2023: Open Chinese QE……

The year 2022 has become a thing of the past.

The Chinese economy in the past year was not very good – to be precise, it was very bad. Apart from the “nucleic acid economy”, the real GDP growth rate is likely to be the worst in 45 years, except for the 2020 epidemic.

Of course, don’t doubt that the Chinese economy is still growing in nominal GDP terms. In fact, since mankind entered the era of credit money, according to Arabic figures, almost no country has had negative economic growth, what Venezuela, Zimbabwe, the annual economic growth rate in local currency terms, easily thousands, tens of thousands of percent.

China’s economy, why so bad?

The answer is: consumption cannot.

As we all know, the Chinese economy has the so-called “troika”, which refers to investment, consumption and net exports, respectively, in the past 20 years, investment has been half of China’s economic growth, only in the past five years began to decline, while the contribution of net exports after 2008 is gradually declining, currently at about 20%. Only the contribution of consumption, which has gradually grown since 2008 and recovered to pre-2008 levels……

The growth momentum of the contribution of consumption to China’s economic growth was not even interrupted by the outbreak of the epidemic in 2020, but, to no one’s surprise, it was interrupted in 2022.

The graph below shows the monthly value of China’s total retail sales of consumer goods over the past 10 years, noting that the data to look at, are the November and December data at the end of each year – in nominal money terms for that year, comparing the year-on-year growth in December 2020 was 4.6%, while in November 2022 (December data not yet out), the figure is -5.9%.

Let’s put it this way, based on the year-end growth rate, China’s consumption figures for 2022 –

Is the worst year for China since the reform and opening up of the country, when statistics were available!

The contribution of consumption to China’s economic growth in 2022 is also bound to be negative (the above is calculated in nominal terms, not taking into account inflation). With consumption as a drag, although China’s GDP growth rate in 2022 is not yet available, I can basically conclude that the real GDP growth rate in 2022 will not exceed 3%, or even be close to the 2020 level.

Why is consumption so bad?

Of course, the people are afraid to spend money under the epidemic!

Not only are they afraid to spend money, but they are also desperately trying to save money!

Earlier I had written an article.

“Why did the people’s savings increase so much this year?”

The article discusses this issue in detail.

At that time, someone else said that the reason why the Chinese people’s deposits have increased so much is because of the epidemic control, except for online shopping and live shopping, people cannot spend money, only save money.

 

The implication of this statement was that as long as China’s epidemic control was released, the savings of Chinese residents would soon be converted into consumption again, and the entire economic system would be up and running again, with horses running, stocks speculating and dancing……

 

This situation, most typical of the United States, during the epidemic in 2020-2021, the U.S. residents’ savings skyrocketed, partly because the epidemic seal caused Americans to “consume without a door”, on the other hand, the federal government gave out a lot of money to residents, resulting in the accumulation of a huge amount of excess savings in the residential sector, and this excess This excess savings, from mid-2020 to now, has supported the American people’s consumption enthusiasm all the way to the present ……

Unfortunately, casually taking this logic to China is going to make a big mistake!

According to the analysis of Zhu He, deputy director of the research department of the China Financial Forty Forum (CF40), even if the epidemic is completely liberalized and sealed, China’s consumption figures will not return to what he calls the “declining propensity to consume”.

“The main reason for the increased demand for precautionary savings is the change in long-term income expectations in the residential sector amid increased economic uncertainty and the need to maintain higher levels of savings than in the past to deal with all types of uncertainty.”

Where did Americans’ savings, which increase substantially in 2020 and 2021, come from?

It’s the U.S. government’s over-subsidization of the residential sector!

According to the U.S. federal government’s subsidies to low- and middle-income people in the wake of the outbreak, the average American adult, even if he or she doesn’t go to work at all, will receive at least $30,000 extra (mostly in excess unemployment benefits of $600 per week and two direct government payments) – that’s how Americans’ savings skyrocketed The truth.

Such a surge in savings, when the epidemic sealed the release of control, the U.S. public, of course, is spilling money, retaliatory consumption, the economy, of course, immediately up.

In contrast, how did the Chinese people’s savings come about?

It is under the epidemic, all consumption compression, from the teeth of a dime a dime to save out!

How can the people dare to spend the money saved in this situation in 2023?

Further, according to the previous statement, if the people’s consumption does not rise, will the Chinese economy in 2023 be doomed to remain in recession and unable to break the game?

Not exactly!

I have an idea here that will not completely solve the problem of precautionary savings for the Chinese people, but it will certainly allow the Chinese economy to grow in 2023 without any problems.

To put it simply, at present, China’s epidemic containment has been completely liberalized, and the central bank and the Ministry of Finance now need to do things to give the people confidence to consume, to avoid them to over-consider the economic uncertainty and significantly increase “precautionary savings”.

The specific idea is to learn from the United States, Canada, the United Kingdom, France, Germany, Australia, Italy, Spain, Japan and South Korea after the outbreak of the epidemic, to give money to the people to alleviate the huge psychological pressure of their “precautionary savings”, not a lot of money, but at least to make them dare to spend a little bit of money, but also to believe in the country, so that they will earn more money in the future. Will let them earn more money in the future……

As for why Japan didn’t achieve rapid economic growth (average growth rate), it’s because of its super-aging society, and without the handout, Japan’s economic numbers in 2021 will be super ugly.

According to my thinking, in the first quarter of 2023, China should implement for the first time a real “flooding”, the Buddha’s light, as long as the Chinese people, do not engage in any differentiation, and do not care about men and women, rich, poor, beautiful and ugly, and do not need any additional conditions, only with ID cards, each person sent 2,000-3,000 Yuan.

If such a policy can really be implemented, there is no need to worry about China’s economic growth in 2023; I believe China’s GDP growth rate in 2023 can easily surpass that of South Korea in 2021.

China currently has a population of 1.4 billion people, and at a disbursement of 3,000 RMB per person, this would bring an additional fiscal expenditure of 4.2 trillion RMB, but I personally believe that under the current state of China’s economy, spending this 4.2 trillion RMB would definitely bring economic growth benefits far exceeding 4.2 trillion RMB, and in the long run, tax effects far exceeding 4.2 trillion RMB.

By comparison, the U.S. has given out over $7 trillion to the lower and middle class and businesses in 2020-2021, but its GDP in 2021, compared to 2019, only grew by $2 trillion – so I dare to conclude that China will definitely be far, far more efficient at giving out money in terms of economic growth than the U.S. . . .

Some may say, China’s finances are tight, where is the money to give to everyone?

Isn’t the U.S. government’s finances tight, with the U.S. federal government owing $23 trillion at the end of 2019, with a debt/GDP of more than 100%, and where is the money coming from to hand out to the American people in 2020 and 2021?

The economic growth scenario for 2022 suggests that the traditional, economic development model that relies on increasing credit to the corporate sector (mainly state-owned enterprises) and the residential sector, with an emphasis on investment and exports and a disregard for residential consumption, needs a major adjustment!

Taking the opportunity of the liberalization of the epidemic in 2023, the central government should issue 4.2 trillion Yuan of special treasury bonds, implement a Chinese QE, and then distribute the money to the public to change their excessive “precautionary savings” expectations, so that they dare to spend and consume, which is precisely a major opportunity to change China’s past economic growth model.

 

 

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