China is at a historic turning point. The Chinese people’s national identity, national self-confidence and the improvement of their comprehensive national strength have put us very close to the Chinese dream of national rejuvenation. This is an unprecedented change in a hundred years. Looking at more China and doing more China in the next three years is the only correct investment strategy.
Although this critical turning point is so clear, all kinds of controversies are still going on, and there is a heated argument over whether China’s economy will enter a new platform or a new cycle. In the past six quarters, China’s economy has abandoned the old road of keeping financial and real estate in the leading role and has withdrawn its strong or moderate stimulus policies. The real economy as a whole has been stable and some have made innovations.
Today, China’s economy is gradually showing a new atmosphere of gaining momentum on the new platform. Few people care whether GDP will increase or decrease by a few tenths of a percentage point in the second half of 2017. Extensive growth and innovation bubbles have subsided. People are trying to tap new momentum of China’s economic growth, although the new momentum is still unclear. This is a historic turning point and we are already in it.
The Turning Point of Great Power Relations
The difference between the United States and China is especially crucial. China needs to be prepared for continued external pressure.
The turning point in the relations between major powers is mainly due to the relative decline of the West. Take the United States as an example. During Obama’s administration, U.S. GDP grew by only about 30%, but the Federal Reserve’s balance sheet expanded from less than 1 trillion U.S. dollars before the financial crisis to 4.5 trillion U.S. dollars, and the federal government debt expanded from 10 trillion U.S. dollars to 20 trillion U.S. dollars. This situation is obviously unsustainable.
The United States is stressing that it is considering the establishment of Sino – US relations in the next 50 years. Compared with the 45 years since the establishment of diplomatic relations between China and the United States in 1972, in the next 50 years the United States must re-view China, which is not inferior to the United States in many fields such as politics, economy, science and technology, and must make the new type of Sino – US relations between major powers beneficial to the interests of the international community and the common interests of both China and the United States.
As the turning point in relations between major powers approaches, China needs to take the initiative to extend the period of strategic opportunities through strategic measures such as the belt and road initiative.
The turning point of industrialization
Big industries are moving rapidly towards intelligent industries, and the competitiveness of Chinese and American industries is constantly approaching.
At present, China has the most complete industrial system in the world. Its industrial output value has greatly exceeded that of Japan and Germany, which is equivalent to that of the United States.
China has many serious problems such as overcapacity, debt leverage and industrial upgrading, but China’s post-industrial intelligent manufacturing potential is also considerable.
The competition in the future industrial revolution may be mainly between China and the United States. However, industrialization characterized by large-scale assembly-line standard products may be in ebb. Considering that China’s marginal demand for fossil energy, nonferrous metals and other resources may be slowing down, while other emerging countries have yet to meet this demand globally, it is likely that the commodity market will be at a moderate high level in the next five years, but it is difficult to see bright colors.
Turning Point of Urbanization
China’s population migration and concentration have slowed down gradually, and the climax of infrastructure construction has reached its peak.
Although it seems that China’s urbanization has not yet been completed from the perspective of the household registration population, if the actual process is taken into consideration, the population living above cities and towns in China may have exceeded 70%. Although population migration and super-large and prosperous cities are still advancing, China’s urbanization and real estate are likely to have passed their peak, and the growth of building materials and home improvement will also slow down.
The impact of this inflection point is far – reaching.
First, it will shorten the period for the construction and improvement of the social security system, which will put more pressure on the export of labor services.
Second, the problem of shortage of skilled labor will be prominent, and a battle may erupt among urban agglomerations around young people.
Third, the space for urbanization may be smaller than expected, and the infrastructure cycle and its rate of return may be overestimated.
This shows that the turning point of China’s urbanization may mean that China’s real estate and infrastructure may already be at its peak. This turning point is not caused by regulation such as purchase restriction and loan restriction, but by the industry cycle.
We believe that the sales amount and area of real estate will still reach a record high in 2017, and the concentration of real estate industry will accelerate, thus bringing more opportunities to leading real estate enterprises. At the same time, the multi-subject financing, construction, operation and holding of infrastructure will also receive increasing attention.
Facts will prove that China’s real estate market will not burst into a bubble-type collapse. Strict control measures have prolonged the real estate boom cycle and stabilized the price bubble.
