Abstract In the short term, the economic downturn will continue in 2016, as the story of destocking has not yet been completed, and the story of capacity is just beginning. As the most popular industry in the past few years, real estate is also the industry with the most pressure on inventory and production capacity. It can be used as the bottom of the observation economy...
In the short term, the economic downturn will continue in 2016, as the story of destocking has not yet been completed, and the story of capacity is just beginning. As the most popular industry in the past few years, real estate is also the industry with the greatest pressure on inventory and production capacity. It can be used as a weather vane to observe the bottom of the economy: If real estate investment does not bottom out, don't say that the economy is stabilizing. 
Is there a miracle of youth and youth in history? No. According to the statistics of the World Growth and Development Committee and the Zhang Xiaojing teacher of the Chinese Academy of Social Sciences, there are only 13 economies that have maintained a growth rate of more than 7% for 25 consecutive years after World War II, eliminating Botswana, Malta, Oman, Hong Kong, Singapore, etc. In the micro-economy, only the eight economies of China, Brazil, Indonesia, Japan, South Korea, Malaysia, Taiwan, and Thailand have created so-called high-growth miracles. But unfortunately, except for China, these economies have fallen into the altar without exception in the fourth decade of high growth. The difference is only the extent of the decline, and some are more intense. For example, Japan has suddenly slowed down to 5%. It is relatively mild, for example, South Korea still maintains a growth rate of around 6%.
Will the Chinese economy be young or even rejuvenate? Of course not. Today we don't talk about theory, just tell stories.
The first story is called aging.
Suppose there are two economies, the bacon country and the fresh meat country. There are 100 elderly people in the bacon country. There are 100 young people in the fresh meat country. The fresh meat country produces 200 kilograms of grain a year, and eats 100 kilograms of its own. The remaining 100 pounds (the savings rate is 50%, Jin can be regarded as the constant price unit of GDP.) The old people in the bacon country do not have the production capacity themselves, but there is still a demand for 100 kilograms of grain every year. They can only buy the food vouchers they saved in the past and buy 100 pounds each year from the fresh meat country. food. So the question is, how much GDP has been created by the bacon and fresh meat countries? Is it 100 pounds per country? of course not. The GDP of fresh meat countries is 200, while the GDP of bacon countries is minus 100.
Some people say that the elderly in the bacon country do not have 100 kilograms of consumption? Is consumption not counted as GDP? This is a misunderstanding of the concept of GDP. The full name of GDP is gross domestic product, and there are two key words: one is domestic (Domestic), and the other is production. Only products produced in the country are counted as domestic GDP, whether it is consumed domestically or abroad, and products produced in foreign countries can only be counted as foreign GDP, even if it is consumed in the country, it cannot be counted as domestic GDP. Therefore, 100 kg of food produced in fresh meat countries and consumed by bacon countries can only be regarded as the GDP of fresh meat countries, but not as the GDP of bacon countries, and because bacon countries consume 100 net imports, their GDP is negative. .
China used to be a typical “fresh meat countryâ€. What we lack most is “fresh meatâ€, which is the working age population of 15-64 years old. Between 2003 and 2013, the population of “fresh meat†in China continued to increase at a rate of nearly 10 million a year, and the cumulative increase in the decade was more than 90 million, exceeding the labor force in Japan’s heyday. In 2013, China's labor force reached a record 10.06 billion, equivalent to 74% of the total population, compared with 60% in Japan. With such a demographic structure, the economic growth rate naturally leads to N streets of bacon countries like Japan.
However, after 2013, China is slowly changing from a “fresh meat country†to a “bacon countryâ€, and the economic slowdown that follows is a natural phenomenon that is difficult to reverse. In 2014, China’s labor force population decreased by 1.04 million for the first time. In particular, the “small fresh meat†of 15-24 years old decreased the fastest, and it decreased by nearly 10 million in the past three years. Looking back, the pressure to reduce the net labor force in the next five years will only increase, especially starting in 2017. The 10-59-year-old population is the working-age population after five years. The population of this age group has also entered a net decrease since 2012 (the cumulative reduction of 13.45 million in the past three years), which means a net decrease in labor in the next five years. It will increase significantly, especially from 2017 (+5 years in 2012). The main reason for the decline in the working-age population is that the impact of family planning begins to appear, leading to a decline in the newly formed young labor force. After the 1990s, China’s new population fell sharply. After 20 years, it naturally caused the working population in its 20s to begin to decline. Although the government has liberalized the second child, it is difficult to reverse the decline in fertility rate from the effect of the second year of the second child alone.
