Chapter 4 The third lecture is the impact of the financial crisis on the real economy

Audience: I have long heard that Professor Lang's eloquence is very good. It is indeed very good to listen to him face to face today.Professor Lang's advice to our audience just now is definitely not alarmist, please don't take it as a joke.I think today the subprime mortgage crisis has developed from a single spark in the United States to a prairie fire all over the world.As Professor Lang said, the United States may have started from the outbreak of the subprime mortgage crisis, which affected investment banks and then insurance companies, and finally may endanger the real economy.Then I think that China seems to be a bit strange. When the floods abroad are surging, China seems to be a little bit unmoved.It may be that there are some export-oriented enterprises in Jiangsu and Zhejiang, the Pearl River Delta, and even Hong Kong, and the trend of bankruptcy is intensifying.In China, will this trend start from the real economy and gradually spread to financial institutions, and even the national system behind the financial institutions?Just like what Professor Lang said, foreign countries are now trying the socialist model. I also read a report on this, which seems to say that Marx's "Das Kapital" has been very popular recently abroad.Because I am in the pension business, as Professor Lang said, it is a pension product based on a trust model.I just want to ask Professor Lang, if the five major investment banks in the United States collapsed, will large insurance institutions like AIG be affected in the future?And will our domestic insurance institutions be affected?

At the end of the last lecture, I would like to remind you all.That is, in October 2008, when the global stock market plummeted, our Chinese stock market fell even more fiercely. Others fell for one day, and we fell for three days.And when global stock prices soared in mid-October, we rose less than others. Others rose for three days, and we rose for one day.Why is that?It seems that our entire public opinion still thinks that the old gods are there, as if the financial crisis is someone else's business, we seem to have nothing to do, and our life is quite easy, a bit like the feeling in 1997, life is very good.Do you believe in the saying "The rain is about to come and the building is full of wind"?Do you believe in the phrase "dark before the dawn"?We take things too simply.

Do you think about what level AIG is? A company like AIG cannot afford systemic risk.You ask our insurance company to shoulder the systemic risk that even AIG cannot bear, which is a crisis in itself.Please think again, do you think the international financial crisis will not hit China?Here I must tell you that you are wrong. Each of us recognizes the success of our reform and opening up.We also give a very high rating to our economic growth rate of 10% per year, as do I.But we can't escape the problem, and we can't live in an overly optimistic fantasy.Planning for a rainy day has always been a classic principle of governance.We would rather assume the worst than be too optimistic.Because what if the worst happens?It's never wrong to think of things as bad.

Please think about it, why did we have stock market bubbles and property market bubbles in 2007?Do you think this is because our economic development is very successful and the common people are getting richer, so they speculate in real estate and stocks, which creates a bubble?That is what many of our scholars call excess liquidity. What is excess liquidity?There is too much money in hand, and when the money is too much, it will be used to speculate in real estate, which creates a property market bubble, and to speculate in stocks, thus creating a stock market bubble.So what does macro-control mean?It is to recover excess liquidity.Of course, we have had different views on this issue in the past two or three years. Since October 2008, the Chinese government has recently changed its overall macro-control thinking. I don’t deny that there is my influence in it. For one thing, I am optimistic.

But have you ever thought about what is the essence of stock market bubbles and property market bubbles?First of all, I would like to give you a new concept. Since 10 years ago, China has entered the era of industrial and commercial chains from the past farming era.When a department has a problem, it will have a domino effect.Why do the governments of the United States and Europe want to save the market?Their purpose is to set up a firewall to directly help financial institutions and cut off the business chain.Otherwise, the financial crisis will lead to consumption crisis, confidence crisis, sales crisis, production crisis, and consumption crisis... forming a vicious circle.

