Abstract External risks are not big. Now everyone is paying too much attention to US politics and the Fed's interest rate policy. In fact, there is not such a big risk. Trump is a businessman and an entrepreneur. He knows what he should do to improve the US economy. Only by doing a good job can he be...
External risk is not big Now everyone is paying too much attention to American politics and to the Fed’s interest rate policy. In fact, there is not such a big risk.
Trump is a businessman and an entrepreneur. He knows what he should do to improve the US economy. Only by doing a good job can he be re-elected. Second, it is unlikely that people like Hitler will appear in the American system. After centuries of institutional evolution, the checks and balances on power are now quite perfect. Trump just wants Hu to do nothing, Congress restricts him, the media restricts him, and he is restricted in all aspects. Third, Trump’s economic policy after he took office will have an impact on China. In order to fulfill his campaign promise, he may find some products to create some trade frictions, but a comprehensive trade war is unlikely. If he pulls the tariff too high, or withdraws from globalization, American consumers have to pay for it, the cost increases, and the big American companies do not.
There is no need to worry too much about the Fed’s likely rate hike. The interest rate hike affects the capital market and asset prices, and has little impact on the real economy. When the Fed launched QE, most of the excess currency did not enter the real economy, but stayed in the bank's cash pool and became the bank's excess reserves. The launch of QE and interest rate cuts have no effect, and recovery of QE and interest rate hikes have no effect.
China's economy at a turning point
What we should pay attention to is the fundamentals of the domestic economy. In the past, national economic growth and the development of enterprises depended heavily on bank loans, stock market financing, or their own accumulation to invest and expand. This growth model has come to an end, as the marginal revenue of capital has diminished and the resources of the government and many companies have reached their limits.
What is “decrease in marginal revenue� Take agriculture as an example. If farmers are planting a piece of land, only 400 kg per mu will be used when manpower is used. If a tractor is invested in the farmer, 200 kg will be increased, and the second tractor will be used. It will increase, but only increase by 100 pounds. What is the yield increase of the third tractor? It may be zero. By the same token, the government can increase GDP by investing, but the new GDP brought by each unit of investment is getting lower and lower. When the investment income is zero, the economy will fall into the “middle income trap†and increase investment. Also useless.
Has China’s economy reached a critical point where the marginal return of capital is zero? I think so. Why is the central bank releasing water, and the funds are not entering the real economy? Because the investment income in the real economy is close to zero, or even negative, who can’t make money, who is willing to vote? The second reason is that capital accumulation is limited, investment The funds come from the savings of ordinary people and the savings of enterprises are also profits, and social savings are limited. The central bank's printing of banknotes is not a real deposit, but it only dilutes the savings of ordinary people. The limited savings of enterprises and ordinary people determine that investment-driven economic growth is unsustainable.
Over-currency of currency and loans has caused systemic risks. Due to the adoption of stimulating policies for many years, borrowing to create investment demand has made the overall debt ratio of China's economy reach a dangerous level. Last year, the most important task proposed by the government was to “go capacity, destock, and leverageâ€. However, the effect of administrative de-capacity is not good, not the survival of the fittest, but the opposite. The effect of deleveraging is not good, some places are just transferring leverage, and some places are even adding leverage. Administrative de-capacity and de-leverage have increased the operational difficulties of private enterprises.
Innovative transformation in defense
The investment efficiency of the real economy is low. The excessive risk of money and credit makes the systemic risk of the economy increase. What should the company do? It is recommended to consider the “two beltsâ€: one is to fasten the seat belts; the other is to tighten the belts. In a word, conservative, conservative, and conservative. Starting from the cash flow to plan the business, this year is not the year of making money, but the year of survival, and then live and say. Enterprises should lower their debt levels. When the economy goes down, excessive debt is a risk to the national economy and a risk to the enterprise. The problem of high debt is mainly not financial expenses, but cash flow management. High debts put a lot of pressure on the company's cash flow management. Debt means stable cash outflow. If there is no stable cash inflow, the company will face the risk of capital chain breakage.
While fasting the "two belts", companies must think about how to innovate. Transformation is not a change, and the reason for the transformation is that it is a transition. Innovation does not need to jump to other industries, not necessarily to enter emerging industries. Innovation does not require everyone to do high-tech, do cloud computing, big data, and innovation requires companies to think about how to adopt new technologies to improve their efficiency. (Xu Xiaonian is a professor at China Europe International Business School and a consultant for the Chinese Enterprise Club)
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