news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

text: ren zeping team

introduction

1. achieving the 5% target is stressful and requires greater effort

since the beginning of the year, the economic trend has been "high at the beginning and low at the end".judging from the latest data released from june to august, the economy is declining again.，achieving the 5% target is stressful and requires greater effort.

the macro and micro perceptions are inconsistent. is the problem the macro data or the micro perceptions? on the macro level, it is the data; on the micro level, it is the joys and sorrows of many families. public policies should have more humanistic care.

the current economy is facing a complex mix of contradictions between the long-term and short-term, internal and external demand, and the transformation of new and old growth drivers, but the most important ones are insufficient domestic demand and low confidence.production is stronger than consumption, domestic demand is insufficient, prices are sluggish, and the nominal gdp growth rate is weaker than the actual one.

among the three major drivers, consumption and investment were weak, while export volume increased and prices fell.consumption is relatively weak, affected by employment and income expectations, coupled with the decline of balance sheets; infrastructure investment has declined, and real estate investment is still experiencing a significant negative growth, constrained by the slow progress of fiscal spending and the weak strength of real estate rescue efforts; exports and manufacturing investment have become the support of the current economy, but in the future they will be affected by the slowdown in the us economy, intensified trade frictions and geopolitical conflicts.

in the three major sectors, confidence among residents and businesses is low, local government land finance is declining, and non-tax revenue is increasing significantly.the working hours of the resident sector hit a new high, but the income growth rate slowed down, debt was reduced, and deposits remained at a historical high, and confidence needs to be boosted. the corporate sector traded price for volume, and the production performance was good, but there was an imbalance between supply and demand, low capacity utilization, low prices, and low corporate profits. the local government was dragged down by the decline in land finance, and the recent high growth in non-tax revenue is not a long-term solution. recently, many companies have reported that there have been a large number of fines and confiscations, and off-site law enforcement, which is rare in the past few decades. from january to july, the national non-tax revenue was 2.4 trillion, a year-on-year increase of 12%, which seriously affected the business environment and corporate confidence. it is recommended to pay close attention to it. the more it is at this time, the more we should release water to raise fish and rest with the people.

from the perspective of the five major cycles, china is currently in a transition period of bottoming out and upward in the innovation cycle, production capacity cycle, and inventory cycle, but is under downward pressure from the real estate cycle and debt cycle.china is currently at the end of the fifth cycle dominated by information technology and the beginning of the sixth cycle dominated by ai, the downward stage of the debt cycle, the mid-term landing of the real estate cycle, the preparation period for a new round of structural rise in the capacity cycle, and the transition stage from passive destocking to active inventory replenishment.

2. take the initiative and launch a new round of economic stimulus plan

the main contradiction in the current economy is not external but internal. the economy lacks endogenous momentum and faces various challenges such as the "liquidity trap", "balance sheet recession" and "debt-deflation" cycle. to get out of the negative cycle, strong external stimulation is needed.japan’s painful “three decades” of deleveraging tell us that a balance sheet recession is different from a cyclical recession, conventional policies are unlikely to be effective, and large-scale stimulus plans are needed.

the u.s. economy is quickly recovering from the epidemic. it is time to loosen monetary policy, protect the balance sheets of residents and businesses, cooperate with fiscal policy to provide strong subsidies, encourage the return of manufacturing, prosper the capital market, and boost residents' wealth. therefore, it will quickly recover from the impact of the epidemic and the balance sheets of residents and businesses will be healthy.

in the past few years, the fed's monetary policy operation level is worth learning, when it was time to stimulate the economy in 2020, it was done in one step. interest rates have been raised since 2023, but the us economy and employment have still prospered. when employment showed signs of slowing down, it was immediately announced that "the time for policy adjustment has come, and every effort will be made to support strong labor." all macro policies are not for some distant and grand goals, but for the employment and food of the people at the moment, nothing more.

at present, we need to respect the rules, follow the good advice and reflect the voice of society. from an economic perspective, the simplest and most effective way to boost confidence is a "new" round of economic stimulus, that is, through fiscal expansion, combined with monetary easing, to expand demand, drive employment and boost economic growth., boosting the confidence of residents and businesses. it has immediate effects and has been proven effective both in ancient and modern times, both in china and abroad.it is recommended to launch a large-scale economic stimulus plan led by new infrastructure.in the short term, we will expand demand and in the long term, we will create a new engine for china's economy. at the same time, we will reduce taxes and fees to reduce the burden on enterprises and residents, so that they can recuperate and strengthen their foundation.

