The U Reversal Of China'S Economy Depends On Solving Three Basic Problems.

Although China's economy appeared "small spring" in the first quarter, it was too early to say that "13th Five-Year" was a perfect start.

If the debt level of enterprises is too high, the supporting mechanism of new urbanization, the depreciation of the RMB under the US dollar interest rate increase and the further decline of A shares may be triggered by the departure of funds, it is difficult for the Chinese economy to achieve the U reversal.

Can China's economy reverse U? Can China's economy reverse U?

Correspondingly, the industrial producer price index (PPI) in March has a slight increase over the past few decades compared with February. The growth rate of PPI also narrowed from -4.3% -4.9% to -4.3% in February.

The growth rate of industrial added value rose from 6.1% in 2015 to 6.8% in March this year.

The recovery of this series of indicators, as well as the proportion of consumption and the rising proportion of labor income in the past five or six years, all show that China's economy has achieved a good start in the first quarter of 13th Five-Year.

Then, does this mean that the "13th Five-Year" achieved a perfect start?

Whether we can see the bottom and start the U recovery? Our analysis shows that it is too early to conclude.

In fact, there are still three basic problems in China's economy. If these three problems can not be well solved, the U reversal of Chinese economy will be difficult to achieve.

First, the high debt problem.

The core of China's economic "de leverage" lies in the fact that the debt level of enterprises must be reduced.

At present, the debt level of Chinese enterprises is at an all-time high, reaching about 150% of GDP, ranking among the leading economies in the world and reaching the level before Japan's massive recession in 1990s.

The debt level of enterprises must be reduced. Why? Because such a high debt ratio indicates that a large number of enterprises are insolvent and need to be reorganized.

IMF's recent report shows that the bad loans of China's banking sector reached 7% of GDP, while the main source of non-performing loans is corporate bonds.

If the average repayment period of non-performing loans is 3 years, this means that the total amount of social financing that is equivalent to about 2.3% of GDP (i.e. 7% cents divided by 3) needs to be filled every year.

We know that China's annual total social financing is equivalent to about 25% of GDP.

That is to say, if we do not effectively deal with bad debts, 9% of the annual social financing will not be used rationally, and it will lose 0.6% of the GDP growth rate, which is extremely unfavorable for China's economic growth.

This problem can not be solved. We can not say that China's economy is out of the current adjustment dilemma.

Second, the new growth point is still not consolidated.

Service industry has become

The new growth point, however, needs to be emphasized that the fundamental driving force for China's economic growth is new urbanization. New urbanization is an important and fundamental way to solve the problem of real estate inventory, and it is also the foundation for maintaining the sustained growth of China's economy.

At present, in the process of new urbanization, the mechanism of migrant workers' settlement in cities and their families to the city has not yet been improved.

This problem can not be solved, and the driving force of China's economic growth has no way out.

Third, the US dollar raises interest rates and the uncertainty of the international monetary environment.

In the first quarter of this year, due to the slowdown in the US interest rate hike, the global dollar shortage was temporarily resolved, and the pressure on RMB devaluation and capital outflow slowed down significantly, and China's foreign exchange reserves did not decline.

This provides a rare breathing space for China's economic adjustment, but it can not be said that this pattern will be maintained throughout the year and in the next one to two years.

In fact, the pace of US dollar rate hike will definitely accelerate in the next period of time, and the pressure of RMB depreciation and capital leaving will return. This may trigger a further decline in China's stock market, which is always a major risk point for China's economic adjustment.

The pressure of deleveraging is much smaller than that of 1999. In the first place, we should see that the pressure of China's economic restructuring is much greater than that of 1999.

After that it's much smaller.

At that time, many commercial banks were on the verge of bankruptcy, and today they are still profitable.

According to official statistics, as of the end of 2015, the provision coverage of NPL in China's banking sector reached 180%, and the commercial banks' bad rate was 1.67%. Thus, the provision was equivalent to 3% of bank assets, while bank assets amounted to 230% of GDP, which means that the reserves of banks accounted for 7% of GDP.

According to the above IMF calculation, the non-performing loans of commercial banks reach 7% of GDP. Therefore, the provision of banks is more than enough to cope with 7% of GDP's non-performing loans.

Second, the financial situation of the government is far better than that of 1999.

Although government debt accounts for nearly 50% of GDP (including about 17% of central government debt and 30% of local government debt), it should be noted that most governments at all levels have a fiscal surplus, which is mainly reflected in various deposits deposited in the financial system. For example, the central government's fiscal deposit accounts for about 7% of GDP's share, which is different from the situation in 1999.

Last but not least, the scale of unemployment and social impact caused by this round of bankruptcy reorganization is far less than that of 1999.

The overall size of the unemployed is small, with an upper limit of about 5 million.

The situation of the unemployed is also different from that of the laid off workers in 1999. Most of them are not iron rice bowls traditionally employed by state-owned enterprises, but mainly employed by contract workers.

If the subsidy per person is 100 thousand yuan for retraining, the total amount will be 500 billion yuan, equivalent to 3.5% of the national annual revenue and 0.7% of GDP, so the government can afford it.

The total number of laid-off workers reached 20 million last year.

Moreover, in recent years, China has an average of about 13000000 new jobs per year, so it should be able to cope with 5 million unemployment.

Based on the above analysis, we can get a basic conclusion that the core of China's economic structural adjustment is deleveraging, and the economic conditions of deleveraging are quite sufficient. The key is political determination and enforcement.