics process.

China has advanced infrastructure, which is conducive to the development of the economy.

But these infrastructures are built through debt financing, so the debt of China's non financial sector has reached 200% of GDP, the highest among developing countries.

High housing prices are a heavy burden on Chinese residents.

Without controlling housing prices, China's economy will become more and more unbalanced.

The acceptable price should be the after tax wage of less than two months per square meter.

To achieve this goal, China needs to reduce the average housing price by 50%, and maintain this level for several years.

The real estate price relates to the local government finance. Only when the financial problems of the local governments are solved, can the market return to normal.

Without restrictions on government spending, China's reform will not succeed.

If we reduce taxes and not cut government spending, we must levy other taxes and fees.

Every local government expenditure must be set up for hard targets and open to the public.

The total expenditure of the government, including the central and local governments and local governments, should not exceed 20% of GDP.

Because of the lack of vitality in developed countries, a large number of insight will be able to explore opportunities in emerging economies.

China has the ability to attract most of these talents.

The remuneration level of senior management in China has been comparable to that of developed countries.

China should attract about 500 thousand talents from around the world every year, like the United States, otherwise it will be difficult for them to enter the ranks of developed countries within 15 years.

In addition, China needs to adjust its national policies to encourage more foreign talents to settle down and work in China.

If reforms can be properly implemented, China will become the world's largest economy in the next 15 years.

However, if the government continues to perfunctory, stubbornly stable and above all else, China will repeat the mistakes of Japan.