3. china’s economy has great potential, and we look forward to reviving its strength and making the east rise and the west fall.

the three most important tasks for china's economy at present are: developing new quality productivity, promoting a soft landing of the real estate market, and boosting the confidence of private enterprises.this year's policy focuses on new productivity, which is the right direction, but the economy cannot rely on only one leg. the three major economic drivers mentioned above need to be activated to achieve rapid and stable growth. the traditional economy represented by real estate is still one of the largest pillar industries, which affects the employment of tens of millions of people and must have a soft landing. the private economy has contributed 56,789 and is the source of social vitality. it is crucial to boost the confidence of the private economy.if effective measures are taken, china's gdp in 2024 is expected to reach a full-year growth rate of about 5.0%.。

in the long run,in the past, china's economy benefited from globalization, industrialization, urbanization, and marketization. looking ahead, opportunities in these four major directions are still there, but the connotations have changed. 1) globalization: there is a lot of room for chinese companies to go overseas, and real multinational companies will be born; 2) industrialization: new quality productivity leads the further development of manufacturing, and emerging fields such as digital economy, new energy, and artificial intelligence are accelerating development. the traditional economy also needs to be digitalized and intelligently transformed and upgraded; 3) urbanization: china's current urbanization rate is 66.2%, and there are still 200 million migrant workers. the urbanization process has not yet ended; 4) marketization: there is a lot of room for development, and the business environment still needs to be optimized.

if we can respond to the call of society, launch a large-scale economic stimulus plan, and strengthen the protection of the private economy, then we can expect the "rise of the east and the decline of the west"."decline in the west" refers to the us economy's transition from overheating to recession and the decline in us dollar assets; "rise in the east" refers to the restart and recovery of china's economy, the restoration of its strength, and domestic assets once again being sought after globally.

table of contents

1 economic contradiction: insufficient domestic demand

1.1 from the perspective of the "three major drivers", the economy was high at the beginning and low at the end, and domestic demand was insufficient

1.2 from the perspective of the three major sectors, the household sector reduces debt, the corporate sector exchanges price for volume, and local government finances are under pressure

1.3 from the perspective of the five major cycles, china's triple cycle bottomed out, but the real estate cycle and debt cycle were suppressed

2 overseas variables: five major uncertainties

2.1 how can the u.s. economy recover from the impact of the epidemic?

3 policy choices: revitalization

3.1 should we stimulate the economy?

3.2 scenario-by-scenario calculation: if effective measures are taken, the annual growth rate in 2024 is expected to be around 5%

3.3 policy recommendations: restore confidence, restart real estate, and reshape finance

4. the trend of assets: “rise in the east and fall in the west” needs to be more powerful

4.1 review of major asset classes: overseas assets performed better than domestic assets

4.2 outlook for major asset classes: it is difficult to say that the united states is in recession, and china still needs strong policies

text

1 economic contradiction: insufficient domestic demand

1.1 from the perspective of the “three major drivers”, the economy was high at the beginning and low at the end, and domestic demand was insufficient

this year is similar to last year, both of which relied on policy efforts but lacked stamina, with the economy rising at the beginning and falling at the end. the difference is that in 2023, it was mainly service consumption and infrastructure investment that stabilized the economy, while since the beginning of this year, exports and manufacturing investment have become the support items for the economy.

in general, production in the economy is stronger than consumption, oversupply has led to low prices, and the nominal gdp growth rate is weaker than the actual growth rate.the economy slowed down in the second quarter, with gdp weaker than in the first quarter, and the growth rate of the secondary and tertiary industries declined. in the second quarter, gdp actually grew by 4.7% year-on-year, down 0.6 percentage points from the first quarter. in the first half of 2024, the nominal gdp growth rate was 4.0%, and the actual growth rate was 5.0%. the gdp deflator was initially calculated to be -0.9% year-on-year; the cumulative year-on-year growth rate of the secondary industry was 5.8%, and that of the tertiary industry was 4.6%.

in terms of consumption, the essence of insufficient consumption lies in income and expectations, and the balance sheets of residents are damaged; working hours are extended, while the income growth rate declines, and there is a strong desire to deleverage on the liability side; in the first half of 2024, the cumulative year-on-year growth rates of retail sales of consumer goods and services were 3.7% and 7.5%, respectively.

in terms of investment, the decline in infrastructure investment is related to the slower issuance of localized bonds and special bonds than in previous years. in the first half of 2024, the cumulative infrastructure investment was 7.7% year-on-year; the faster growth in manufacturing investment mainly came from high-tech industries and exports. in the first half of 2024, the cumulative manufacturing investment was 9.5% year-on-year.

in terms of exports, exports depend on external demand. since the beginning of this year, exports have benefited from factors such as the continued inventory replenishment in the united states and the recovery of global manufacturing, and maintained a relatively high growth rate; in the first half of 2024, cumulative exports increased by 3.6% year-on-year.