Speaking of this, the conclusion of the first story is very clear: as the labor force declines and the proportion of the elderly population rises, China will gradually shift from producers to consumers, and the economic growth rate will naturally decline, and the economic structure will also There will be natural adjustments: the investment rate declines, the consumption rate rises, the industrial ratio declines, and the service industry accounts for an increase (such as those who help the meat country to import food).
The second story is called destocking.
Or just the story of the fresh meat country and the bacon country, let's change the assumption. In the fresh meat country, 100 young people still produce 200 kilograms of food. They eat 100 pounds themselves, but the difference is that 50 of the old people in the bacon country suddenly disappeared. Now there are only 50 old people, which means they Now only 50 pounds of grain is needed, so after the fresh meat country sells 50 pounds to the bacon country, there are still 50 pounds left. What is the GDP of the two countries this year? The bacon country has imported 50 less and the GDP has become negative 50. The GDP of the fresh meat country is still 200, but the structure has changed. In the past, it consumed 100+ net exports of 100, and now it has become consumption 100+ net export 50+ stock 50.
Time comes to the second year. Assuming that the bacon country is still net import of 50 kg, the fresh meat country counts, this year, the demand of the bacon country and the bacon country add up to 150 kg, plus 50 kg last year, so only 100 kg is enough this year. Therefore, the fresh meat country let its 50 young people rest for a year, and the food countries they need are temporarily loaned to them, and will be repaid after participating in production next year. The remaining 50 young people are involved in production, producing a total of 100 kilograms of food, all for the consumption of their own residents. The 50 kg of food in stock is sold to the bacon country.
This process is called destocking. What impact does this have on GDP? The GDP of the bacon country has not changed, while the GDP of the fresh meat country has fallen to 100. That is to say, although the two countries add up to 150 pounds, 50 of them are the stocks left in the first year. This part has already been included in GDP in the first year and cannot be counted as the second year of GDP.
China is now a "fresh meat country" with an inventory pressure. As long as this package cannot be lost, don't talk about the short-term economic bottom. The thief first smashed the king, and the inventory has been seen from the fastest growing industry in the past decade. This industry is undoubtedly real estate.
After 2013, the aging of the population has led to a sharp drop in demand for real estate. In the past few years, real estate investment has been continuously completed, and oversupply has caused stocks to pile up. At present, the area for sale has reached a record 660 million square meters, and the area under construction is more than 5 billion square meters. According to the standard of more than 30 square meters per capita, this almost overdrew the demand of 200 million people. The result is obvious: even though real estate sales are not bad this year, no other manufacturer dares to continue to produce houses, so real estate investment has fallen sharply and is now lower than sales growth. However, due to the continuous completion of projects started in the past few years, this year's real estate not only did not go to inventory, but passively added inventory. The destocking pressure in 2016 is larger than this year, and the real probability of real estate investment is the first negative growth in history.
Real estate is just a microcosm of China's destocking pressure. The pillar industries of the past ten years are carrying the burden of inventory. A considerable part of the industry has not even begun to go to stock, the most typical of which is the traditional mid-to-upstream industry. From the upstream point of view, there has been no substantial progress in destocking. The storage and sales of raw materials represented by coal is 0.50 in October, which is the highest level since the crisis. It has been on the rise since August, and there are still about 20 million tons of surplus production per month. In the middle of the tour, the total deposit and sales of steel has dropped significantly since the middle of the year, mainly benefiting from the improvement in real estate sales, which has led to new construction, but it is still at a higher level. In terms of inventory breakdown, steel traders’ inventory has been from the past five years. 14.75 million tons fell to about 10 million tons, but steel mill stocks continue to increase, destocking has not yet begun.
Speaking of this, the conclusion of the second story is also: there is no real progress in the destocking of the upstream, middle and lower reaches of the industry. At least in 2016, China will not be able to afford the burden of inventory. Even if the total demand will not deteriorate, we must Destocking and production cuts will inevitably lead to the economy continuing to decline. Then the question came: Why did the fresh meat country go to stock in one year and we are still struggling? This is the third story we are going to talk about.
The third story is called de-capacity.
In the second story, 50 young people in the fresh meat country did not work, but the fresh meat country still lent them 50 pounds of food because they expected the 50 old people in the third year of the bacon country to come back again. Individuals can start working again. But the question is, if the 50th old man still didn't come back in the third year?
Assuming the news of the bacon country in the third year, the 50 elderly people in the country have confirmed that they have gone to another world called paradise, and will never return. This means that the demand of the bacon country will never return to 100 pounds. How will the fresh meat country react after hearing the news? Will young people who have no work tasks be "discontinued"? of course not. The normal response should be to quit the idle young people forever, the process is to go to capacity. If the decline in demand is short-term (for example, the 50 missing old people in the second story are back again), then there is no need to go to the production capacity to go to the stock, only a temporary shutdown. And if the decline in demand is long-term (for example, in the third story, 50 old people will disappear forever), then destocking must be accompanied by de-capacity, in which the output of fresh meat countries (GDP) naturally declines.
