These six points determine the future of China's economy!

I am optimistic about the future of China's economy. This optimism stems from fundamentals and the underlying structure of China's economic resilience.

 

This article aims to illustrate my understanding of China's fundamentals from six aspects: grain, policy, industrial structure, employment structure, and external investment.

1. Food supply capacity

 

The first is the issue of food. Don’t panic if you have food in your hands. The food market is the most basic fundamental of all economic, social and political systems.

 

Although it has always been very important, in times of relative peace and prosperity, the sensitivity of food is not prominent on the senses.

 

But in a more turbulent social environment, food reserves, production and supply issues are particularly important.

 

The anchor of all economic behavior must be based on food.

 

All product prices and inflation must be built on the basis of food prices.

 

Therefore, as long as there is no shortage of food, social and production behaviors can proceed in an orderly manner , and as long as the social order remains stable, economic activities can be activated at the right time and through appropriate methods.

 

But once there is a problem with food, "people", the source of productivity, and the social production system with people as the main element will collapse completely.

 

For example, if food prices rise by 10%, in order to maintain living standards, employees will seek higher wages on the premise that other consumption items must be reduced.

 

While companies bear the negative impact of shrinking consumption, they must also passively increase labor costs.

 

In order to survive, companies can only increase product prices.

 

From the perspective of currency and assets, if there is a shortage of food supply, the original 10 people eat 10 servings of food, each serving 10 yuan.

 

Then, if suddenly the food supply is reduced by one tenth, and only 9 people are fed, 1 person must starve to death.

 

Then the rise in food prices is definitely not as simple as 10%, but it will rise rapidly in a state of uncapped, 100%, 200%, 300% or even 1000%.

 

The final price, depending on how valuable the lives of 10 buyers are, will eventually rise to equal the entire net worth of the weakest of the 10.

 

In order to survive, people can only sell their assets indefinitely to buy food, and all assets will be run on panic.

 

Relatively speaking, a hyper-inflation that cannot be prevented by any means will occur, and it is possible to exchange a piece of gold for half a steamed bun.

 

Even if a country has an external food purchase channel, and some people are willing to sell it to him, most of the country's wealth will be swept away by external food suppliers at unimaginable costs, driven by the rigid needs of survival.

 

The economy will continue to lose blood, and no matter how it is activated or how it is produced, there will eventually be no profit left, let alone an economic rebound.

 

At present, the world economic situation, due to the impact of the Russian-Ukrainian war, the impact of the global epidemic, and the operations of multinational food groups, has initially shown a situation of food shortages.

 

The global food price index has already risen by more than 28% in 2021.

 

In 2022, according to the forecast of the United Nations Food Organization, global food prices may continue to increase by 8% to 20%.

 

What is this concept?

 

In other words, food importing countries that cannot maintain their own food security and achieve food self-sufficiency will have to pay more than 30% of the cost for basic survival.

 

And this more than 30% of the social wealth will flow to the supplying country through the food transaction. We can roughly understand it as an alternative and relatively implicit "currency tax".

 

China currently holds more than half of the world's grain reserves, of which corn stocks account for 69%, rice 60%, and wheat 51%.

 

In the case of completely cutting off food production, it can be supported for about a year and a half.

 

In the first quarter, the added value of agriculture (planting industry) increased by 4.8% year-on-year, and the market supply was sufficient.

 

Under this premise, my country is still purchasing and stockpiling food supplies on a large scale.

 

These grain reserves have played the role of ballast in China's social and economic stability.

 

It is very important to ensure that we are still able to sustain economic growth at a relatively small cost when other countries stop growing or even begin to decline because of global food prices.

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2. Large policy space

 

The so-called policy space is large. To put it bluntly, ZF relies on administrative means and has a relatively strong ability to forcibly intervene in the market.

 

Some tricks that cannot be used in a free market economy, we can use.

 

It doesn’t matter whether it’s cheating or lenient, it doesn’t matter. Whoever is eliminated will be eliminated, and policies will be underpinned. This allows us to artificially reverse economic laws in many situations, and it also greatly compresses This leaves room for some malicious capital to operate.

 

Let the part that should have collapsed become a slow down, and the part that should have skyrocketed will become a stable rise or even sideways.

 

This provides a great deal of resilience to the economy, which can turn a hard landing into a soft landing, and a soft landing into a stable operation.

 

Through policy guidance or planned economic tools, some industries that are more important but have insufficient profits and should have been submerged by the free market can be kept alive.

 

Such as basic industries, small-scale manufacturing, agricultural projects, etc.

 

It is also possible to regulate some industries that are not beneficial to the macroeconomic situation, or that do more harm than good, but have extremely high profits, so as not to cause a catastrophic capital frenzy, which will lead to the imbalance and collapse of the entire social and economic system.

 

Such as education and training, virtual currency speculation, brutal credit and even the stock market.

 

Otherwise, in the context of the general decline in global investment returns, if a large amount of capital and productivity flock to more profitable blocks such as virtual currency speculation, capital idling will be formed.

 

If no one cares about the factory manufacturing industry, once the manufacturing industry shrinks or even forms a hollow, then when the down cycle ends, where will we find factory production materials?

 

Rebuild the factory? Are you in time? Who can support China the way China supports the world's industrial system?

 

Therefore, maintaining a smooth institutional structure and strong government control at present are important fundamentals to support industrial balance and not be out of balance due to self-weight.

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3. Perfect industrial structure

 

In terms of industrial structure, I think this should be China's hardest fundamentals.

 

China's industrial system is complete and huge.

 

In layman's terms, we have everything, and we can make everything. Even if there are currently relatively tight chip materials, we have certain substitution and R&D capabilities.

 

This will play a very critical role in supporting the economic structure. At least we are not afraid of blockades!

 

It will not cause a domino-like collapse of a whole string of industries because others block your products in one link or engage in two waves of trade sanctions, which will lead to a wave of unemployment and bankruptcy. This kind of risk is very difficult to appear in China. .

 

At the same time, there will not be a situation where a key link cannot be independent and cannot be replaced by the state, so that outsiders can use the method of choking to drain the vitality of their own industry.

 

This is the industrial base. Through a large number of policy tools, we can protect the fundamentals of the industrial chain by sacrificing some profits.

 

As long as the industrial chain is basically stable, commodities can be continuously produced, whether it is to support social consumption or to win the share of foreign trade, this is a hard fist.

 

It is also an important basis for future economic recovery and rebound.

 

Only on this basis can we talk about innovation, new tracks, and new profits.

 

As far as my country is concerned, in the first quarter of 2022, under a more severe economic situation.

 

The added value of industrial enterprises above designated size increased by 6.5% year-on-year.

 

The added value of high-tech manufacturing increased by 14.2%.

 

The added value of information transmission, software and information technology services increased by 10.8% year-on-year.

 

The national railway cargo delivery volume completed 948 million tons, a year-on-year increase of 2.8%

 

Investment in mining increased by 19.0%, investment in manufacturing increased by 15.6%

 

Investments in the information service industry and the transformation service industry of scientific and technological achievements increased by 21.3% and 19.0% respectively

 

New energy vehicles increased by 140.8%, solar energy storage increased by 24.3%, and industrial robots increased by 10.2 % …

 

Those who expanded against the trend in the stage of economic pressure are basically hard power and hard manufacturing. With these, they will activate the market to a greater extent and release the basis for endogenous power.

 

This proves that during times of economic pressure, policy guidance is actually effective, and China's real fundamentals have become more solid.

 

As long as the foundation is real, the superstructure data will have enough momentum to rebound, it just depends on when and in what form the rebound occurs.

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