1.2 from the perspective of the three major sectors, the household sector reduces debt, the corporate sector exchanges price for volume, and local government finances are under pressure

the inconsistency between macro data and micro perceptions, and between public policies and market expectations, stems from information asymmetry between the confidence and expectations of different sectors. specifically:

household sector: consumption slowed down and confidence needs to be boosted; working hours hit a new high and income growth slowed down; debt was reduced and deposits remained at a historical high.the consumer confidence index has fallen sharply since april 2022, from 113.2 in march 2022 to 86.7 in april. since then, it has mostly been below 90, reaching 86.2 in june 2024. since the second half of 2022, residents' working hours have tended to increase, reaching a historical high in january 2024, with an average weekly working hour of 49.0 hours; in july, it was 48.7 hours/week. the growth rate of per capita disposable income has slowed down. in the second quarter, the cumulative nominal per capita disposable income was 5.4% year-on-year, down 1.1 percentage points from the same period last year.

enterprise sector: trading price for volume, good production performance, but imbalance between supply and demand, low capacity utilization, low prices, and low corporate profits. industrial production is generally good, especially in high-tech industries; since 2021, capacity utilization has been trending downward, reaching 74.9 in q2 2024; ppi has been negative for 22 consecutive months, and the profit margin in the first half of the year was 5.4%, only slightly higher than in 2013 and 2023, and lower than in other years since 2011.

local governments: there are two problems when implementing a proactive fiscal policy.first, local fiscal revenue declined, mainly due to factors such as sluggish land transactions and slowing economic growth; second, local governments are under great pressure to repay debts, which affects the allocation of funds for infrastructure projects, thereby slowing down the progress of infrastructure conversion into physical workload. in june, the national government fund budget revenue fell by -32.4% year-on-year, a further increase from the -22.2% in may; among them, the year-on-year decline in land transfer revenue widened to 35.3%, the lowest level since july 2022. in the first half of the year, national tax revenue fell by 5.6% year-on-year.

1.3 from the perspective of the five major cycles, china's triple cycle bottomed out, but the real estate cycle and debt cycle were suppressed

growth and fluctuation are the eternal themes of macroeconomic researchthe potential economic growth rate determines the long-term equilibrium trend of economic operation, and the economic cycle determines the fluctuation trend of economic operation. to understand the logic of macroeconomic operation, we must understand the power of cycles, especially the power of multiple cycles superposition.

china is currently in a transition period of bottoming out and moving upward in the innovation cycle, production capacity cycle, and inventory cycle, but the downward pressure from the real estate cycle and debt cycle means that the upward force of the cycle still needs to be waited for.

the ultra-long wave innovation cycle (also known as the kondratiev cycle) is caused by the clustering of innovation activities, which is about 50-70 years; the ultra-long wave debt cycle proposed by ray dalio is an economic cycle guided by the adjustment of residents' borrowing and lending, which is about 50-75 years; the long wave real estate cycle (also known as the kuznets cycle) is mainly caused by housing construction activities, which is about 20-40 years; the medium- and long-wave equipment investment/capacity cycle (also known as the juglar cycle) reveals the cyclical investment activities of the industry in production equipment and infrastructure, which is about 6-11 years; the medium- and short-wave inventory cycle (also known as the kitchin cycle) reveals the inventory adjustment cycle of the industrial and commercial sectors, which is about 3-4 years.

from the perspective of the kondratieff cycle, the world economy is currently at the end of the fifth cycle dominated by information technology and the beginning of the sixth cycle dominated by ai.the leading innovative technologies in the first five innovation cycles were: textile industry and steam engine technology (63 years), steel and railway technology (47 years), electrical and heavy chemical industry (56 years), automobiles and electronic computers (43 years), and information technology (34 years). as the speed of technological iteration accelerates, the duration of the innovation cycle is gradually shortening. since the 1990s, innovation in information technology has driven the prosperity of the fifth innovation cycle. when the influence of technological innovation gradually declined and high prices could not be supported by profits, the internet bubble burst, and the 2008 subprime mortgage crisis marked the end of the prosperity period and the beginning of the recession period of this round of innovation cycle. since 2020, the digital revolution led by driverless cars, artificial intelligence, the internet of things, blockchain, etc. has marked the beginning of the sixth innovation cycle.

the debt cycle is in the deleveraging stage, and moderate inflation will help moderate deleveraging.the debt cycle focuses on borrowing and spending on the consumer side, and believes that the economy has entered a recession and started deleveraging not because of declining productivity, but because of credit reduction caused by reduced demand. in recent years, with the superposition of factors such as the second half of the debt cycle, financial deleveraging, the impact of the epidemic, structural tight credit, and the ebb of broad liquidity, risks such as real estate companies, local urban investment platforms, shadow banks, and zombie companies have gradually been exposed. china is experiencing a deleveraging process due to high growth in household savings, weak loan demand, relatively low prices and asset prices, high real interest rates, and insufficient total demand. japan's "balance sheet recession" in the 1990s was a typical deflationary deleveraging. enterprises and residents focus on the problem of damaged balance sheets and shift from pursuing profit maximization to debt minimization. due to debt minimization and insufficient financing demand, market entities are insensitive to interest rate changes and are prone to fall into a "liquidity trap."

