China Economic Observer: Shifting International Situations and Growth Constraints
Nov 01-2023
On October 25, China Economic Observer held its 66th edition to examine shifting international trends and growth constraints. Four speakers shared their latest research on consumption, policy, inflation, and the Belt and Road initiative, before taking questions from the audience.
Prof. Zhao Bo, NSD Associate Professor of Economics, spoke on consumption’s momentum and constraints by analyzing disposable income, income gap, wealth accumulation, and risks and uncertainties. He concluded that for consumption to become a long-run and major driver of economic growth, income distribution, particularly that between capital and labor, should be ameliorated, and the urban-rural income gap needs to be narrowed down. He pointed out that in the short run, consumption growth faces two conspicuous constraints, namely the negative wealth effect of houses and stocks (asset depreciation leads to tightening the purse strings) and persistent expectations of a decline in household income.
Mr. Zhang Jun, Chief Economist of China Galaxy Securities, talked about unusual counter-cyclical adjustments, saying that counter-cyclical policies have the capacity to maintain growth and adjust structures. The current efforts to defuse the debt risks of the real estate industry and local governments are proactively undertaken by the government, he said. As the economy is still under relatively high downward pressures, he cautioned against over-controlling debts, for fear that it might cause the economy to lose steam, which would then lead the debt issue to spiral out of control. In 2024, the Chinese economy needs to maintain a relatively high growth target to invigorate expectations; therefore, macroeconomic policies should keep up their strengths and refrain from an immature change of direction, he said.
He Xiaobei, Deputy Director of NSD Macro and Green Finance Lab, analyzed the low inflation conundrum from three aspects: reasons for the concerns about the low-inflation trap, current state of China’s policies, and her research conclusions and lessons to draw. She believed that though many researchers still argue that China hasn’t fallen into the liquidity trap or low-inflation trap yet, due attention should be paid to the issue. Internationally, once the lack of confidence in expected incomes leads an economy to move onto a low-inflation terrain, it might have to spend a long time trying to shake off the predicament, thus turning cyclical issues into long-term trend ones. Therefore, she suggested releasing policies to shore up confidence across the board.
From the perspectives of project construction and debt financing, Prof. Lu Feng, NSD Professor of Economics, laid out the need to innovate investment and financing mechanism to deepen Belt and Road cooperation. He said that the initiative has achieved substantial results in improving inter-connections among countries through infrastructure construction. This has been made possible by China’s engineering prowess and funding. The latter has been backed up by the country’s colossal savings and foreign exchange reserve. However, as sovereign debt risks rise, it is imperative to reform the investment and financing scheme and strengthen risk identification and prevention in all links, he said.
