After bidding farewell to the period of rapid economic growth, the Chinese economy has entered a long-term downward adjustment period. The official statement is that it has shifted from "high-speed growth" to "medium-high-speed growth", and Anbound uses the "pyramid model" to describe the Chinese economy. The long-term slowdown in China's economic growth rate will decline at a rate of 1% every ten years, forming a stage of economic slowdown.
The corresponding economic policies should also adapt to the long-term slowdown of the Chinese economy; the ideal situation is that if the internal and external environments of the Chinese economy do not change drastically, China will complete the adjustment of the economic structure, the transformation of the economic growth model, and the switching of the old and new economic growth in a moderate and smooth slowdown. If there are internal and external sudden changes, the pace of China's economic transformation will be disrupted, and economic policies will need to be adjusted.
The current Chinese economy is facing such pressure of adjustment. The following factors have put pressures on the Chinese economy: the current reforms are limited, and the policy structure remains unchanged; China faces a major dilemma in geopolitics and cannot obtain new external market space; China's debt accumulation is becoming more and more serious; economic market shrinkage will produce severe macroeconomic pressures; innovations such as "internet+" will not stimulate China's macro-economy, and related capital investment may fail; the escalation of U.S.-China trade frictions have seriously worsened China's external economic environment. To systematically alleviate the problems faced by the Chinese economy, a large-scale economic stimulus policy will be introduced, that is, the "major release" policy as it is commonly known.
However, at present, there is the fear for the "RMB 4 trillion stimulus plan" in Chinese macro policy decisions, and all easing policies should be protected from being labeled as "major release". Anbound observes that there are two main concerns for the policy department. First, policy adjustments cannot conflict with the Central Government's established policy of addressing overcapacity, reducing inventory, deleveraging, lowering costs, and bolstering areas of weakness; it should also not exacerbate the debt crisis and financial risks. Second, it cannot be in conflict with what is raised by the top leadership. The top leadership's attitude is that macroeconomic policy adjustments should not engage in strong stimulus policies that would have an economy-wide impact. Therefore, avoiding such policies has become a taboo for current economic policy adjustment.
Indeed, politics are much emphasized in China. For China's financial trends, "major release" is a very unpleasant vocabulary. In fact, this vocabulary can only be used in a low-key manner. Even so, there are still many people who disagree with this. Facing various opinions, calmly analyzing the statistics might be the best way.
China's "RMB 4 trillion" policy was issued after the 2008 financial crisis. In 2007, China's GDP growth rate was 14.2%, which was in a double-digit high growth state. Since then, the financial crisis broke out in 2008, and it has swept the world from Wall Street. In the third quarter of 2008, China's GDP growth rate fell to 9.5%, and in the fourth quarter, it fell again to 6.8%. By 2009, the economic situation continued to deteriorate. In the first quarter of 2009, China's economic growth rate dropped further to 6.4%. Under such situation, China's economic decision-making department could introduce the "RMB 4 trillion" economic stimulus plan. As for the quantitative easing (QE) policy adopted by different countries in the future, objectively speaking, they refer to the adjustment of China's economic policies. China at the time was like an effective laboratory; without this effective laboratory, many countries did not dare to use this method on a large scale.
Judging from the analysis of these statistics, although China's economy is huge and has maintained rapid growth in the long run, once the economic growth rate drops to a certain extent, the fragility of the Chinese economic system will emerge. Anbound's macro research team point out that it is basically certain that the fragility of the Chinese economic system will be revealed when the economic growth rate drops to around 6%. As analyzed by Mr. Chen Gong, Anbound's chief researcher, once this moment is reached, various small-scale economic solutions, such as the "window guidance" program that Japan has already launched in the last century, will not play any real role. That would be the moment when China's large-scale economic stimulus plan is introduced.
The growth of the Chinese economy began to slow down in the second half of 2018; a number of economic statistics from August showed this trend. First, the growth rate of industrial statistics has fallen. From January to August, the national industrial added value increased by 6.5% year-on-year, and the growth rate dropped by 0.1% from January to July. Second, investment statistics continued to decline. From January to August, the national fixed asset investment (excluding farmers) was RMB 415.158 billion, a year-on-year increase of 5.3%, and the growth rate dropped by 0.2% from January to July. Among them, the growth rate of state-owned enterprises investment in January-August was only 1.1%. Third, consumption growth has slipped to a single-digit level. From January to August, the total retail sales of consumer goods increased by 9.3% year-on-year. Fourth, the rise in consumer prices has accelerated. Fifth, import and export statistics began to be affected by trade frictions. The net export of the whole year may be negative for economic growth. There are many signs that the Chinese economic system is tightening, and the real "tough days" will begin and continue until next year or even the year after next year. If the economic growth rate approaches 6%, the pressure on economic policy adjustment will increase.
Final Analysis Conclusion:
Under several internal and external disadvantages, the Chinese economy began to shrink. Anbound believes that the fragility of China's economic system will be exposed when the economic growth rate drops to 6%. By then, China will have to launch a large-scale stimulus policy.