the real estate cycle is transitioning from the era of large-scale development to the era of inventory, preventing a hard landing.real estate is the mother of cycles. nine out of ten crises are caused by real estate. we have proposed an analytical framework of "real estate depends on population in the long term, land in the medium term, and finance in the short term". the real estate cycle (kuznets cycle) is driven by population in the long term, and a real estate cycle lasts about 20 years. from 1998, the first year of china's commercial housing monetization reform, to 2020, there is a big upward cycle. from 2000 to 2020, china's housing market value increased from 23 trillion yuan to 418 trillion yuan, an increase of 18.2 times, with an average annual growth of 15.6%. after 2020, the urbanization process began to slow down, the per capita housing area and housing-to-household ratio reached a very high level, and the total fertility rate continued to decline. these trends marked the end of the real estate development cycle. the real estate market entered a downward period with high inventory, high leverage, and high housing prices, and experienced continuous pain. china's current real estate cycle is in the late stage of a soft landing, and the policy environment is close to the most relaxed stage in 2014. however, the severity of the situation is the most serious since the housing reform in 1998, which has seriously dragged down china's economy, employment, local finance and finance, and suppressed the upward momentum of other cycles.

large-scale equipment upgrades may usher in a new round of capacity expansion cycle in china.capacity adjustment is mainly triggered by the adjustment of labor and capital, which depends on the economic growth prospects and is also affected by countercyclical policies related to equipment replacement. china has experienced five rounds of capacity cycles since the reform and opening up in 1978, with each cycle lasting about 10 years on average. after the spontaneous market clearing in 2015, coupled with china's supply-side reform of "three cuts, one reduction and one supplement" from 2016 to 2017, the market capacity was basically cleared in 2018 and entered an upward cycle. later, with the disturbance of the epidemic, it entered a downward cycle since 2022. the overall level of industrial capacity utilization has fallen, and corporate revenue and investment willingness are also facing greater challenges. at present, industry differentiation has intensified, and some industries such as photovoltaics and lithium batteries are facing overcapacity. the overall capacity utilization rate is still in a period of oscillation and decline. however, with china's large-scale equipment renewal since march 2024, the cumulative growth rate of equipment and tool investment has remained above 17% since february 2024, which may help to start a new round of capacity cycle upswing.

china is currently still in the transition stage from passive destocking to active inventory replenishment.the inventory cycle includes four stages: active inventory replenishment (prosperity), passive inventory replenishment (recession), active inventory reduction (depression) and passive inventory reduction (recovery). china experienced six complete inventory cycles from 2000 to october 2019, and entered the seventh inventory cycle in november 2019. in july 2023, china's passive inventory reduction is nearing its end. the finished product inventory of chinese industrial enterprises has dropped to 1.6% year-on-year, a historically low level. the ppi decline has narrowed but is still negative. the manufacturing pmi is still fluctuating around 50%. on the whole, china has not yet fully entered the stage of active inventory replenishment, and is currently still in the transition stage from passive inventory reduction to active inventory replenishment.

2 overseas variables: five major uncertainties

2.1 how the u.s. economy can recover from the impact of the epidemic: what did the u.s. do right?

driven by the continued inventory replenishment in the united states, global manufacturing has rebounded, emerging economies have performed better than most developed economies, and the service industry has recovered better than manufacturing.the global manufacturing pmi continued to be on the boom-bust line, with an average of 50.5%; the service industry was 52.8%. the s&p us manufacturing industry expanded for six consecutive months, with an average of 51.3%; the eurozone manufacturing pmi averaged 46.3%, france and germany were 45.6% and 43.6% respectively. the average manufacturing pmis of brazil, mexico, vietnam, indonesia and the philippines were 53.4%, 51.3%, 51.0%, 52.6% and 51.3% respectively.

the u.s. economy is relatively resilient and is in a phase of transition from overheating to slowing down.since 2024, the u.s. economic performance has continued to exceed expectations, with gdp growing by 1.4% and 2.8% year-on-year in the first and second quarters, mainly driven by investment and consumption; the labor market was stable; housing prices bottomed out and rebounded, and the real estate chain rebounded; the inventory replenishment cycle began, driving gdp growth by 0.8% year-on-year; inflation slowed, and the overall economic cycle is in the late stage of overheating, and a soft landing is expected to be more likely.

the united states has achieved a good economic recovery after the epidemic mainly because it did three things right.first, monetary policy was timely, and it was time to release money to increase residents' disposable income and boost consumption. second, fiscal policy provided strong subsidies to encourage the return of manufacturing, such as the promulgation of the inflation reduction act, which boosted corporate investment enthusiasm. third, the capital market was prosperous. as an important component of residents' wealth, the strong performance of us stocks was conducive to boosting residents' wealth. the above reasons enabled the us economy to quickly recover from the impact of the epidemic, and the balance sheets of residents and enterprises were healthy.

in the past few years, the fed's monetary policy operation level is worth learning, in 2020, when it was time to stimulate the economy, it was done in one step. interest rates have continued to rise since 2023, but the us economy and employment have still prospered. when there were signs of a slowdown in employment, it was immediately announced that "the time for policy adjustment has come, and every effort will be made to support strong labor."all macroeconomic policies are not intended to serve some distant and grand goals, but to serve the employment and food of ordinary people at present, nothing more.

looking ahead, there are five major uncertainties in the global economy, and their impact on external demand, foreign capital flows and asset prices deserves attention.

