According to China’s National Bureau of Statistics (NBS), preliminary calculations show that GDP in the first quarter was 2,493.1 billion yuan, up 18.3% year-on-year at comparable prices.
GDP rebounded with a vengeance, while liquidity clearly turned around. 2021, entering the deleveraging phase.
I Housing is also a gray rhino
Real and financial, whose prices rise quickly, is nothing more than how much money flows into the corresponding areas. More money, things are expensive.
M2 is the total amount of money; GDP is the quantity, CPI is the price, the two together is the amount of money flowing into the entity; the total amount minus the inflow into the entity (M2-CPI-GDP), is the amount of money flowing into the financial.
The secret of the rise and fall of house prices and stock prices in China
The black values in the graph represent money flowing into the financial sector, while the red values represent money flowing out of the financial sector (author’s blog)
The red value means that from a macro observation, financial asset prices may fall. For the stock market, the feedback will be faster and the formula can basically be seen as a synchronization indicator; for the housing market the feedback will be slower and the formula is a leading indicator.
China Banking Regulatory Commission Chairman Guo Shuqing has repeatedly stated that “real estate is the biggest gray rhinoceros in terms of financial risks in China at this stage”. But some cities in 2020, property prices have become “crazy rhinoceros”. The reason behind this is that the formula is very high in 2020.
In the first quarter of 2021, the company’s negative value set a historical record and the stock price has fallen.
The leading indicators of housing risk, are already present.
Starting in the first quarter of 2021, the property gray rhino meets deleveraging head-on.
Two people also gray rhinoceros
On April 14, the central bank working paper “on the understanding of China’s demographic transition and the response to the policy” on the microblogging hot sale. The paper argues that “to recognize that China’s population form has reversed, the gray rhinoceros is getting closer and closer”.
The demographic issue is also considered a gray rhino. The paper argues that the main conflict facing China has changed from population expansion to the imminent disappearance of the demographic dividend and the approaching crisis of aging and childlessness.
What is the demographic dividend? For society, the demographic dividend is the contribution of population to economic growth. In terms of the competitive relationship between population and capital, there is a demographic dividend when there are more people and less capital, and when capital is invested everywhere, there are more jobs to pull economic growth.
Point: It can also be understood that the fiercer the investment, the faster the competitive relationship between population and capital deteriorates, and the faster the demographic dividend disappears. China’s demographic dividend is disappearing very rapidly, and aging is deteriorating much faster than in Europe and America.
For the government, the demographic dividend is the revenue that the government can get from the population. The government gains whether it collects taxes or sells land, it eats the difference between population and capital.
When the population is large and young, and the capital is relatively too small, the capital gain is high, investment is more, driving employment is more, the government gain is obviously improved, but the government pension expenditure is not more, the government benefits from the population dividend; when the capital increases relative to the population, the capital gain becomes worse, investment has decreased, driving employment is less, the government gain improvement space decreases, and the population dividend gradually disappears; when the capital is relatively saturated, the capital When capital is relatively saturated, capital gains are very poor, employment is not increasing but decreasing, it is difficult for the government to eat the difference, but fiscal expenditures are rising due to various factors (such as fixed expenditures for civil service salaries are difficult to decline, social transfer payments are still growing due to the aging population, counter-cyclical against the economic downturn, etc.), then the government may also have to pay back, and the demographic dividend becomes a demographic drag.
When there is a surplus of capital relative to population, the population problem becomes a gray rhino for the government, and the demographic dividend becomes a negative asset.
III Possible solutions?
On how to deal with aging and fewer children, the central bank paper suggests four points.
1) Liberalize and encourage childbirth.
2) Increase savings and investment. The central bank paper argues, “Aging means net consumption, and fewer children means no output; liberalizing and encouraging childbirth are savings in labor; savings and investment, savings in capital and output capacity; improving the pension system, savings in wealth; and education and technological progress, savings in productivity.” It is recommended to pay attention to savings and investment. We should be highly vigilant and prevent the trend of saving rate falling too fast; we should recognize that consumption is never the source of growth; we should pay attention to investment, expand domestic investment in the middle and west, and expand “going out”, especially investment in Asia, Africa and Latin America.
3) Reform pensions. Either lower pension standards, or delay retirement.
4) Promote education and science and technology. Propose that housing prices are too high, forcing young people away, how to talk about innovation.
Let’s explore on the above four points.
1) As far as the relationship between capital and population is concerned, liberalizing childbirth can improve the competitive relationship between population and capital, increase capital profitability, and thus improve employment and turn population back into dividends. But at the end of the first quarter, China’s social financing stock had reached 294.55 trillion, and debt capital is also capital. Capital is expanding too fast and in too large a quantity, and no matter how to encourage childbirth, it is impossible for the population growth rate to catch up with the debt growth rate. (And the population problem is a very long-term problem, in the short term, to improve the relationship between capital and population also depends on deleveraging). Capital and population competition continues to deteriorate, the return on real investment is very poor, excess capital can only be idle arbitrage, capital idle arbitrage not only does not improve employment opportunities, but also erode the real income, compressing the survival of the population, resulting in children can not afford to raise, the formation of less children (real investment can at least provide some more jobs to raise children). It can be understood that the more rapid the development of financial deepening, the more powerful the degree of child reduction will be. The United States, Europe, Japan and South Korea will basically start to enter the stage of less children after the completion of industrialization (when financial deepening begins).
2) Whether it is consumption or savings, it is the flow of real goods behind it, not paper money. The real goods have a shelf life or loss, for example, the shelf life of food is only one or two years. If the food is not finished (consumption is not finished), you can plant the food into the ground (it becomes an investment), and the food will become more (investment income). But in any case, the purpose of growing food is always to eat. If the purpose is not to eat, but always grow food always invest, in the end is an ant guarding a warehouse of food, what is the value, except for the expiration of scrap, why invest? Investment must be for the purpose of consumption. Government land sales are equal to forced residents to save, China’s investment for decades have reached nearly half of GDP. There is a serious surplus of investment, and a lot of investment is just waiting to be scrapped, without a trace of value. The central bank’s argument of “recognizing that consumption is never a source of growth” is a serious challenge to economic ethics.
3) Reforming pensions. Who does the cost?
4) Housing prices are too high? Dare to blast?
Four gray rhinoceros encounter deleveraging
Pros and cons always depend on each other, and many things have two-way effects.
A resource dividend can become a resource curse. The property dividend can become a property gray rhino. The demographic dividend can become a demographic gray rhino.
The leveraging phase is all about dividends; the deleveraging phase is all about gray rhinos.
In the leveraging phase, the property dividend raises investment returns, drives employment, raises the demographic dividend, the demographic dividend drives the property dividend, and the dividends feed back to each other in an upward cycle.
Investment is booming, housing prices rise, pushing up the cost of land, labor and capital, squeezing other industries and squeezing domestic demand. Then over-investment, aging strikes, investment returns deteriorate, job opportunities decrease, demographic dividend disappears, it is difficult to afford the cost of child rearing, and less children emerge.
Low real returns squeeze employment; idle capital squeezes less children; real estate squeezes resident demand; aging squeezes government spending.
Employment pressure, aging, fewer children, demand depression, pressure together appear. The pressure can only be relieved repeatedly by increasing leverage. Under the influence of repeated leveraging, the property and population problems eventually become a gray rhinoceros.
However, the effect is a two-way street, once the bar-raising switch to deleveraging, slow pressure will become pressure.
In 2021, deleveraging begins ……
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