China is in a process of economic transformation, and the analysis of the capital market should also be analyzed from the background of transformation.
What does economic transformation mean? Economic transformation refers to changes in economic development modes, development factors, and development paths. This transformation includes: changing the growth driver from mainly relying on investment and exports to a more balanced one with consumption as the main driver; changing the financing structure from mainly relying on indirect financing to both direct and indirect financing; changing the growth mode from mainly relying on various resource inputs to mainly relying on technological innovation and improving productivity for growth; and changing the growth point from high-energy-consuming and easily polluting manufacturing and heavy industries to service industries such as finance and software.
Economic transformation is not an easy task. Due to path dependence, original concepts, ways of doing things, and organizational forms may all become obstacles in the transformation process. The transformation process will not be painless either. We will have to face economic growth slowdown, declining or even negative growth in corporate profits, unemployment, and even some social problems. The transformation process cannot be achieved overnight and will take at least several years. The government's Ninth Five-Year Plan already mentioned economic transformation. Pessimistically, transformation may even fail. Reluctance to endure certain pain or excessive concerns about stability may lead to delayed transformation, or a return to the old path that ultimately leads to a dead end.
An important direction of economic transformation is to establish a consumption-oriented society. There is still a lot of work to be done in this area. Institutional reforms are needed, including reasonable growth in resident income, improvement of the employment system and distribution system; improvement of consumer rights protection systems, strengthening food safety, product quality supervision, social credit and service awareness, and providing more reassuring consumer products and services for the public; elimination of monopolies and local protectionism, promotion of competition, allowing the public to obtain better products and services; and reduction of the wealth gap, improving the overall marginal propensity to consume of society given a fixed total pie.
One reality we must face is: in the future, the slowdown of China's economic growth is inevitable. From the perspective of the "three carriages": in terms of investment, there is serious over-investment, insufficient government financial resources, and excessive investment affects financial security; in terms of exports, the global economy is sluggish and trade protection is prevalent; in terms of consumption, consumption growth in the past few years has not been low, and while it can maintain steady growth in the future, it is difficult to accelerate. If China's economic growth can maintain stable growth at a level of 5%-7% for another decade or so, it should be considered a good result. In the long run, we will also face constraints on economic growth from population issues.
Therefore, corporate profit growth is not optimistic. The decline in GDP growth rate means that the total pie will grow more slowly. In the future, the share of labor income will rise; due to expenditure pressure, the tax burden share will likely be difficult to reduce, and ultimately what will be squeezed is the share of capital income. Considering the development of emerging industries, the profit decline in certain traditional industries will be even more pronounced. It may be just a matter of a few years before the overall profits of listed companies experience annual negative growth.
Let's talk about government finance. Undoubtedly, the growth of fiscal revenue will slow down, and the high-speed growth of recent years cannot be sustained. However, fiscal expenditure will increase significantly. People's livelihood investment has become the focus of fiscal expenditure, and there are still many arrears in this area. In recent years, China has established several security networks: such as urban resident endowment insurance, employee basic medical insurance, urban resident basic medical insurance, and new rural cooperative medical insurance. In the future, security expenditures will enter a period of high-speed growth. Social security and medical expenditure are challenges faced by all countries, and China will be no exception. With the aging population problem, medical and pension expenditures will grow rapidly. Compared to developed countries, our accumulated pension and medical security reserves are far weaker.
Therefore, we may need to go through a period of painful adjustment. Of course, I believe that our country will eventually achieve gradual economic transformation and usher in a new round of economic growth after the adjustment. What will the new round of growth rely on? Currently, the driving force for the new round of economic growth is likely to come from the new energy revolution. Biomass energy, solar energy, etc. may become new driving forces for China's economic growth in the future.