1) the u.s. economy is showing three signs of slowing down, but the landing method is still uncertain.first, the current us household savings rate has declined, and high levels of consumer spending may be difficult to sustain in the long run; second, under long-term high interest rates, insufficient demand and declining housing starts have dragged down residential investment and construction investment. third, the inventory replenishment cycle is weak. from the perspective of nominal inventory, us inventory is destocking quickly. however, high inflation has led to poor guidance for the current situation based on the nominal inventory perspective (covering industrial product prices and industrial product quantity demand). from the perspective of actual inventory, the current round of destocking in the united states is relatively limited. the intensity of this round of replenishment can refer to the replenishment cycle at the end of 2016. the overall intensity will not be too great, and it is more of a structural replenishment at the industry level.

although the non-farm data in july dropped sharply and the unemployment rate rose, the fundamentals of the u.s. economy are actually relatively stable. the "recession trade" caused by a single month's data will basically only cause a short-term pulse effect and is not a cause for concern.

2) expectations for a rate cut by the federal reserve are rising, but the path of the cut is still uncertain. be wary of liquidity risks in some parts of the world.at the jackson hole annual meeting, the federal reserve released a signal of a rate cut as early as september. as the expectation of a rate cut by the federal reserve heats up, the degree of interest rate inversion between china and the united states and capital outflows will be alleviated, and the pressure on the rmb exchange rate will be relieved. however, we still need to be vigilant against the risk of a reversal of yen carry trade and increased regional liquidity risk under the background of a rate cut.

3) the us presidential election is in a stalemate, but the candidates' attitude towards containing china remains unchanged.in july, biden withdrew from the race, and harris entered a "political honeymoon period". her poll support rate surpassed trump, but her electoral votes still lag behind trump, and the election situation is highly uncertain.us election outlook: will trump return to the white house and its impact》 envisions two scenarios: one is that trump is elected, inflation will rise again in the united states, interest rates will remain high, and anti-globalization may cause re-inflation in the united states, increase tariffs, and worsen relations with allies. the other scenario is that harris is elected, advocating unity with allies, supporting innovation, raising the minimum wage, protecting wages and benefits, health care reform, accepting refugees, etc., and is expected to unite allies to put pressure on china. however, in terms of china policy, no matter who is elected, it is expected that a containment attitude will be maintained.

4) with the rise of global protectionism and unilateralism, chinese companies face great challenges in exporting.in may, the biden administration continued trump's tariff measures and raised tariffs on electric vehicles to 100% and semiconductor products to 50%. mexico and brazil raised steel tariffs. in june, the european commissionbyd,auspicious,saic motoran additional tax of 17.4%, 20% and 38.1% will be imposed, and electric vehicle manufacturers will be subject to a weighted average tax of 21%.

5) geopolitical conflicts are intensifying. the russia-ukraine conflict and the situation in the middle east remain unclear. commodities still have some support, but the volatility is still large.with the peak travel consumption season in the united states and the end of opec's production cuts, energy commodities represented by crude oil will enter a volatile downward channel, but will still have certain support; overseas demand is weak, and the prices of non-ferrous metals in the recovery logic chain must rely on domestic demand, such as copper and aluminum, and the strength of infrastructure and special government bonds in the second half of the year needs to be observed.

3 policy choices: revitalizing the future

3.1 should we stimulate the economy?

how to compete economically?regulation should be slow, and rescue should be urgent. the first push is strong, the second is weak, and the third is exhausted. avoid loose monetary policy, which consumes both ammunition and confidence. successful economic stimulus is a package of large-scale economic stimulus plans, such as china's response to the asian financial crisis in 1998, the international financial crisis in 2009, and the united states' response to the epidemic in 2020. fiscal expansion can be combined with monetary easing to focus on stimulating new infrastructure and new quality productivity, while taking into account both stable growth and high-quality development.

should we save the property market?saving the property market is not only about saving real estate companies and banks, but also about saving local finances. this is not just an economic issue. real estate is the mother of cycles. if the real estate is stable, the economy will be stable. china's urbanization rate is 66.2%, and with the demand for improvement, there is still a lot of room. as long as the measures are appropriate, china will not repeat japan's balance sheet recession and the lost 30 years. the effect of squeezing toothpaste-style policy relaxation is short-term pulse-like. the truly effective policy relaxation should boost confidence in one go. after the japanese real estate bubble burst in the 1990s, the japanese government's attitude towards regulation was not firm enough and the intensity was not strong enough. it adopted a toothpaste-squeezing easing, which failed to effectively block the spiral decline of asset prices, bank credit and price levels, and eventually produced chronic deflation. however, the united states decisively implemented measures in the face of the 2008 crisis, implemented large-scale qe, prevented the crisis from spreading, and the economy quickly recovered. at present, it is appropriate to cut interest rates, relax purchase restrictions, and housing banks to stabilize the property market, completely reverse expectations, and boost confidence.

should we worry about inflation?the main contradiction at present is the worry about the price-deflation cycle and the decline of the balance sheet. the main reason is insufficient domestic demand, so the top priority is to expand domestic demand. macroeconomic regulation is counter-cyclical regulation. after the economic recovery rises above the potential growth rate, the policy can be tightened again.