Simply put, inventory changes = new production (supply) - market sales (demand), when demand is constant or down, if you do not reduce capacity, inventory will accelerate. The reason why China's inventory has not been degraded in recent years, the core reason is that the capacity has not been reduced in the case of shrinking demand, and even some are still expanding. In the early years, it may be because the company still has illusions, thinking that the missing demand will gradually come back. Later, because of the two rounds of policy stimulus in 2010 and 2012, the demand side did show signs of short-term upswing, and the capacity has also expanded again. But when demand is reinstated, more capacity and less demand push inventory to the sky.
Take the typical steel industry as an example. In 2014, China's crude steel output reached 800 million tons, accounting for almost half of the world. Subsequent crude steel production in the United States, Japan, India, and South Korea is only 10%, 13%, 9%, and 11% of China's, and the population of these countries is only 23%, 9%, and 4% of China's respectively. % and 95%, GDP is equivalent to China's 168%, 44%, 14% and 20%. In other words, under the same population and GDP levels, China's steel output far exceeds the international average, and a considerable part of it comes from excess capacity that should have been removed.
Why has the demand been so bad, and the capacity has not been able to go? This is the difference between reality and hypothesis. Fresh meat countries can clean up excess capacity at will, but in reality it is impossible to be so casual, especially under China's special national conditions. If you don't say it, take my hometown. You have to say that the Laigang Group (the largest local company) has been shut down. First, 40,000 employees disagree, and then the local government does not agree. After all, it is the first in the city every year. A large taxpayer, in the end many outsiders do not agree, after all, many relatives and friends are in it.
The conclusion of the third story seems a bit pessimistic: China's overcapacity is still very serious, but in China's special national conditions, de-capacity faces many real obstacles. This leads to a very long cycle of de-capacity, and the corresponding destocking and economic downturn cycles will also lengthen. Then the question is coming. Is there any way to get rid of this dilemma? This is the problem to be explained in the next two stories.
The fourth story is called global rebalancing.
Assume that the situation in the previous two years has not changed, but the situation in the third year has changed slightly. Although the 50 elderly people who have disappeared have confirmed to go to heaven, the bacon country has newly moved 50 elderly people. In this way, the demand of the bacon country has returned to 100 kg, and the stock of fresh meat countries has been digested in the previous year. The GDP of the fresh meat country will be restored to 200 kg in the third year, of which 100 kg will be consumed by itself. Jin is exported to the bacon country. Why can fresh meat countries achieve recovery without going to capacity? Very simple, because of the new demand of 50 pounds from the sky.
This story tells us that solving overcapacity is not just about shutting down production capacity, but also finding new external demand to digest excess capacity. In the late 1990s, the Chinese economy was able to quickly get rid of overcapacity. In addition to the de-capacity measures of Premier Zhu Rongji at the time, there was another important reason for the explosive growth of exports. Why did it suddenly erupt? Because we joined the WTO in 2001, we have entered many new markets at once. These markets are equivalent to the 50 newcomers in the bacon country.
But the reality is that exports in recent years have been worse year after year, and 2015 has been negative growth so far. Looking back, the Chinese economy is not likely to eat excess capacity by external demand. In the past, we were able to find many new “bacon meat countriesâ€, but now the new market is basically saturated, and the stock market is facing the threat of global rebalancing. On the one hand, the threat from emerging economies, China's aging and labor market rigidity (labor can not withdraw) led to rising labor costs, basic advantages have been basically lost, labor costs in Southeast Asia, Africa and other regions are much lower than ours. On the other hand, it is a threat from developed economies. Although the labor cost in Japan, the United States and other developed countries is several times that of ours, if we consider financing costs, logistics costs and tax costs, and then consider the technical gap, our advantages are also Gradually shrinking. This has provided a new opportunity for the developed economies that are in deep recession, so even European and American countries have begun to focus on supporting manufacturing exports. TPP is also good, TTIP is also a global rebalancing weapon. Although China also has its own weapons, such as the Belt and Road and RCEP, but at most it can only be a tie, it is difficult to have a big gain.
The conclusion of the fourth story is also clear: under the pressure of global rebalancing, it is difficult for China to digest excess capacity by exploiting a new “bacon country†as it did in the late 1990s. Then the problem has come. Apart from relying on external demand, is there any other way out for capacity? This is the fifth story we are going to talk about.
