Interview With Peng Wensheng, Chief Economist Of CICC: Registration System Is An Important Mechanism For Pricing Risk Assets, GDP Growth Rate Is Expected To Be 8% - 9% In 2021

The development of capital market is increasingly inseparable from the national economy itself.

In 2020, China's capital market will be "established", and the sudden epidemic will bring a series of variables. No matter from the macro level or the micro level, how to predict, the subject is huge and heavy

After all, this issue involves a lot: what is the trend of China's economic development in the post epidemic era; how to understand the demand side reform proposed by the state top-level design; what is the target of strengthening anti-monopoly and preventing the disorderly expansion of capital; and how to understand the current trend of capital market registration system reform?

Peng Wensheng, chief economist and head of Research Department of CICC, shared the above issues.

2021gdp growth expected to be 8% - 9%

21st century: how to treat the impact of the epidemic on China's economy?

Peng Wensheng: on the surface, the biggest driving factor of domestic economy this year is export. However, we should not think in the traditional mode in the past, nor simply focus on the troika of consumption, investment and export on the demand side. In fact, there are special reasons why China's exports are so strong this year. The source of the problem is a series of shocks brought about by the epidemic.

It is mainly reflected in two aspects: one is demand side substitution. Globally, the epidemic has dealt a great blow to the service industry, including tourism, catering and other industries. Therefore, commodity consumption has begun to replace service consumption, that is, less eating out, less watching movies and less traveling. The surplus money has increased the consumption of goods, such as electronic products. As a big commodity manufacturing country, China has the most complete industrial chain in the world. Demand side substitution is conducive to increase China's export. The second is the substitution at the production end. China's epidemic situation is well controlled and the resumption of work and production is relatively adequate, which makes up for the shortage of production capacity in other countries greatly affected by the epidemic.

Therefore, China's current export strength is actually caused by the substitution of goods for services on the demand side and the substitution of production by other countries on the supply side. This year, China's export growth in the early stage has also contributed to the world. Under the impact of global production, China's production has filled the gap and met the consumption demand of other countries. In fact, it is a win-win situation.

Next year, our basic assumption is that the vaccine will be delivered. By the middle of next year, the European and American groups will be basically immunized and their economic activities will gradually return to normal. That is to say, there should be a strong rebound in developed economies such as Europe and the United States next year. In this case, the consumption of service industry will also recover. This year, the substitution effect of commodity consumption for service will fade, and there may even be some compensation effect. For example, people will go out to see more movies and eat more. At the same time, the return to normal production in other countries will also reduce the need for production in China. Combined with the above two factors, China's export growth is expected to slow down or decline significantly next year.

21st century: according to the latest data from the National Bureau of statistics, China's GDP grew by 4.9% year-on-year in the third quarter, which also straightened out the GDP growth in the first three quarters of this year. Will China's economy perform better in the fourth quarter and 2021?

Peng Wensheng: judging from the GDP growth figures, China's recent data are also relatively good because of the better control of the epidemic situation, the relatively strong export and the recovery of the service industry. Now, the year-on-year growth rate of GDP in the fourth quarter may reach 6% or even slightly higher than 6%.

China is likely to continue this recovery next year. In fact, the fundamental reason driving economic recovery is the effect of controlling the epidemic situation, the implementation of vaccines, the resumption of production and the increase of consumption, which means that China and the world will recover and grow together in the next year.

Because the base of this year is low, with the recovery of normal economic activities, economic growth should return to the normal level before the epidemic, about 5% - 6%, or about 6%. This year's growth is about 2%. It is expected that it will return to the state before the epidemic by the end of next year. If the two are added together, the economic growth of next year may be 8%, 9% or even higher, with an average growth of 6% or 5% - 6% in two years. Therefore, this is a V-shaped trend of economic activity caused by the public health crisis. Next year's economy will not only be in China, but also in the world.

21st century: under the background that China's economy will be better next year, will the turning point of monetary policy adjustment come soon?

