Chapter 33 6. What will China do after the US consumption bubble bursts?

On the same day that the U.S. government made a decision to save the U.S. auto industry, the U.S. government launched a new move in its trade policy with China: suing China to the WTO on the grounds that China's "well-known trademark" strategy is suspected of providing illegal export subsidies.This has once again hit China's manufacturing industry, which has been deeply affected by the financial crisis. According to statistics, in 2008, foreign trade revenue accounted for 68% of China's total GDP, and the collapse of consumer confidence in the United States will inevitably affect the orders of Chinese manufacturing companies.So can domestic consumption absorb these production capacities?Faced with the slow sales situation faced by export companies, what can ordinary Chinese consumers do?

After the incident of the Big Three automobile companies came out, the bubble consumption of $3,000 was all wiped out. It used to be that $3,000 fell to $1,000, and now it is $3,000 that has fallen to zero. That’s all.If this problem is not resolved, then Paulson's $100 billion rescue fund will be like a meat bun beating a dog, and it will not be able to revive US consumption.In fact, the 3.8% drop in GDP in the fourth quarter of the United States seems to have shown that Paulson's bailout plan is not effective. So back to China, please note that 35% of China's GDP is excess production capacity. According to a columnist in the New York Times, it is up to the Chinese to help themselves.Although the U.S. government announced on November 25, 2008, an additional $100 billion in bailout funds, the problems of the three major auto companies in mid-to-late December caused the bubble consumption of Americans to almost collapse across the board, and the result of the collapse across the board was that in the past Our 35% excess capacity is absorbed by the bubble consumption of $3,000. If the $3,000 suddenly disappears, it will be like a sharp knife inserted into our country’s 35% excess capacity.So what to do?Asking for others is better than asking for yourself, so this article uses the last word - CHIMNERICA to illustrate.

How China can save itself is no longer simply using money for infrastructure construction, but hoping that Chinese people will use high debt to borrow a lot of money. Household debt should not only account for 13% of GDP, but it does not have to account for 95% like Americans. %, but it can rise to 40% or 50%, that is, to start to use more credit cards and spend more, and let us first absorb 35% of our excess production capacity in China.And if consumption after absorbing excess production capacity can reach 70% of GDP, then only in this way can it meet international standards.Under such circumstances, the whole world is paying attention to whether China can do well. What is the whole world paying attention to?I only hope that China can consume 70% of the world's average consumption level of GDP.If you can do this one step, it will save the whole world.Do you understand what I mean?How to expand consumption from 35% to 70%?Give money to the common people for consumption, spend it, and borrow money.

And as I just said, the Nobel laureate Mundell also said that money should be distributed to ordinary people.If you don’t do this, it’s unrealistic to just rely on the Americans to help us consume excess capacity, and we don’t know what the outcome of the US bailout will be. This is the double crisis we are facing. So I want to make a summary here.I think our government's attitude in this regard is relatively positive, that is to say, we have made many amendments to various policies according to the actual economic situation, especially Zhou Xiaochuan's speech on December 26. Our Chinese problems.In other words, we cannot rely on the United States, because its bailout plan may have problems, and the GDP of the United States fell by as much as 3.8% in the fourth quarter of last year, and the impact on us is unimaginable.If we do well, there is only self-reliance relief.On your own.And relying on our own method is that while we are engaged in infrastructure construction in the Midwest and increasing employment, we must not forget that, as this article says, what we really need is to inject more money into the depressed private economy. The vitality of the economy and the injection of more resources will allow everyone's consumption to rise from 35% of GDP in the past to 70%.Only in this way can our country's economy develop steadily.

Personally, I am very concerned about this aspect.Because the bursting of the consumption bubble in the United States will impact 35% of my country's GDP, the impact is very large.In particular, many people say that there will be no financial crisis in China, because our Chinese banks do not purchase many US subprime mortgage bonds, so there will be no financial crisis like Europe and Japan.I can tell you clearly that your statement is too unreliable.Because as this article said, the international financial crisis will bypass our country's financial crisis and directly hit our real economy.

So I would like to conclude with you, whether our economy can avoid recession in the future, it seems that there is only one way to go, and that is how to increase the proportion of our consumption through the integration of our government's resources, and we must be self-reliant.This is what the article said. They think the best way is to put away all American credit cards, and you don’t want to use them. Give them all to the Chinese to solve the problem. This is too vivid. And hit the nail on the head to solve China's problems.If this step can be achieved, if you use a credit card for us to spend, everyone should come and spend it. Only after spending the money will there be hope for the Chinese economy.

The audience raised many meaningful questions about this chapter. I list the questions and answers below for your reference. Audience: The country's troika to stimulate domestic demand is consumption, export and government spending.The export item is obviously due to the decline in consumption in Europe and the United States, so our place is also declining day by day, and the consumption of real estate and automobiles is also not good.Can you tell me if there are any measures to stimulate a certain industry, or a certain part of the industry to stimulate consumption, thereby stimulating the development of GDP.

Lang Xianping: In fact, people in Europe and the United States also believe that China's next step is to stimulate consumption.Government spending is already huge, such as building highways and bridges. Compared with the 1990s, the effect of doing so has been greatly reduced.In order to achieve the same effect as in the 1990s, our investment must triple this year.Why?Too much, too bad, too ineffective.If we still rely on infrastructure construction to stimulate domestic demand, the benefits will be too poor.In the past, our exports were mainly absorbed by the consumption bubble in the United States, and they are also affected by the bursting of the consumption bubble.So there is only one thing left, and that is to bring American credit cards for us to spend. There is no other good way.So although that article sounds a bit sarcasm, it is actually the case. What will happen after the consumption bubble in the United States bursts?I hope that we Chinese will take American credit cards and borrow more money from the bank for consumption, otherwise you will not be able to stimulate domestic demand, nor will you be able to develop the economy. This is why I call on the government to use the 4 trillion yuan bailout funds instead of just spending them on To build the expressway and use it to boost the consumption of the common people and make the common people richer is the next step, and it seems to be the only way.