The fifth story is called reform and innovation.
Assume that the third year of the bacon country still confirms that 50 old people will never return, so the total demand of the two countries adds up to only 150 pounds. If there were no other changes, the fresh meat country would reduce the output to 150 kilograms, causing the economy to decline, while the 25 most lazy young people were in a state of nothing to do. It is reasonable to say that the fresh meat country should expel these 25 people forever (because it has been confirmed that demand will not rebound again), but now the leader of the fresh meat country has made a bold decision: not to expel the 25 young people for the time being, and As long as they can find a way to make up for the disappearing 50 kg demand, they will still let them participate in production, but if they can't, they will become victims of capacity as in the previous story. As a result, the 25 people who were so lazy to be active suddenly became active and began to find ways to create new demands. This is to force reform.
Huang Tian pays off, and these 25 people really came up with a way. They found that the weather in fresh meat countries is getting colder and colder. Everyone has the need to warm up. So they propose to produce 50 kilograms of grain and turn it into fuel for everyone to burn and warm. This is innovation and transformation. The benefits of innovation and transformation are obvious: the output of fresh meat countries can be restored to 200 kg, of which 50 kg is sold to the bacon country, 100 kg of fresh meat is eaten by itself, and another 50 kg is converted into fuel for heating. Everyone has eaten food and lived a warmer day, and the level of social welfare has increased dramatically.
China is also like the fresh meat country. Apart from creating new demands through reform and transformation, there is no other way. However, China’s current system and technical level cannot afford this responsibility. On the surface, China seems to be a big innovation country. According to OECD statistics, the absolute amount of R&D spending in China has exceeded that of Japan, and the ratio of GDP has risen to 2.1%, which is almost the same as the average of 2.4% in OECD countries, exceeding the average of 1.9% in the EU28. Our number of patents and the number of R&D personnel are also the highest in the world.
But in fact, China is only an innovation power with “quantityâ€, not an innovation power with “qualityâ€. What is lacking now is not "people" and "money", but a truly valuable outcome. Internationally, it is generally believed that the number of patents in the three parties can more accurately measure the level of innovation in a country, and China lags far behind the major developed countries in this indicator. According to OECD statistics, China's three-party patents account for only 3.3% of the world's total. Japan, the United States, Germany, South Korea and France are 9 times, 8.2 times, 3.1 times, 1.8 times and 1.4 times, respectively, and they spend only R&D expenditures. 48%, 136%, 30%, 20%, and 16% in China. The number of patents is similar to that of the UK, while the UK has a population of only 60 million and R&D expenditures are only 12% of ours.
Why did we spend more people and money and did not exchange the corresponding results? This involves the system. As the previous story puts it, the 25 young people are struggling because they have sufficient incentives: if innovation succeeds, they can get the food they need to survive, and if the innovation fails, they can only shoot ass. Leave people. Therefore, in order to innovate and transform, we must first reform. For China, the biggest problem at present is that a large number of scientific research personnel are tied to the system of civil servants or public institutions. When there are more and more work, even when there are risks, and no risk, who still has thoughts? To innovate? To be innovative, we must focus on the power of the market and the enterprise. This is no exception.
Final guess
When we connect all the stories together, we will find the following conclusions:
(1) In the long run, the bottom of the economic growth rate must not be 7%, because the story of aging has just begun, especially after 2017, the pressure on the labor force to decline will increase significantly. From international experience, the growth center of the next decade will move down to 6% or even 5%.
(2) In the short term, the economic downturn will continue in 2016, because the story of destocking has not yet been finished, and the story of capacity is just beginning. As the most popular industry in the past few years, real estate is also the industry with the greatest pressure on inventory and production capacity. It can be used as a weather vane to observe the bottom of the economy: If real estate investment does not bottom out, don't say that the economy is stabilizing.
(3) The reason why de-capacity is slower than that of the 1990s is because the story of globalization has become a global rebalancing. The threat from emerging economies and developed economies has made China’s exports back to the enemy, and it is difficult to digest excess capacity by external demand. The capacity output under the Belt and Road strategy can only be hedged and it is difficult to reverse.
(4) External demand is not expected, and production capacity cannot be cleared under social resistance. In the future, China will have only one path to de-capacity: reform and innovation. Reform is the foundation of innovation. If reform cannot be used to activate people's potential, innovation cannot be discussed.
(5) China's economy in the next decade will be a race for population aging and reform and innovation. If the former is faster, China's growth center may fall to 5% like Japan, and if the latter is faster, China's growth center It may be maintained at 6% or more like South Korea. (The author of this article: Macro Researcher of Minsheng Securities Research Institute.)
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