Peng Wensheng: in fact, the fundamental driving force for the overall economic recovery next year is the alleviation and extinction of the global epidemic situation. In this case, it should be said that it has created conditions for the return to normal state after the whole financial expansion this year. However, there are two paths for financial expansion: one is currency, that is, the basic monetary policy of the central bank. Second, credit is related to the whole regulatory policy requirements. Therefore, there is a seesaw effect in credit and monetary policy. If credit expansion is fast, monetary policy will be more important; if credit is tight or even severe, monetary policy is not necessary to be tightened, or even relaxed.

Therefore, I think the key to next year is to see what kind of trend the whole credit environment is? A lot of debt has been issued this year, including bank credit. Next year, the peak of debt repayment will come. The whole social economy may experience a process of credit contraction, which may bring about some debt default problems. For different types of debt default should be treated differently, because there will always be success and failure in economic development. If the debtor fails in business and fails to repay, the society should give such debtor a chance. However, we should prevent the so-called malicious evasion and cancellation of debts, which means that we have the ability to pay debts but fail to repay them by borrowing an excuse.

So next year, I think the focus should be on the credit environment, not monetary policy. Monetary policy may be a result next year, but it also depends on the changes in the overall economy, especially the debt situation and credit environment. What will happen to the whole debt default next year. If there are more debt defaults, monetary policy may not only be unimportant, but also be relaxed; if debt continues to expand, monetary policy may be more important.

The epidemic situation aggravates the imbalance of economic development

The 21st century: the recent meeting of the Political Bureau of the CPC Central Committee proposed that we should adhere to the "six stability" work and implement the "six guarantees" task. Why should the Politburo still lay such a tone of "six stabilities" and "six guarantees" in the context of economic recovery?

Peng Wensheng: first of all, this year's winter may be quite sad. In developed countries, it will be about the middle of next year, about June and July. Before that, especially this winter, it may be quite difficult. Recently, the epidemic situation in Europe and the United States is deteriorating, and some parts of China have also rebounded sporadically. To some extent, the low temperature in winter and the increase of people's indoor time are more conducive to the spread of new coronavirus, which is a risk point we need to pay attention to in the short term. In fact, economic activities in Europe and the United States have been affected. Although the impact is not as great as that in March and April this year, if the domestic government can not effectively adhere to the normalization and strict prevention and control, there may also be some impact.

In addition, the impact of the epidemic also has sequelae, which means that it will bring some challenges to sustainable economic growth in the future, including the impact of next year, the next year, and even for a longer period of time.

At present, the impact of the epidemic on different departments, different industries and different populations is not the same. From this year's perspective, the epidemic has little impact on industries that can work remotely or do not need close contact. For example, technology industry, financial industry, Internet and other digital economy related fields can more or less maintain normal production activities through remote means. But for labor-intensive service industries, such as catering, tourism, aviation, and, of course, medical care, the impact is relatively large.

In addition, it can be seen that high-income groups are less affected, while low-income groups are more affected; large enterprises are less affected, and small enterprises are more affected. Of course, these imbalances in economic development and under the epidemic situation may have existed in the past, but this year's epidemic has indeed exacerbated this imbalance. For example, the impact of the epidemic has widened the gap between income distribution and between finance and entities. This year, both indirect financing and direct financing are good in the financial industry, especially now the indirect financing is expanding very fast. However, in terms of economic growth, employment and disposable income of the people, the impact this year will be more significant, which actually means that sustainable economic growth in the future is full of challenges.

The most concentrated manifestation is a very interesting phenomenon this year, "rent falls, house prices rise", which is actually a concentrated reflection of the current economic imbalance. Rent actually represents the real economy, while house price represents finance. Buying a house can be a loan, but renting a house is not; the rent is corresponding to the middle and low-income groups, especially the young people, while the house price is corresponding to the high-income group. Therefore, this is not only the embodiment of the entity and financial differentiation, but also the embodiment of the widening income gap, which are the challenges facing China in the future.