Audience: Hello, Professor Lang, just now you mentioned a column in the New York Times about the reasons for the low interest rates in the United States.It was mentioned in the article at that time that due to the increase in our foreign exchange reserves and the purchase of U.S. treasury bonds, the market funds increased, which led to a decline in interest rates, but in fact, according to my understanding, it should be around 2000. Due to the IT bubble The rupture was caused by the Federal Reserve taking the initiative to lower interest rates.In fact, I would like to ask you, what do you think of the real reason for the reduction in interest rates?

Lang Xianping: Greenspan lost his way in 2001 after he successfully "contained" the impact of the dot-com bubble on the US real economy.When the Fed adjusts the interest rate level, it originally only looks at the inflation rate.But Greenspan firmly believed that the interest rate at that time would not bring too much inflation risk, so he began to adopt a low interest rate policy. Audience: Hello, Professor Lang, I would like to ask a question about consumption. Just now you mentioned an article about the United States that credit cards should be handed over to Chinese people for consumption. You mentioned such a point of view, and you agree with this point of view.If you think about it, if this thing is really possible, if the Chinese take some credit cards, then I have a question about what he will buy.For example, just now you mentioned China’s private economy. For example, 35% of the total economic output is exported to foreign countries. These products exported to foreign countries are now absorbed by the country.However, these products were originally intended for foreign countries. If they need to be digested by domestic consumption, is it not easy to digest them?

Lang Xianping: Of course, you are absolutely correct. Audience: So you mentioned the issue of stimulating consumption, can you help us explain it a little deeper. Lang Xianping: The author said that not many farmers in China can afford tennis shoes and Christmas tree decorations worth 400 dollars; moreover, China’s social insurance, medical insurance and unemployment insurance are not perfect, and there is no social security guarantee. How can you not save money?In other words, they all know the issues you mentioned, and he also mentioned that the purchasing power of the Chinese people is not enough, and the purchasing power of our farmers is very weak.Stimulating consumption needs a good plan if it is to be implemented, so I didn't talk about it so carefully today.I'm just telling you guys.I think the biggest problem with the government's 4 trillion yuan project is that it is still at the level of infrastructure construction. It is hoped that through infrastructure construction, it will stimulate domestic demand and increase the number of employed people.But have you ever thought about the side effects of doing so?It is because the private economy is more depressed, and the result of the depression is that the common people do not want to consume even more.So this side effect is more serious, more people will be unemployed, and more unemployed people will be less afraid to consume, forming a vicious circle.So what to do now?It is a theoretical model to take this money, encourage everyone to consume, and then increase consumption to digest our excess production capacity.As for how to do it, I didn't talk about it today, and it's not something I should care about, because I haven't reached this point yet, and I'm still in the stage of hesitating whether to increase consumption, so I hope that through this book, people Relevant parties can change their thinking and begin to notice that people's consumption is more important than anything else.There is still time for us to talk about it at that time, and it is a bit early now, so American writers joked that the purpose of letting Chinese people use credit cards to spend is to hope that Chinese people will have more debts, but the problem has arisen again, what if they do not pay back , and there are follow-up questions, this question is very complicated. Over the past 10 years, cutting-edge companies have introduced the concept of real-time business (Real-Time Business) into their standardized operating procedures, based on the collection of current information, to help enterprises respond quickly in the ever-changing business environment.Today, we see the trend of business operations is turning to what I call Predictive BusinessTM (Predictive BusinessTM), in order to develop a kind of insight into opportunities, pre-emptive business management capabilities.Real-time business focuses on the speed of doing things, while predictive business is related to crossing the limit and doing things that were impossible in the past. The accumulation of a single point event to a critical level will become the tipping point of a large-scale trend, and then a new page will be opened from it.I believe that in the field of real-time business, our ability to capture, analyze and identify dynamic data has reached a critical level (critical mass), and now we have the ability to predict future business events with higher accuracy. We have reached hit that tipping point.The ability to act nimbly and nimbly before an event occurs is undoubtedly a powerful addition to business operations. Forecasting that commerce will change the way businesses operate in all walks of life will have an impact on business practice as broad and deep as the introduction of corporate networks to connect desktop computers and servers in the 1980s has changed business operations. The next round of innovation in the enterprise is called the demand chain, a kind of thinking of "starting to do it when someone buys it".Now, the grocery store near you is doing just that, you order your favorite sandwich and they assemble it for you in minutes.Dell is the most well-known company in the computer industry that uses the make-to-order method.Likewise, the automobile industry in Europe is a typical example of make-to-order manufacturing in manufacturing.Still, make-to-order has its limits, and it clearly doesn't offer customers the immediate pleasure of driving a new car home from the dealership or having a new computer ready to use right away on the day they buy it.Some people will think that this approach is just to transfer the pressure of inventory to suppliers, and it is not to mention inventing a new business model to meet customer needs. Predictive business, in contrast, embodies what I call an "eager network": "Because you know demand is coming, so you start producing." Based on this concept, companies can avoid the pitfalls of both supply and demand chains .You don't have to hoard inventory yourself, nor do you have to force your suppliers to do so.And you won't fall into the trap of not having enough of the right product at the right time and missing out on business opportunities. (This article is excerpted from "The Road to the Future: A Revolution in Corporate Thinking under the Global Economic Change" by [US] Wei Weijing Ranazanfu)