Following this line of thought, I ask everyone to think about it, is it possible that the stock market bubble and the property market bubble are the second domino?So, what was the first domino?That is China's manufacturing crisis, and China's crisis is different from other countries.Today we are not only under the pressure of the international financial crisis, we also have a manufacturing crisis, and this kind of manufacturing crisis does not exist in European and American countries.This is why our stock market has performed so poorly. We have risen less than others when others have risen, and we have fallen harder than others when others have fallen. It is because we have more problems than others.And why did our stock prices and property prices fall like this?The reason is that there is a problem with the fundamentals of our country's economy.what is the problem?Let me tell you that the bubbles in our property market and stock market came about because we did not cut off the industrial and commercial chains and set up firewalls when the manufacturing industry was in crisis.I put forward this theory in 2007, and it has been verified this year, that is, the investment and business environment faced by our manufacturing industry is deteriorating. Therefore, our entrepreneurs spend a large part of the money that should be invested in the manufacturing industry. Instead of investing in real estate and stocks, they took it out to speculate in real estate and stocks, which caused stock market bubbles and property market bubbles.

I said a word, and it has now been confirmed that the essence of the property market bubble and the stock market bubble is just a reflection of the manufacturing industry, so it cannot last.It is not because the economy has developed better and the common people have become richer, so they have more money to speculate in real estate and stocks.This is not the case. The actual situation is that the crisis in the manufacturing industry has squeezed a large amount of funds into the property market and the stock market, resulting in short-term bubbles.This is why I have repeatedly called on everyone to sell stocks as soon as possible. This is the reason, because this is a short-term phenomenon.So why do stock prices and property prices continue to fall?Because the real determinant of stock prices and property prices is our economic fundamentals, and our economic fundamentals are 70% based on manufacturing.If the manufacturing industry continues to decline, in fact, up to the middle of 2008, the proportion of manufacturing enterprises in Guangdong and Zhejiang has closed as high as 30%, and this number is still rising.By mid-October, Hejun Shoe Manufacturing in Dongguan, Guangdong also closed down, and 6,000 workers lost their jobs.We have already seen that large-scale manufacturing is also starting to suffer, and this shock will intensify over time.

The decline of the manufacturing industry is a reflection of the so-called normality of my country's property prices and stock prices. What is normal?That is, stock prices and property prices have declined as the economy continues to decline.And this is exactly why in May 2008, I spoke in the media, appealing to stockholders across the country not to believe in the Olympic market.Everyone should know that dare to say that there is no Olympic market, not only requires two brushes, but also courage.why?Because the stock markets of all Olympic host countries in history rose sharply before the Olympic Games and plummeted after the Olympic Games.Why do I say with certainty that China's stock market will fall before the Olympics?The reason lies in the so-called backlight phenomenon of the property market and stock market. Since it is a backlight, it must be short-term. In the long run, it will definitely decline due to the decline of the manufacturing industry, which is the main body of China's economy.

Looking back, we can see that the second domino could have been avoided.If two years ago we were able to cut off the industrial and commercial chains immediately when there was a problem in the manufacturing industry like the European and American governments did, set up a firewall, and use our greatest capabilities and resources, just like what our government is doing now, including increasing the tax rebate rate, Give financing incentives and various tax reliefs to solve the problems within the manufacturing industry. As long as the problems in the manufacturing industry can be solved, the funds will not flow out to impact the property market and stock market, and there will be no such serious bubbles. There will not be so many stockholders locked up, and so many middle class people will not be "eliminated".What is the cause of all these problems?It is our government that has not figured out the concept of bailing out the market.We are still stuck in the concept of saving where there is a problem, such as saving the property market if there is a problem in the property market, and saving the stock market if there is a problem in the stock market.

