Debt repayment must be considered in overcapacity exporting

As The government should be adapted to the “new normality” in terms of slow-down Chinese economy and not be panic. If the government still relies on high investment to promote economic development now, Chinese economy might be plunged into great depression. No country can keep high speed growth all the time, and it is not so easy for China to maintain 30 years of growth. Even though the growth is 7%, it is actually rather high. It is not a bad thing for China to enter into medium-speed growth with improved people’s living standard and massive overcapacity.

The purpose for overseas investment including “one road and one belt” is exporting domestic overcapacity, but the motivation is the descending Chinese economy. There is an unavoidable problem for China’s overseas investment, that is: debt repayment. Why don’t the West and Central Asian countries invest infrastructure? The reason is that their fiscal deficit is several times of their GDP, so the government can not make ends meet. Where will China’s high speed rail be constructed and how to get back the money? We must take them into account.

There exists a great difference between China’s current economic situation and Japan in 1960s and 1970s. Upon economic rise, Japan invested a lot in foreign countries, including a lot of technical innovation. But China relies on overseas technology to develop its own industry and has no innovative technology to invest overseas. It should be noted that it is not the consumers to pay the high speed rail bill, but the government. Many governments even can not pay the salaries, so how to pay the high speed rail for them?

Currently, what should we solve is innovation. However, it is not the job of the government, but the enterprises. But the problem is: many Chinese enterprises are suffering serious loss now, so how to innovate? Worse still, industry investment does not make money in China. Many people have money to invest real estate and stock market, but no one invests enterprises, so how to innovate? In China’s current situation, we should release the monetary policy and cut down taxes. Only when the enterprises come back to life, innovation can be possible.

Now China’s economy has walked to the strategic pass of transition. In the future, we should rely on the service sector to promote economy, especially financial service sector, which may be prospective economic engine.

It’s well known that China’s total stock market value has surpassed Japan and ranks second in the world. However, our securitization ratio is very low, and one-yuan GDP is less than one-yuan of securities. While in America, 1-dollar GDP is equivalent to 10 dollars of securities. There’s very big gap. The GDP created by America’s financial industry accounts for about 21% of the total value, while the number is only a little more than 7% in China. So, there is still a large room for China’s economic growth.

Published in Talent | 2015-1-4