Where is domestic demand difficult to become the source of economic growth?

Abstract For China's economic growth rate, Premier Li Keqiang has long stated clearly that 7.5% is the bottom line is purely misunderstood. Higher or lower is OK. The most important thing is whether employment has increased or whether income has increased. So, for the just announced third quarter of this year, 7.3% of G...
For China's economic growth rate, Premier Li Keqiang has long stated clearly that 7.5% is the bottom line is purely misunderstood. Higher or lower is OK. The most important thing is whether employment has increased or whether income has increased. Therefore, for the just announced GDP growth rate of 7.3% in the third quarter of this year, Premier Li Keqiang believes that in general, the economic operation is still in a reasonable range, and there have been some positive and profound trend changes. The structural optimization led by the service industry and the emergence of new business forms are becoming more apparent. The new development momentum that has been promoted by reforms such as decentralization and decentralization has accelerated growth. Indicators such as employment, energy conservation and consumption reduction were better than expected. Overall, the government is full of confidence in the current Chinese economy.

However, the published data also shows that the government has always hoped to boost domestic demand to promote long-term economic development, but the results are not significant, because the total retail sales in September only increased by 11.6%, down from 11.9% in August. Therefore, not only does the analysis have doubts about whether China can achieve 7.5% economic growth this year, and some foreign research institutions have predicted that China's economic growth in the next decade will likely slow down significantly.

First, the International Monetary Fund (IMF) and the World Bank have lowered their forecasts for future economic growth in China. Recently, the World Large Enterprise Research Association predicted that the average annual growth rate of China's economy will slow down to 5.5% from 2015 to 2019. From 2020 to 2025, China's annual GDP growth rate will further drop to 3.9%. However, in the 30 years before 2011, China's average annual GDP growth rate was 10.2%, the highest sustained economic growth rate in the world's major economies since World War II. The Chinese government plans to grow at a rate of 7% by 2020. The report of the World Large Enterprise Research Association is far below the planning of the Chinese government. The report believes that the reason for China's rapid economic growth in the future is that China's production efficiency is declining, in part because infrastructure and real estate investment can no longer achieve previous returns. At the same time, government officials have not given more market power. Incentives and motivations also curb innovation.

Leland Miller, chairman of the China Beige Book (CBB), which uses the Fed Beige Book as a template to provide investors with guidance for the Chinese economy, also believes that if China does not implement large-scale Economic stimulus plans will not achieve economic growth targets, but excessive economic stimulus plans will intensify the misallocation of funds, making more funds into bad debts and other non-economic uses, and will cause substantial damage to the Chinese economic system. The Chinese government has realized this problem and is slowing economic growth and adjusting its economic structure. This means that the Chinese economy is a long-term deceleration process. In other words, deceleration is the trend of the future Chinese economy.

The question now is: At what level is China's economic growth rate in the future? Is it 7.5% or 7%, or is it uncertain about specific numerical indicators? Where is the driving force for China’s economic growth in the future? Is the past “real estate” economy continuing, or is it to rely on the development of manufacturing to increase the income of residents and increase the consumption power of residents, or how to truly cultivate the consumption power of domestic residents?

And further pondering, GDP growth indicators have long been unimportant. Because the GDP indicator not only has the problem of the size of the statistics, but also the quality of the content or quality. For example, in the early years, China's GDP growth mainly relied on real estate, while Japan's GDP growth mainly relied on high-tech products. China's GDP growth is no higher, and it cannot be compared with Japan's GDP growth. In addition, China's economic growth rate in the first 30 years of 2011 is more than 10% per year, but the GDP growth of developed countries in Europe and America is basically between 1% and 2%. However, at present, nearly 100 million people in China still live below the poverty line, but in developed countries in Europe and America, the general public can basically live a life without food and clothing. For example, in Canada, low-income families with annual income of less than 20,000 Canadian dollars are guaranteed by basic food, clothing, housing and transportation.

Therefore, for the future economic growth of China, it is not necessary to design an absolute specific numerical indicator, and this will be taken as the government performance evaluation standard, but it depends on what the economic growth content is, whether it is efficient, and whether it improves the lives of the most people. Whether the level of welfare can allow all citizens to share the fruits of economic growth.

As for the current lack of domestic economic growth, the downward pressure on economic growth is very important. The most important issue should be two aspects: First, the economic system reform is lagging behind, which seriously restricts the stimulation of various intrinsic potentials in the market, especially the government to the market. The problem of excessive intervention and participation has not been resolved. Therefore, breaking the heavy resistance and accelerating the economic system reform is the biggest driving force for economic growth. On the other hand, China should withdraw from the “real estate” economy as soon as possible because this model has already gone. At the end. China's real estate market can only become a driving force for sustained and steady economic growth in the future if it is re-started, repositioned, and returned to market rules. In any case, the housing consumption demand of 1.3 billion people is infinite.

Indeed, the government is abandoning the previous growth model of over-reliance on infrastructure investment and real estate investment to stimulate the economy. It is more hoping to stimulate domestic demand and use domestic demand as a driving force for future economic growth. For example, the State Council’s proposed national health and accelerated sports industry development. In 2025, the industry scale reached 5 trillion yuan, and the development of culture and tourism industry, environmental protection and electric vehicle industry, information network industry and so on.

With China's population of more than 1.3 billion, the domestic demand market is infinite. The problem is that the spending power of the residents needs to be improved. If we can solve this problem fundamentally, by deepening reforms, let the residents share the reform dividend, and the income will continue to increase, then the days when domestic demand will truly become the driving force for domestic economic growth will not be far behind.

(The author is a researcher at the Institute of Finance, Chinese Academy of Social Sciences)

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