This perspective also helps to understand the demand side reform mentioned in the recent meeting of the Political Bureau of the CPC Central Committee. The demand side reform should be to improve and adjust the structure. My personal understanding is that to make China's demand more reflect the improvement of people's overall living standards, so that all ordinary people can enjoy the fruits of economic development, this is called demand side reform. This increase in demand should be accompanied by the narrowing of income distribution gap, the improvement of housing problems, and the increase of the supply of affordable housing, that is, "housing without speculation".

21st century: what is the internal logic between the demand side reform proposed at the recent meeting of the Political Bureau of the CPC Central Committee, the dual cycle pattern proposed at the beginning of this year, and the supply side structural reform proposed earlier?

Peng Wensheng: in fact, there are some institutional and institutional barriers in the supply side and demand side of any economy. In fact, the supply side reform is to solve some institutional and institutional barriers on the supply side, and to eliminate or reduce these obstacles through reform, so is the demand side.

The interaction between supply and demand also involves an economic cycle, which includes production, distribution, circulation and consumption. From production to consumption, after distribution and circulation, then production is the supply side, and consumption is the demand side. Both sides may be affected by some factors beyond short-term periodicity. There are some institutional or medium and long-term structural problems. We should solve these problems through some structural reforms. Therefore, we propose the supply side structural reform, the demand side In fact, reform is also a demand side structural reform.

Of course, there may be some differences between the two sides. For example, from the supply side, the reform of the factor market is very important. Whether labor and capital can allocate resources through market-oriented pricing is a very important aspect. The demand side is actually consumption, which corresponds to the welfare of ordinary people. Whether the majority of people can enjoy the welfare improvement brought about by consumption promotion is related to the problem of distribution and circulation.

21st century: the Political Bureau meeting for the first time raised the issue of strengthening anti-monopoly and preventing the disorderly expansion of capital. Why did it come up at this time point?

Peng Wensheng: the anti-monopoly and the prevention of disorderly expansion of capital mentioned at the meeting of the Political Bureau are based on the rapid development of some new economies, especially digital platform enterprises, in the past few years.

Why did it happen this year? My interpretation is that the impact of this year's epidemic led to the acceleration of digital transformation, which has exacerbated some unbalanced social development, including the differentiation of non-contact and contact economy. In this process, the rapid development of the platform enterprises in the contactless economy, compared with the impact of the small and medium-sized producers, the contrast is highlighted. Therefore, I think that the recent emphasis on anti-monopoly is an inevitable social response to this stage of digital transformation and rapid development of digital economy this year. It is also a concentrated reflection of the acceleration of digital transformation and the aggravation of unbalanced development under the impact of the epidemic.

In fact, it is not only China, but the United States is also doing this recently. Recently, the Federal Trade Commission and the Attorney General of 48 States filed a lawsuit against Facebook for its monopoly. Two companies Facebook acquired a few years ago, WhatsApp, instagram, mobile communications and mobile photo sharing, were not blocked by regulators at that time. After the acquisition of the two companies, Facebook's monopoly on social networking platforms has further strengthened, and regulators are worried about harmful competition. Of course, we have to observe whether the prosecution can be successful, but this still reflects some reflections on the rapid development of platform enterprises around the world.

Furthermore, how to understand how to prevent the disorderly expansion of capital? As far as the capital pursues profit itself, expansion actually has a good side. It means making money to expand. In an effective market situation, making money means being able to create value and benefit. What is disorder expansion? That is, expansion can not improve efficiency, and may even become an obstacle to improving efficiency. In the era of digital economy, an important risk of disorderly expansion comes from the development of cross-border business model. In the past, it was not easy for traditional enterprises to make a cross-border new product. For example, it is very difficult for automobile manufacturing enterprises to do e-commerce, or to develop payment business. However, the universality of data assets of platform enterprises is stronger than the physical assets of traditional enterprises. In addition, the network effect is very strong and there are many users, so the platform can develop new business and cross-border products more conveniently by virtue of its huge user group and big data advantages, which will cause cross market transmission risk of monopoly status.

