Li Daokui: Predicting that China is ready for a hard life

December 2021

This year, China announced that it will "completely build a moderately prosperous society in all respects", and has moved from "getting rich" to "getting strong." However, despite the favorable situation, it seems that there are still many hidden worries. Li Daokui, an economist known as a "national teacher" and president of the China Academy of Economic Thought and Practice, warned at a forum yesterday that the next few years may be the most difficult period for China's economy since the reform and opening up. Migration and carbon decline. From this point of view, the authorities' recent crackdown on tutoring, online games, real estate and other industries can be regarded as prescient, tightening their pants and preparing to survive the hard days.

"National Teacher" warns of three major challenges

Li Daokui is one of the most respected economists in mainland China, and is highly regarded by the government. He is also a member of the Standing Committee of the National Committee of the Chinese People's Political Consultative Conference. He just delivered a speech at the 14th Golden Kylin Forum on the theme of "Basic Pattern of China's Economy in the Next Years". Li Daokui said at the outset that the next few years will probably be the most difficult period in the more than 40 years of reform and opening up. , related to the three major unfavorable factors at hand.

First of all, Li Daokui pointed out that Chinese local governments have vigorously promoted infrastructure construction for many years. Although they have achieved excellent results, there are still many inefficient constructions. The biggest aftermath is the heavy burden of debt. According to his estimates, the combined “invisible debts and open debts” of local governments across the country account for more than 50% of China’s GDP, more than double the 25% shown by official data, and he emphasized that “I’m fairly conservative.” It is worth noting that this is a rare occasion for an economist with an official identity to put forward data on the scale of local debt that deviates significantly from the government's caliber.

As a comparison, the total debt of all real estate developers in the mainland is about 5 trillion yuan (RMB. The same below), which has recently set off a serious debt crisis. According to Li Daokui’s estimate, the total local debt exceeds 50 trillion yuan, which is higher than the debt of real estate companies. More than 10 times, once the "explosive wok" is even more unimaginable. The biggest problem is that local governments happen to rely heavily on land sales to repay their debts (the revenue from land sales last year accounted for 84% of the local finances), and now it is difficult for real estate companies to protect themselves, and land auctions have been passed in on a large scale, creating a chain effect at any time.

Li Daokui also said that the European and American central banks have recklessly "released water" under the epidemic, and now they are ready to "receive water" to raise interest rates, which will drive funds back to the mainland, which may cause a new round of "external debt crisis" in emerging markets, coupled with China's "internal debt crisis" Debt Crisis", the consequences of the combination of the two are hard to imagine, and this is the biggest challenge for China's economy in the next few years.

The second major challenge is "relocation of the industrial chain". Li Daokui analyzed that before the outbreak of the epidemic, China was the world's largest industrial producer. At that time, "many developed countries" threatened to move the industrial chain out of China. As mentioned above, the epidemic has disrupted the deployment. However, he expects that these countries will further realize that they "cannot rely too much on China" during the epidemic, so they will start to take action after the epidemic slows down. It is estimated that "a lot of production capacity" currently in China will gradually be transferred to other emerging markets , the impact on China's economy should not be taken lightly.

On the other hand, according to foreign news yesterday, the United States and the European Union are about to issue a "strong and powerful" joint statement on China policy, which may impose further restrictions on China's economic and trade for political reasons. Adding fuel to the flames, it is no wonder that he is very worried about the situation.

In the end, Li Daokui believes that the third major challenge for China's economy is "carbon recession", which stems from the "eagerness" of European and American countries to reduce carbon emissions and adopt various measures to limit the use of fossil energy. As a result, "the global economy is a game of chess, and the price of fossil energy is certain. It will rise, and in the middle and late stages of industrialization, there are still many economies in which people have no heating in winter and no air conditioning in summer, and the negative impact will be the greatest.”

For example, the recent "power rationing" in many provinces and cities in the Mainland is more or less related to the fact that the Chinese government has been forced to cut carbon drastically in response to pressure from the West, resulting in insufficient power supply, affecting industrial production and people's livelihood needs. Compared with the debt crisis and the relocation of the industrial chain, this issue has caused less alarm, but Li Daokui believes that as the international call for carbon reduction is rising, it will have an increasing impact on the Chinese economy in the next few years, and may even lead to recession. .

"Kidney Qi" to be stimulated, policies must be in place

To sum up, Li Daokui seems to be very pessimistic about China's economy in the next few years, but he stressed that he is still full of confidence in China's long-term prospects. Taking the concept of traditional Chinese medicine as an analogy, he described that "the kidney qi is the source of vitality", and the "kidney qi" of China's economy comes from more than one billion people. Enterprising spirit", but "this potential has not been realized yet", so the way to deal with the crisis is to release the market potential to stimulate "kidney qi".

Li Daokui mentioned that he communicated with many entrepreneurs in the past six months, and everyone was confused because many industries were restricted by the state (government) and could not see the direction of development. He said that we must support national policies 100%, and industries such as education and training (tutoring), entertainment, and real estate do need to be restricted. These industries have declined, and new demand has not come up.” It is inevitable that they will be stagnant.

He suggested that the government should revisit the lesson of "Government and Market Economics", "putting the government's behavior into economic analysis, to understand our economic operation, and to formulate better economic policies, is to truly understand the government's behavior. Only when the adjustments are in place can the government play a better role and the market can play a better role.”

In any case, just as the "national teacher" Li Daokui warned that China's economic situation will not be optimistic in the next few years, we must tighten our pants and prepare for the hard times, and stimulate the "kidney" to cope with the challenges, so as to have a chance to meet the bright future after the crisis. , I hope the hardship will come to an end.