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The "2024 China FOF Summit" was successfully held in Beijing from July 27 to 28, 2024. As a high-level event in China's FOF industry, this summit was hosted by the FOF Branch of the China Association for International Science and Technology Promotion and organized by the FOF Research Center (www.china-fof.com, the same below). More than 300 representatives from government departments, industry associations, domestic mainstream FOFs, insurance asset management and first-class investment institutions gathered together to offer advice and suggestions for China's FOF industry.

At the meeting, Li Daokui, Dean of the Institute of Chinese Economic Thought and Practice at Tsinghua University, delivered a speech entitled "Strengthening confidence in developing the capital market and promoting the healthy interaction between the macroeconomy and the capital market". The Fund of Funds Research Center compiled the full text of the speech for reference and exchange among industry insiders. The following is the full text of the speech:

Regarding the important development direction of parent funds, we should first discuss a relatively basic core issue:The capital market is not doing wellThe capital market is an important exit scenario for parent funds. Currently, the entire fund industry, including parent funds, is in a somewhat depressed mood.

I met a fellow Hunanese yesterday.He said that the capital market should just stop working. I strongly disagree with this. I strongly disagree. The capital market must be developed unswervingly.. Because the capital market is an important destination for all types of investment, including parent fund investment, not to mention that the capital market is a barometer of China's economy. Although this barometer may not be very accurate, it is better to have one more barometer than one less. Otherwise, how can we judge whether the work we have done and the reforms we have carried out are good? Whether they have been implemented in place? How can we judge the success or failure of economic development and reform measures?I emphasize that we cannot completely link the achievements of reform with the performance of the capital market.Not to mention, we have been engaged in the capital market for more than 30 years, and generally speaking, we have made some achievements. Although our scale has dropped for two or three years, it is still more than 70 trillion, ranking at least in the top five in the world. We also have a large number of listed companies, from new energy batteries to complete vehicles, including artificial intelligence, which are contributing to all industries in our country.

What is the problem? Why is the capital market not doing well? My colleagues have expressed their views before, and my views do not conflict with theirs.President Wu Xiaoqiu said before that our rule of law and basic system are not well established. I totally agree.But there is one thing that people don’t talk about enough, or even don’t talk about, and even ignore the basic facts:Generally speaking, the macroeconomic environment has not yet fully warmed up, so how can we expect the capital market to advance rapidly?? I just said that the capital market is a barometer of economic performance, not the other way around.

I think that when the current capital market is not performing well, we cannot completely deny it., we should find a direct handle, that is the macro-economy, and promote its recovery as soon as possible.After the macro-economy recovers, I firmly believe that our capital market will also recover.So why didn’t the macro economy pick up? According to data released by the National Bureau of Statistics, the GDP in the first quarter grew by 5.3% year-on-year.The tertiary industryGrowth of 5.0%, these figures are very good. But let's take a closer look at the more detailed data and indicators.GDPCompared with the first quarter of 2023, the growth rate is less than 4%, only 3.97%, and the first half of the year barely reached 4%. This is the total economic activity counted on June 30 in the first half of the year. According to current calculations, the growth rate is only a little more than 4% compared with the end of June 2023. 3.9% and 4% of nominal GDP are definitely inconsistent with the expectations of the people.Since the reform and opening up, our nominal GDP has rarely seen such a low growth rate.No wonder all industries feel bad, no wonder many entrepreneurs are not enthusiastic about investment, no wonder prices are falling, the industrial product ex-factory index has been negative for 21 consecutive months, no wonder the market is not good enough, demand is not strong enough, no wonder the wages of many people and government workers have been reduced.

With the macro economy cooling down, it is difficult to invest in the capital marketI still stick to my point of view: To promote reform and deepen reform, the best situation is when the economy is relatively warm, or even a little bit hot. In this case, it is easier to promote reform. But it is not easy to carry out reform when the economy is very tight. Comprehensive reform will affect some people's interests, and there will always be some problems of interest compensation.

Why is our macro-economy so cold?

The development pattern of China's economy should be said to be mainly driven by "local government + enterprises + residents". Local governments have been the largest economic spenders in China's economy over the past few decades, including daily expenses, police, courts, government workers need to pay wages, and medical insurance. Broadly speaking, local government expenditures account for 40% of GDP. In normal years, local governments borrow part of the funds from the financial system: 40% of which is used for basic urban construction; the second part is used for residents' consumption, accounting for 37%. This part is growing slowly now, but it is still growing positively. The third part is used for corporate investment and corporate expansion, accounting for more than 20%. In addition, imports and exports are of course important, but they account for a small proportion, only 2% or 3%.

at present,The main reason for the cooling of the macro economy is the heavy debts borne by local governments., among which the larger number basically reaches 1:1. This number includes implicit and explicit broad local debts, and local finances are simply unable to repay the interest.The pressure to repay the debt is now reflected in various tax collection methods, including retroactive tax collection of private enterprises., borrowing money from the tax to tighten their belts, and then use the money to return to investors to deleverage. This deleveraging has reduced the total expenditure of local governments, which was originally 40% of GDP in the first half of the year, by nearly 4 percentage points, and the 4 percentage point contraction does not include the multiplier effect. Can the economy be hot all of a sudden? Can it be warm? Can the capital market have a positive performance? It's difficult.

This is the crux of the problem. It is not exports, not entirely household consumption, and not entirely real estate. It will take 1-2 years for real estate to recover. The above mentioned things are the most direct impact.The current situation is that local governments are trying every possible way to repay their debts, and banking institutions have a lot of cash but cannot lend it out.。

The solution includes two things: The first and most fundamental point is that we must admit that local government debt is very high and that it is impossible for local governments to pay off all debts in the short term. Therefore, we cannot deleverage too quickly. The central government has a large number of assets with commercial returns as backup guarantees, and can issue a large number of central government bonds. Currently, the national debt accounts for 28% of GDP, which is almost the lowest proportion in the world. In addition, a large number of central government assets can be replaced. The central government should not match or build the national debt issued by the central government. Through fund replacement,Asset RestructuringWaiting for it to be exchanged through reform.

It is suggested that local governments should be cautious in issuing bonds in the future. In principle, the Chinese economy will not need to build so many infrastructure projects. If this can be done, local governments will stop shrinking too quickly, and the overall macroeconomic temperature will gradually warm up.

There is another thing. I stand 100% on the side of the country. People have not dared to buy houses in recent years, and the price of houses has dropped after they bought them. What should we do? Give them a hand. In addition, many young people have not dared to consume for so many years. They want to buy things but cannot afford them. They must have accumulated a lot of desires and are planting grass but dare not buy things because they think they are too expensive. Can we give consumption subsidies during the National Day Golden Week? If you spend 1,000 yuan, the central government will give you a 200 yuan consumption voucher. Of course, there is a limit for each person, and the subsidy is 20%. The Shanghai Municipal Government has done this before. With such subsidies, young people use this opportunity to realize their wishes that they have been planting grass for many years. In this way, the social consumption atmosphere will be boosted in the short term to promote the development of related enterprises, and the blood circulation will be accelerated in this way. In this way, the central government's fiscal and tax revenue will also increase in the future. It is a turnover tax, and the money spent is actually not much.

In general, the mother fund is very important, and the capital market is the foundation. We must find ways to improve the capital market, so as to do a good job in the mother fund business, speed up the implementation of various measures to comprehensively deepen reform, have new ideas for reform, and let our macro-economy recover as soon as possible.