Economic judgment is far from the reality

People used to believe the logic that it should adjust economic structure as long as China’s economy does not have much risk of a hard landing; and if it does, then keep the economic growth is the primary task.

I do not think this logic is accurate, because any government needs to keep stable economic growth at any time. What is the so-called structural adjustment? Why the economic situation can have great influence on the process of industrial structure reform? In fact, defending GDP growth and adjusting structure are man-made problems.

For economic structural adjustment, China’s governments used to take solar energy as the turning point. Then, bunch of related solar companies emerged which caused overcapacity. Solar energy industry was developed in the intersection area of Ningxia and Inner Mongolia, where solar energy cannot connect to the national power grid. How to adjust the structure without opening the market first?

Government’s goal should be very simple and straightforward — to pursue economic development — especially under current situation. Structural adjustment is a false proposition, because there is no such a power, outside of the economic system, can rectify the system.

The future slowdown of China’s economy is inevitable. Although, relatively speaking, China’s economic growth is not slow, there are still problems.

In regard of finance, exchange rate is a big problem. If exchange rate reform goes wrong, there could be turmoil in the financial sector. There’s nothing wrong to internationalize RMB, but the liberalization of RMB is definitely not the goal. Right now, the whole RMB internationalization path is correct, and should be promoted more strongly to increase the international demand to RMB. Only if the real demand of RMB is huge enough, then the whole exchange rate problem could be solved properly, otherwise it is just buncombe. And for China, the liberalization of RMB is meaningless right now.

Neither government debt nor interests rate is a problem. China’s debt constraint is totally different from those in western countries, and there is enough space for China to address it. In western countries, however, as soon as this kind of problems show up, it will immediate enter the legal process, which lead the bankruptcy of companies or residents.

Compare to western countries, China’s aging problem is not that severe, because households have taken most of the responsibility to support the elderly so that government’s fiscal burden is relatively light.

Obviously, for the real estate issue, the demand for house is overheating instead of real estate bubble. Otherwise, how can we explain the price inversion between commercial and residential real estate? Why people only invest in residential real estate instead of commercial ones?

Therefore, our judgment on China’s economy is far from the reality. The biggest problem in China is the government, and everything else is fine just as the business cycle goes.

Originally published on Talents | 2013-9-1