should interest rates be cut?the negative growth of ppi for more than 20 consecutive months means that the real interest rate (nominal interest rate - price) of enterprises has risen, so interest rates should be lowered to reduce the costs of enterprises and residents and promote economic recovery.

protect the exchange rate or maintain growth and employment?lowering interest rates may lead to exchange rate depreciation pressure, while not lowering interest rates will lead to economic growth and employment pressure. what should we do in this dilemma? the monetary policy of major countries is based on self-reliance. by lowering interest rates, domestic economic growth and employment will be promoted. the exchange rate will depreciate in the short term, but appreciate in the long term. we are not afraid of depreciation, but we are afraid of the expectation of depreciation. it is better to have substance than to have appearance. seek truth from facts and follow the trend.

in the short term, we should expand total demand through fiscal expansion, increase support for the new economy and new quality productivity, and cooperate with monetary easing policies such as interest rate cuts and reserve requirement ratio cuts. it is recommended to launch a large-scale economic stimulus plan led by new infrastructure to expand demand in the short term and create a new engine for china's economy in the long term.

3.2 scenario-by-scenario calculation: if effective measures are taken, the annual growth rate in 2024 is expected to be around 5%

1. optimistic scenario

the economies of major countries around the world are improving, trade frictions and geopolitical conflicts are slowing down, the previous tariff increase has been postponed again, external demand has recovered well, boosting exports; policies to stabilize the real estate market have been introduced one after another, including interest rate cuts and reserve requirement ratio cuts, and relaxation of purchase restrictions in first-tier cities, which have reversed expectations for real estate prices. favorable policies for financing of high-quality real estate companies have been added, and the enthusiasm of real estate companies for construction and land acquisition has increased. real estate market sales and investment have stabilized and rebounded, with real estate investment down by about -7.3% year-on-year for the whole year; large-scale infrastructure and consumption stimulus and other stable growth policies continue to be introduced, local fiscal pressure has been reduced, corporate and residents' income expectations have improved, and confidence has been restored, supporting investment and consumption. consumption and investment will increase by about 4.5% and 5.8% year-on-year respectively, and the annual gdp growth rate can reach 5.2%.

2. neutral scenario

the u.s. economy maintained a marginal slowdown, and the overall improvement in external demand was limited; domestic economic policies were introduced at the current pace, sending positive signals but without unexpected increases; the pressure of local debt was alleviated by the special increase of special bonds, and no stabilizing growth policies such as unexpected interest rate cuts and reserve requirement ratio cuts, and unexpected large-scale infrastructure plans were introduced, but the current funds issued and infrastructure projects in stock were accelerated to be converted into physical workload. the water, electricity, and gas industries with relatively good industry profits drove the overall growth rate of infrastructure (including electricity) to around 7%, and the equipment renewal policy drove manufacturing investment to around 9.5% year-on-year for the whole year. the real estate market recovered in a differentiated manner, and the confidence of high-quality real estate companies in investing in land was restored, driving the annual real estate investment to -9.1%, and the overall year-on-year growth rate of fixed investment was 5.2%; the policy of replacing old consumer goods with new ones continued and was slightly strengthened, and the stabilization of residents' income drove the annual consumption growth rate to around 4.3%; the annual gdp growth rate reached 4.9%.

3. pessimistic scenario

the u.s. economy is accelerating its downward trend, and europe's external demand continues to be weak, dragging down exports; the implementation of domestic macroeconomic policies is weaker than expected, the growth of economic fundamentals has stagnated or even deteriorated, corporate profits and residents' incomes have further declined, and pessimism in the real estate market has deepened. the operating cash flow gap of distressed real estate companies continues to widen, the delivery of suspended projects in various places is slow, and real estate companies are conservative in acquiring land. real estate investment has declined to -11.8% year-on-year for the whole year; local governments' fiscal tensions and debt repayment pressures have intensified, and the annual growth rate of investment in infrastructure including power has been lowered to 6.5%, dragging down the annual growth rate of capital formation to 4.5%; residents' expectations for economic fundamentals and future income have deteriorated, and companies and residents are more inclined to repair the "balance sheet recession" problem, and overall consumption has declined to an annual growth rate of 4.1%; the annual gdp growth rate will decline to around 4.5%.

3.3 policy recommendations: restore confidence, restart real estate, and reshape finance

since the beginning of this year, policies have remained generally loose, and at the beginning of the second half of the year, policies have released multiple positive signals.the july political bureau meeting set the tone that "the reform, development and stability tasks in the second half of the year are very heavy", "macro-control efforts should be intensified", and "macro-policies should continue to be more effective". compared with the first quarter political bureau meeting that emphasized "effectively implementing the macro-policies that have been determined", this meeting added the statement of "early reserve and timely launch a batch of incremental policy measures". the policy efforts in the future are expected, and we also recommend and expect more policies to be implemented vigorously.