In the past, the traditional form of monopoly is that the same product has a large market share. For example, if the automobile manufacturers occupy more than 30%, 40% and 50% of the market share, the pricing power will be very strong, and there may be the risk of harming the interests of consumers. Therefore, if the two automobile factories are to be merged, the regulatory authorities will look at the market share of the two enterprises after the merger and whether they exceed the level they think is reasonable. If so, they will not approve such concentration. But the cross-border is different. For example, when Facebook acquired WhatsApp, WhatsApp was not a big platform, and there were still doubts about whether it could survive and develop at that time. So at that time, it was hard to say that the acquisition would bring monopoly problems, but it developed rapidly with the combination of Facebook platform.

Therefore, there may be many meanings to prevent the disorderly expansion of capital, but from the economic level, one possible meaning is how to regulate the cross product and cross market expansion. From the academic point of view, cross-border expansion is not necessarily unreasonable, and may even promote wider competition. However, how to achieve such a good cross-border development may require some new thinking.

Registration system is an important mechanism for pricing risk assets

21st century: how do you view the registration system reform of domestic capital market

Peng Wensheng: the implementation of the registration system in the capital market is helpful to the innovation of the whole economy, especially to the innovation of science and technology. Innovation is high return and high risk, which is not suitable for indirect financing and bank credit. The interest rate of indirect financing is usually fixed and the interest rate is limited. For banks, the risk of supporting innovation projects and enterprises through loans is too high, and the income and risk do not match. The income may be only 78%, and the risk is that the whole principal is gone.

In addition, how to price the innovative enterprises? In the traditional financial model, due to the asymmetric information, investors are faced with adverse selection and moral hazard. They often can't see the quality of assets and how to price them. To solve this problem, banks usually rely on collateral, because banks do not know whether the lender has the ability to repay and whether they have the willingness to repay, so they need to use real estate and land as collateral.

But this does not apply to innovative enterprises, because innovation itself may not have assets to mortgage. In the past, there were administrative intervention in the issue price in China's capital market, while the registration system was changed to market pricing and pricing based on information disclosure. Under the premise of sufficient information disclosure, let investors decide whether an enterprise has investment value and where the price should be set. Therefore, a relatively complete and sufficient information disclosure is actually the basis of the registration system, which is an important mechanism for the pricing of risk assets.

21st century: what are your suggestions for the allocation of major assets next year?

Peng Wensheng: I think there will be a big difference between the general asset allocation of next year and this year. This year, the real economy is weak and the financial expansion, including the low interest rates in the world. As a result, the performance of traditional industries which are closely related to the real economy is relatively poor, while the so-called new economy, digital economy and science and technology sectors perform better. On the one hand, it is related to the impact of the epidemic, on the other hand, it is also related to the low interest rate, which is actually conducive to supporting asset prices with long return period.

Next year's situation may be reversed. In terms of asset allocation of major categories, there are some signs now, which may be more conducive to the development of real economy and real investment. For the so-called "growth" assets that have no profit support and rely on low interest rates to support prices, there will be some adjustment pressure next year.

In addition, due to the great uncertainty brought about by the impact of the epidemic this year, investors are pursuing more general assets between general assets and special assets. General purpose assets are assets that investors hold easily for conversion because they can't see the future clearly. The most common asset is money, because holding money can buy anything when the situation is clear. Secondly, financial assets with high liquidity are relatively easy to realize and convert to other purposes. The least common asset is the special asset, such as machinery and equipment, plant and other physical investment.

Therefore, in this year's asset allocation, the entity investment is relatively weak, and the financial assets perform relatively well, which is related to the huge uncertainty brought about by the impact of the epidemic. Next year, the uncertainty will decline, and the style of asset allocation will change to some extent, that is, the allocation of general assets will decline, and the performance of special assets, including physical investment, may be better.