Today I want to tell our government officials, as well as entrepreneurs across the country, that we have entered an era of unprecedented industrial and commercial chains. The essence of the so-called bailout is to set up a firewall and cut off the industrial and commercial chains.If it is not cut off, once the industrial and commercial chain collapses, other real economies will be hit immediately.Therefore, the root cause of the property market and stock market bubbles is that we did not set up a firewall, and we still did not set up a firewall after the bubble, which caused the property market and the stock market to decline.If you don’t set up a firewall, it will also affect the confidence of the people, consumption will be affected, and then production will be affected, and domestic sales companies will face the risk of bankruptcy.For example, what is our most typical domestic sales company?It is sauna, foot washing, and massage, which are definitely not exported, but purely for domestic sales. Under the impact of the industrial and commercial chain I mentioned, they have little to do with international finance.According to the actual investigation I did recently, I went to wash my feet specially, and I asked them, how is the boss's business recently?The boss said don't mention it, business has decreased by 20% or 30% recently.What does this mean?Our domestic sales companies have also experienced crisis phenomena.The reason for this crisis phenomenon is because of the collapse of the entire industrial and commercial chain, because we want to save the market, but we are not very good at it.

We need a new rescue concept.That is, after the problem arises, find the root cause, cut off the industrial and commercial chain, and set up a firewall.This is why I called on the government to rescue the stock market in March 2008, and here is the reason.If you don't save the stock market, what's the next step?The next step is a crisis of confidence, after which a crisis of consumption and a crisis of production began to appear.Did the government help?Yes, and the efforts to rescue the market are quite large, including policy revisions, investment guarantees, and so on.But why the more rescued, the more the stock market fell?It is not because the government has done anything wrong, but the collapse of the entire industrial and commercial chain will lead to a decline in the property and stock markets.Some media friends asked me, Professor Lang, do you think the property market will fall to the cost price?I said that you took the economic recession too simply. If it just fell to the cost price, you can rest assured.Let me tell you, when the property market in Hong Kong fell, one guy fell by more than 60%, 70%, and fell below the cost price.There is no bottom for the property market to fall.We are afraid of this phenomenon happening today, because what is the next step for property prices to fall?Think about it, everyone, cut off the confession.There are no jobs, what do you use to repay the loan?Moreover, the property market has fallen so much that even if you sell the house to repay the loan, you still cannot afford it.For example, you bought a house for 100 yuan, and now it has fallen to 40 yuan, and your loan is 70 yuan. Even if you sell the house, you can only get back 40 yuan, and you still owe a loan of 30 yuan. Therefore, it is very likely that there will be a phenomenon of cutting off the supply like in Shenzhen, and everyone simply refuses to pay it back.In addition, the collapse of this industrial and commercial chain will cause a large number of unemployment, and there will be no jobs, so there will be no ability to repay the loans.So what's next?The next step is to be like the United States, and the financial crisis caused by the real estate bubble will come.So I repeat again, China is a property market bubble and stock market bubble triggered by the manufacturing crisis, leading to a sharp drop in property prices and stock prices, severe unemployment, resulting in supply cuts, resulting in a financial crisis, and the financial crisis is linked to the United States.Therefore, we have a manufacturing crisis plus a financial crisis, as well as foreign financial crises.That's why our stock market is doing so poorly, because we're a lot more dangerous than America.At this moment, many people are optimistic that we will have no problems, we should help the United States, we should invest in the United States, help the United States, and help Europe. We are very good.Help this, help that, I suggest that you help yourself first is true.Save more money to prepare for the winter, because even if there is no international financial crisis, the crisis in my country's manufacturing industry itself is enough to break our entire industrial and commercial chain, and this has already happened. Has the European and American financial crisis started to impact us?Just started, the real impact has not yet begun.Let me tell you why, because the financial crisis in Europe and the United States will have two major impacts on us.First shock, what if their firewall fails?If their firewalls fail, their industrial and commercial chains will collapse, resulting in a crisis of confidence, reduced consumption, bankruptcy, unemployment, a crisis of confidence, and reduced consumption.The reduction in consumption will directly impact our country's economy.Please think about it, do you know how closely our economy is linked to European and American countries?There is