first, fiscal and monetary policies tend to be positive. the second quarter china monetary policy implementation report proposed that monetary policy should be "flexible, moderate, precise and powerful."recently, the central bank has been cutting interest rates intensively. the current policy thinking has changed, and the policy focus has shifted from stabilizing exchange rates and interest rates to stabilizing growth and employment. we are facing a new round of interest rate cuts. although the economy is still facing multiple target constraints, we can see that the policy is actively making room for maneuver, releasing clear signals of stabilizing growth, and boosting market confidence.

future fiscal policies may continue to increase efforts in consumption, investment, employment and debt reduction.for example, implement tax reduction policies to increase the disposable income of individuals and enterprises; encourage household consumption; continue to increase infrastructure investment, including in the fields of transportation, water conservancy, energy, etc.; increase government procurement efforts to purchase local products and services; increase support for scientific and technological innovation and promote the implementation of scientific research results; expand social security spending and enhance social stability; promote financing for small and medium-sized enterprises and create more employment opportunities; and prevent risks through a package of debt reduction plans.

second, expand domestic demand and boost consumption.the politburo meeting in july mentioned that it is necessary to "make greater efforts to promote large-scale equipment upgrades and the replacement of old durable consumer goods with new ones", "expand domestic demand with a focus on boosting consumption, and shift the focus of economic policies more toward benefiting people's livelihood and promoting consumption."

third, develop new quality productivity. first, cultivate new industries and develop strategic emerging industries and future industries.support the development of cutting-edge emerging industries such as hydrogen energy, new materials, and innovative drugs, and create new growth engines such as biomanufacturing, commercial aerospace, and low-altitude economy;second, accelerate the transformation and upgrading of traditional industries, promote the transformation of traditional manufacturing industry towards high-end, intelligent, green and integrated directions;the third is "artificial intelligence +", moderately advance the construction of digital infrastructure, and accelerate the formation of a national integrated computing system.

fourth, promote a soft landing of the real estate market.the second quarter political bureau meeting mentioned that we should "persist in combining digestion of existing stocks with optimization of incremental stocks,actively support the acquisition of existing commercial housing for use as affordable housing, and further improve the work of securing the delivery of houses".short term，in the second half of the year, more powerful incremental policies are needed to reverse the current severe situation. three measures can save the real estate industry: 1) establish a large housing bank with a total of more than 3 trillion yuan, with low interest rates, long terms and large scale, to acquire the land and commercial housing inventory of developers for rental housing and affordable housing., killing two birds with one stone, solving the problems of local finance, developer cash flow, and residents' "unfinished buildings", while solving the housing security system for new citizens, which will have the effect of applauding from all walks of life;2) completely cancel purchase restrictions, return to marketization, release rigid demand and improvement demand, first-tier cities should seize the time window of "golden september and silver october" and take the lead in lifting purchase restrictions in suburbs and large apartments to boost popularity;3) continued interest rate and fee reductions will require lower interest rates on existing mortgage loans, including the interest rate of second-home mortgage loans, and reduce related taxes and fees to reduce the cost of buying a house, reduce the burden on residents, and reduce the cost of bank liabilities by lowering the reserve requirement ratio. in addition, it is also possible to consider improving the support policy for families with multiple children to buy houses. in the long run, we will accelerate the construction of a new real estate model with "urban agglomeration strategy, financial stability, population-land linkage, real estate tax and rental and purchase" as the core.

fifth, high-level opening up to the outside world.the political bureau meeting in july mentioned that it is necessary to "implement the 'zero' requirement for restrictive measures on foreign investment access in the manufacturing sector, launch a new round of pilot measures to expand the opening up of the service industry, and promote the stabilization and recovery of foreign investment utilization." in the future, we will continue to reduce tariff barriers, relax market access, and improve the opening-up pattern.

sixth, improve the stability of the capital market.the political bureau meeting in july mentioned that "we must coordinate risk prevention, strengthen supervision, promote development, boost investor confidence, and enhance the inherent stability of the capital market"; on april 12, the state council issued the new "nine national articles" for the third time, aiming to strictly supervise, prevent risks, protect the interests of small and medium-sized investors, and make up for institutional shortcomings. the core is to promote the transformation of the capital market from a financing market to an investment market.the new "nine national regulations" have nine highlights:first, clarify the goal orientation of capital market development; second, iterate and upgrade the issuance system; third, formulate guidelines for market value management of listed companies; fourth, increase the supervision of delisting; fifth, strengthen the supervision of securities and fund institutions; sixth, strengthen transaction supervision; seventh, promote the entry of medium and long-term funds into the market; eighth, promote the development of new quality productivity; and ninth, accelerate the construction of capital market legal system.

