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Prof. Yao Yang Cautiously Optimistic about Economy in 2024

Jan 16-2024   



In 2023 China’s economic development, in chronological order, could be described with three words: bumpy, unusual, and hopeful. As government policies start to have effects, the economy will perform better in 2024, said Prof. Yao Yang, Dean of the NSD, in an interview with China Entrepreneur, a business magazine.

 

The first quarter of 2023 brimmed with confidence due to strong recovery of the economy, but the momentum decreased in the second quarter. In July, the Political Bureau of the CPC Central Committee met to set tone for economic situations and released a series of measures. In the third quarter, economic growth stabilized and subsequently led to a hopeful fourth quarter, said Prof. Yao.

 

The real estate industry has been on a downward trajectory for three years, but Prof. Yao believed that as long as government policies hold firm, the industry can be expected to stop sliding in the middle or second half of 2024. On the supply side, policies have been carried out to facilitate loans to realty firms. On the demand side, the majority of cities have lifted restrictions on the industry.

 

In the second half of 2022, the central government adopted strict control measures concerning debts of local governments, whose deficits expanded during the pandemic. As a result, both investment and consumption slacked off. In the second half of 2023, the central government rolled out a number of fiscal stimuli that will start to have effects in the first half of 2024, said Prof. Yao. He was cautiously optimistic that local government investments in 2024 will at least stay at the same level as 2023.

 

Contrary to popular belief, Prof. Yao said that the Chinese economy is hamstrung by insufficient investment, rather than a lack of consumption. In 2023, consumption contributed 83% of GDP expansion. Investment only accounted for 1.6% of GDP growth rate, below the 2% average over the previous couple of years. Real estate investment dropped by 15-20% in 2023, a situation compounded by decreasing rate of government investments.

 

He pointed to the need of an active capital market which would incentivize people to launch new ventures and startups. Innovation is bound to be extremely risky, so successful ones deserve to reap high returns. Only so can the costs of failed ones, whose numbers are much more elevated than successful ones, be recovered. Stock markets, said Prof. Yao, should pay for innovation. Therefore, he argued that there shouldn’t be fear about bubbles in stock markets, or about a sudden soar of certain share prices. Creation of a good environment will naturally result in the emergence of entrepreneurs and innovators.

 

He also believed that in the next 10-20 years, Chinese companies can achieve an aggregate overseas sales volume half the size of the Chinese market. This would be following in the footsteps of some countries that have pulled off such a feat. Chinese firms should be encouraged to make use of their technical advantages to relocate to Southeast Asia, Mexico and other countries with relatively good industrial foundations. Despite the daunting challenges inherent in overseas business development, including costs and supply chain, Prof. Yao was confident that Chinese entrepreneurs are ingenious enough to work them out.

Prof. Yao Yang Cautiously Optimistic about Economy in 2024

Jan 16-2024   



In 2023 China’s economic development, in chronological order, could be described with three words: bumpy, unusual, and hopeful. As government policies start to have effects, the economy will perform better in 2024, said Prof. Yao Yang, Dean of the NSD, in an interview with China Entrepreneur, a business magazine.

 

The first quarter of 2023 brimmed with confidence due to strong recovery of the economy, but the momentum decreased in the second quarter. In July, the Political Bureau of the CPC Central Committee met to set tone for economic situations and released a series of measures. In the third quarter, economic growth stabilized and subsequently led to a hopeful fourth quarter, said Prof. Yao.

 

The real estate industry has been on a downward trajectory for three years, but Prof. Yao believed that as long as government policies hold firm, the industry can be expected to stop sliding in the middle or second half of 2024. On the supply side, policies have been carried out to facilitate loans to realty firms. On the demand side, the majority of cities have lifted restrictions on the industry.

 

In the second half of 2022, the central government adopted strict control measures concerning debts of local governments, whose deficits expanded during the pandemic. As a result, both investment and consumption slacked off. In the second half of 2023, the central government rolled out a number of fiscal stimuli that will start to have effects in the first half of 2024, said Prof. Yao. He was cautiously optimistic that local government investments in 2024 will at least stay at the same level as 2023.

 

Contrary to popular belief, Prof. Yao said that the Chinese economy is hamstrung by insufficient investment, rather than a lack of consumption. In 2023, consumption contributed 83% of GDP expansion. Investment only accounted for 1.6% of GDP growth rate, below the 2% average over the previous couple of years. Real estate investment dropped by 15-20% in 2023, a situation compounded by decreasing rate of government investments.

 

He pointed to the need of an active capital market which would incentivize people to launch new ventures and startups. Innovation is bound to be extremely risky, so successful ones deserve to reap high returns. Only so can the costs of failed ones, whose numbers are much more elevated than successful ones, be recovered. Stock markets, said Prof. Yao, should pay for innovation. Therefore, he argued that there shouldn’t be fear about bubbles in stock markets, or about a sudden soar of certain share prices. Creation of a good environment will naturally result in the emergence of entrepreneurs and innovators.

 

He also believed that in the next 10-20 years, Chinese companies can achieve an aggregate overseas sales volume half the size of the Chinese market. This would be following in the footsteps of some countries that have pulled off such a feat. Chinese firms should be encouraged to make use of their technical advantages to relocate to Southeast Asia, Mexico and other countries with relatively good industrial foundations. Despite the daunting challenges inherent in overseas business development, including costs and supply chain, Prof. Yao was confident that Chinese entrepreneurs are ingenious enough to work them out.