Financial inflection point
Traditional finance is both overcapacity and profit dilution. In other words, real estate + finance is no longer the two engines driving China’s economy in the future.
Since the sub-prime crisis, the world has been experiencing financial de – productization, and China is no exception.
With China’s central bank slowing down the growth rate of money supply obviously and China’s rapid monetization process of industrialization and urbanization drawing to a close, the contribution of the added value of China’s financial industry to GDP may continue to decline.
Although there is still controversy over the extent of money overshooting in China in the past 30 years, the overall decline in the growth rate of money supply at present is not a short-term choice due to macro – control. The slowdown in the growth rate of money supply reflects the final farewell to the high-speed growth platform.
This shows that the traditional financial industry is also facing a series of challenges such as eliminating production capacity, reducing network outlets, reducing profits, supporting entities and preventing risks. At the same time, considering the current valuation level of state-owned banks and large insurance companies, financial stability may be accompanied by active financial stocks.
Turning Point of Human Resources
The rise of the local service industry, the pressure on the social security system, and the acceleration of artificial intelligence. Judging from the number of people taking the college entrance examination every year, the turning point of China’s human resources has come.
The faster growth of the elderly and the slower growth of the youth make it more difficult for China to continue to increase the number of years of education per capita and to provide creative human resources.
The biggest problem plaguing Foxconn – type enterprises is not orders, funds or production bases, but the unavailability of highly disciplined skilled labor.
Due to changes in population and land resources, China’s economy has rapidly shifted from foreign capital + industrialization to finance + real estate, and again to intelligent manufacturing + local services.
Turning Point of Ecological Environment
Industrial transformation and awakened public bring ecological restoration.
Industrialization needs to move towards intelligent manufacturing 4.0, and China’s agriculture will also turn to green and high quality under the supply-side reform.
With China surpassing the middle-income trap, the improvement of the government’s governance capability, and the awakening of the public’s awareness of environmental participation, China may face a beautiful China with a bright future.
Inflexion of Consumption Upgrade
Relying on intelligent consumption in the mobile internet era.
If there are any bright spots in China’s consumption upgrading, it may depend on the great progress of mobile Internet and artificial intelligence.
Although the transformation of China’s economic growth to consumption is inevitable, it does not mean that consumption can always maintain a growth rate of about 10%, but it is likely to be lower than expected. This is determined by the level that China has reached in the consumer goods and housing sectors at present, and also by the downward trend that the net saving rate of Chinese residents is declining and the shortage of young ethnic groups is faster than expected.
This also means that the future growth of major consumer industries that have already reshuffled their industries and formed leading enterprises, such as liquor, dairy and household appliances, may be lower than expected, while the rate of new and exotic consumption and the rate of air travel may continue to rise.
The Turning Point of Taxation in Household Sector
Reducing the burden on enterprises almost means reforming the personal tax system. Without increasing taxes on families, it will be difficult to continue to reduce taxes on the real economy.
People often argue that the tax burden on Chinese enterprises is too heavy, which in fact conceals another problem, that is, the tax burden on China’s family sector is too light, especially for the rich and the very rich. In order to continue to reduce taxes for Chinese enterprises in the future, we must consider effective tax collection and management for the family sector.
This kind of tax system transformation must be accelerated with a consumption-driven and intelligent service-oriented economy. The introduction of personal income tax, real estate tax and estate tax is a reasonable option.
This shows that the tax burden of the government on the family sector, especially the high-income groups, must and must be gradually increased. A trend of increasing taxes on the rich in China and cutting taxes for Chinese enterprises is surging. It is only a matter of time before property tax and estate tax are introduced one after another.
In the past five years, Chinese society has quietly gone through a sharp turn and the fate of China has become increasingly clear. In the past five years, justice, order and cohesion in Chinese society and people have increased.
We must realize that when the time for some reforms is not yet available, it is easier for good people to do good things by not allowing bad people to continue to do bad things recklessly. The balance between good and bad forces also enables wealth creation corresponding to economic growth to be shared and more benefits to honest and diligent entrepreneurs and the general public.
An all-round economic transition has occurred or will occur and will continue for decades. Before 2020, the only correct strategy to invest in China is to stick to confidence and to be more Chinese enterprises, especially state-owned enterprises.