4. the trend of assets: “rise in the east and fall in the west” needs to be more powerful

since the beginning of 2024, the trends of major asset classes have diverged, with overseas assets outperforming the domestic market overall. the overseas equity market led the gains.from the beginning of 2024 to august 15, wind global stocks rose by 12.70%, including 13.50% in developed markets and 5.95% in emerging markets, with the united states and europe leading the gains. the s&p commodity index rose by 5.95%, with precious metals, energy, and soft commodities leading the gains with double-digit gains.in the domestic market, the bond market is bullish while the equity market recovery is weak.as of august 15, the shanghai composite index was -3.28%, wind domestic bonds rose 4.54%, the rmb exchange rate index was 1.1394%, slightly stronger, and the south china commodity index was -3.59%.there are three types of assets that performed well in the first half of the year. the first is bitcoin and gold, which are mainly based on de-dollarization and safe-haven properties; the second is crude oil driven by supply factors, and non-ferrous metal commodities in line with the logic of global manufacturing recovery; the third is the value-style japanese stock market and us technology stocks in the ai ​​wave.

stock market: a-shares are generally volatile, the profit effect is declining, and the large-cap market is stronger than the small-cap market.affected by insufficient domestic demand and low prices, corporate profit expectations are unclear. although the risk-free interest rate has declined, the actual interest rate is still high. coupled with the reduction in risk appetite, the equity market lacks confidence. from a structural perspective, the top five leading industries are: energy 24.32%, utilities 21.77%, finance 18.22%, telecommunications services 7.55%, and industry -0.63%. the large market is stronger than the small market.

bond market: the bond bull market will continue in 2023 amid the game between fundamentals and regulation.on the one hand, from the beginning of the year to mid-april, fundamentals and policies pointed to a bullish bond market. the central bank's reserve requirement ratio cut, lpr interest rate cut, stock market downturn, asset shortage, etc. stimulated the long sentiment in the bond market, and the 10-year treasury bond yield fell to a record low of 2.22%. but on the other hand, from mid-april to now, the regulatory authorities have repeatedly mentioned "guarding against interest rate risks" and threatened to borrow and sell to balance supply and demand, which has suppressed bullish sentiment. as of august 15, wind's domestic bonds rose 4.54%, including 4.55% for interest-bearing bonds, 3.16% for credit bonds, -4.66% for convertible bonds, and 5.56% for chinese dollar bonds.

commodities: internationally priced precious metals and non-ferrous metals rose, while domestically priced ferrous commodities fell.gold prices surged in march after expectations of a rate cut and the rise in market sentiment to de-dollarize, hitting new highs and remaining high. nonferrous metals, represented by copper, are mainly priced overseas. benefiting from supply and demand and easing expectations, they followed the rise in gold prices and hit a record high in may. however, with the decline in overseas manufacturing prosperity, copper prices fell. ferrous commodities are mainly priced domestically, and overall they are declining due to the impact of domestic fundamentals.

the pressure on the rmb exchange rate to depreciate has eased.the rmb has fluctuated slightly since the beginning of the year, and the spot exchange rate of the us dollar against the rmb has remained in a narrow range of 7.1-7.3. before july, affected by the gap in economic fundamentals between china and the united states, the rmb continued to depreciate. in mid-july, as the us dollar fell due to expectations of a us recession, the rmb quickly appreciated to around 7.15.

4.2 outlook for major asset classes: it is difficult to say that the united states is in recession, and china still needs strong policies

regarding the asset trends in the second half of the year, there is a lot of discussion in the market around "the rise of the east and the fall of the west"."decline in the west" refers to the us economy moving from overheating to recession, which has brought about a correction in corporate profits. in addition, the us stock market is now at a high level and may face a decline in the future; "rise in the east" refers to domestic assets once again becoming the value depression of global assets, attracting the return of overseas capital.

the cooling of the us economy is an inevitable trend, but it is hard to say whether it will experience a recession or a hard landing. the main theme of overseas transactions is still interest rate cut transactions.the current market is basically pricing in the fed to start cutting interest rates in september.first, it is good for emerging market stocks.the weakening of u.s. treasury bond interest rates will lead to capital outflows to a certain extent, which is good for emerging market stocks.second, the positive factors for gold may have run out in the short term, but the long-term allocation basis remains.after the fed’s rate cut, the current increase in gold prices has fully priced in the fed’s rate cut expectations, but the us election may send signals of further growth in us debt and increase market concerns about the credit of the us dollar, so the long-term logic of gold allocation remains.

whether the country can "rise eastward" depends on promoting economic recovery and moderate inflation, which fundamentally depends on the strength and direction of policies.the domestic economy is facing insufficient domestic demand, damaged balance sheets of enterprises and residents, weak financing demand, and certain liquidity trap constraints. the politburo meeting set the tone of "unswervingly completing the annual tasks", and the pressure to stabilize growth in the second half of the year will remain high. in terms of different situations, if the policy is relatively mild and does not support but not lift, it is expected that asset prices will continue the trend of the first half of the year, the stock market will still be a structural market, and the bond market will fluctuate at a high level. if incremental policies can be introduced, fiscal spending can be increased to invest in new infrastructure and new quality productivity, domestic demand can be expanded in the short term, and effective supply can be provided in the long term, and the reserve requirement ratio and interest rate cuts can be coordinated with the increase in the storage of existing houses. domestic assets will usher in a boost in confidence and an increase in risk appetite, the stock market will be bullish, the bond market will return to a rational range, and the exchange rate will stabilize and strengthen, so that a real "rise in the east" can be achieved.