How To Establish The New Normal Of China's Economy?

Although China's economy is facing some difficulties and pressures, only by correctly analyzing the problems, controlling and eliminating risks, giving priority to reform and implementing the reform measures in a firm and orderly way, we will be able to overcome difficulties, improve the quality of growth, optimize the structure and increase efficiency, and establish a new normal economic situation in China.

In recent years, most people have realized that China's high economic growth, low efficiency, and the old normal which are supported by a large amount of investment are no longer sustainable.

It is bound to pition to the "new normal".

So what are the characteristics of the new normal? There are many different understandings.

Generally speaking, it is more consistent on two points: first, GDP is changing from high speed growth to medium to high speed growth or even medium speed growth; second, the mode of economic development shifts from extensive growth driven by investment to intensive growth driven by innovation driven by investment.

It should be noted that the above two are very different.

In the first place, the decline of economic growth is already an indisputable fact, and a consensus between the two sides has also been achieved.

As for the second point, the optimization of the economic structure, the improvement of economic efficiency and the pformation of the mode of economic development are yet to be realized.

In this way, we are faced with a problem: if the efficiency of the decline of the growth rate is not improved, many economic and social contradictions that are covered by the expansion of GDP will be exposed, and it will cause a slowdown and the economic and social contradictions will be aggravated.

Therefore, it is not a normal situation that we want to see only growth slowdown and no increase in quality.

On the contrary, if we can increase the quality of growth while slowing down growth, we can reduce the impact of growth and deceleration by optimizing the structure and improving efficiency, and even enable people to get more benefits at medium speed growth.

Therefore, a medium speed growth with higher efficiency is the new normal for our desire.

From 2009 onwards, for some reason, when analyzing the trend of China's macro-economy, there is a popular theory that the speed of economic growth depends on the demand strength of the "three carriages", such as consumption, investment and net exports.

According to this theory, the weak growth of China's economy is caused by three insufficient demands, such as consumption, investment and net exports.

As long as the demand can be extended to enough level, growth can be brought to a higher level.

Wu Jinglian pointed out that the "three carriages" analysis method is the pformation of Keynes's short term analysis framework.

The more reliable way to study long-term growth trends is to estimate the three factors that drive economic growth, namely, labor input, capital input and production efficiency.

With the analysis method of "three carriages", the final conclusion is to carry out strong stimulation, pay more money and invest more.

But for some time, what economics says is "

The effect of diminishing rule has been fully manifested.

The only way to deal with economic slowdown and structural imbalance is to improve the so-called Solow allowance, that is, the contribution of technological progress and efficiency improvement to economic growth, that is to say, we need to optimize the structure and promote innovation so as to realize the pformation from extensive development to intensive development.

Wang Xiaolu analysis pointed out that Keynes theory actually has a hypothetical premise, assuming that consumption, investment and net exports are completely substitutable among the three.

But consumption in Keynes's view is a variable that can not be regulated by the government. Net exports are not decided by the government without considering trade protection, exchange rate and price intervention.

Therefore, the government can only replace consumption by stimulating investment.

However, many experiences and lessons at home and abroad show that the substitution between investment demand and consumption demand is incomplete.

Within an economy, there is a certain structural balance between consumption demand and investment demand, and it should be relatively stable in the medium and long term.

If the government continues to use monetary or fiscal stimulus policies to expand investment demand instead of consumer demand, it may lead to excessive investment and structural imbalance at a certain stage, making economic growth more difficult.

Aoki Masahiko emphasized that factors such as consumption, investment, exports and so called "three carriages" should be more important in the medium and long term supply side.

Under the new normal, the impact of total factor productivity (TFP) growth on per capita GDP growth will be more important than ever.

TFP needs to be realized through "new combination" with various production factors, which requires a good institutional environment.

A general consensus is that the policy that needs to be taken in the current circumstances should focus on promoting reform under the condition that measures are taken to ensure that there is no systemic risk.

Because only by comprehensively deepening reform and building a good social and economic system can we optimize the structure and pformation mode, and establish a new normal consensus that is supported by higher efficiency.

This is also the inherent requirement of carrying out the spirit of the the fifth Plenary Session of the 18th CPC Central Committee communiqu and achieving the goal of the 13th Five-Year plan.

I think this analysis has major drawbacks.

First, it uses the wrong analytical framework.

Obviously, "

Analytical method is the pformation of Keynes's short term analysis framework.

As you know, Keynes doctrine holds that the intensity of demand determines the scale of supply, so the total output is equal to the total social demand of four demands, namely, consumption, investment, fiscal deficit and net exports.

But even Keynes's economics only uses this theoretical framework to discuss short-term economic problems, and it is clearly the wrong analytical framework to analyze long-term trends.

Second, the policy conclusions drawn from this analysis are also problematic.

Because the demand for consumption, investment and export is large. In the final analysis, it is determined by some objective factors and does not depend on people's wishes.

Taking import and export as an example, it ultimately depends on the overall international economic structure.

In the past, China had a large number of net exports to the developed countries. First, because of the high consumption and high welfare orientation, the savings rate of the developed countries was very low, and there was a big gap between savings and investment, which needs to be filled by net imports from developing countries. Second, it is because China's low cost competitiveness is very strong that it can get a bigger cake in the net imports of developed countries.

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Since then, the developed countries have increased their savings rate by deleveraging.

Thus, according to the "double gap model" of economics, the possibility of net exports of developing countries will be smaller as long as the gap between savings and investment in developed countries becomes smaller.

The savings rate of the United States will fluctuate, but I do not think it is possible to go back to the level before the crisis.

In addition, with the improvement of the wage level of Chinese laborers, the low cost advantage of Chinese products is also weakening, so the share of export cake will also be reduced.

In addition, the increase of consumption demand is not based on people's wishes.

For example, some people say that urbanization can increase consumption demand, because farmers' consumption demand will be greatly improved after entering the city, so the demand for consumption will increase rapidly as long as urbanization is accelerated.

In fact, this is a mixture of consumption demand and consumption desire.

In economic analysis, demand means demand with purchasing power and demand backed by money.

Therefore, the premise of increasing the consumption demand of labourers is to increase their income.

The primary way to increase workers' income is to develop production and improve efficiency.

Even if the government can subsidize it, it is impossible to make the people richer.

In this way, every time there is a drop in speed, we use the "three carriages" analysis method to calculate, and the final conclusion is to carry out strong stimulation, pay more bills and invest more.

In 2009, 4 trillion yuan investment (two years) and 10 trillion yuan loans were used to stimulate. Although the growth rate has been picked up for a short time, negative consequences such as excessive currency growth and increased liabilities have also occurred at the same time and become the burden of long-term digestion.

After 2012, many investment measures were used to stimulate the economy. However, the positive effect became worse and worse, and the negative effect became bigger and bigger. This made many people realize that this is not a good way.