overproduction in our Chinese economy, do you know that?Among the entire GDP, our domestic consumption only accounts for 35%.And what is the production capacity of our Chinese manufacturing industry?The proportion of GDP is 70%.In other words, we have another 35% of capacity, what is it called?It's called overproduction, that is, products that we can't digest.This part of excess production has been absorbed by us due to the traditional debt consumption patterns of European and American countries.For example, the debt consumption ratio of American households accounts for more than 95% of its GDP. This model of consumption by borrowing money has absorbed 35% of China's excess production capacity.Therefore, our export can become a horse-drawn carriage for economic development. Please think about it, 35% of our GDP is absorbed by others in this way. Under such circumstances, once the firewalls of European and American countries are broken, this kind of impact will hit our export hard, which accounts for about 35% of GDP. Can you imagine the blow?The impact on our China cannot be underestimated. This is the first impact. The second shock, even if the firewalls of European and American countries successfully cut off the industrial and commercial chain, and the European and American economies began to recover, have you ever thought about the effect of "melamine" in the economic systems of European and American countries?Think about our own consumption of milk, have you noticed that after the "melamine" incident, although our government has come forward to solve the problem and rebuild the confidence of the people, when you go to drink coffee, you still hardly dare to add creamer, You don't even dare to drink milk tea anymore, and even your children don't dare to drink our own milk powder anymore.Our consumption of milk powder will drop due to the impact of "melamine".By analogy, will European and American countries change their consumption patterns because of the "melamine" in the financial system?What kind of change?People no longer spend in debt, but start to spend within their means.If so, it's over.Do you know how much this will reduce consumption?Europeans don’t talk about it, let’s just look at Americans. Americans will reduce their consumption expenditure by 0.7 trillion US dollars. What is this concept?China's entire export is less than $1 trillion.Are you worried?The change in consumption patterns is the second impact. Around November 11, 2008, U.S. Treasury Secretary Paulson suddenly announced that 700 billion U.S. dollars will be rescued for units of credit cards, consumer loans and student loans. Obviously, these are the main sources of debt consumption. group, apparently they have a problem too, and it seems to be a "melamine" problem too.It is conceivable that under the impact of "melamine", the consumption pattern of Americans is likely to change in the future. Of course, is it possible that all is well?For example, the firewall is in effect, and Americans are not afraid of "melamine" and continue to consume with high debt. Of course, this is the best situation.But, for entrepreneurs, for us politicians, you can't assume the best, you assume the worst.When this moment comes, it will directly impact the entity of my country's manufacturing industry from the financial industry.And don't forget that our manufacturing industry is already in crisis.However, the industrial and commercial chain has not been cut off, causing this chain reaction to impact other departments.Coupled with the possible rupture of foreign firewalls and changes in debt consumption patterns, this is the reality we are about to face.I want to ask you, are you nervous?What should you do under the stress of this reality?I would like to propose two proposals to our entrepreneurs, our stockholders, and our ordinary people. Let’s talk about entrepreneurs first. Our Chinese entrepreneurs only have personal hard struggles, but lack the baptism of the Great Recession.Therefore, most people are more active than conservative.Let me give you an example, what is the average gearing ratio of our listed companies? 100% to 300%.The so-called gearing ratio is liabilities divided by capital, not assets.Of course, there is the impact of listing regulations, and we cannot deny this.Let's compare the four heavenly kings in Hong Kong, the four heavenly kings headed by Li Ka-shing.These people have experienced numerous recessions, and the four heavenly kings are basically engaged in real estate. Do you know what their capital-liability ratio is?It is 20%.Do you think Li Ka-shing can't borrow money?It's possible that you won't be able to borrow money, and it's impossible for him to be unable to borrow money, so why doesn't he borrow money?Because he has experienced the baptism of the Great Recession and knows that there are advances and retreats.A truly great entrepreneur is not based on how much money you can make, but on the best risk management during the Great Recession. This is a truly first-class entrepreneur. So why is Goldman Sachs known as the best company?It is not the biggest, but every time a crisis comes, it can get away with it, why?Because risk management is done well.Just imagine, why do the four heavenly kings each have a debt ratio of 20%?Not on average, but every one is 20%.Otherwise, they would not be able to become the Four Heavenly Kings.I once asked one of them about his business philosophy, and I think his answer can be a good reference for all of us entrepreneurs, that is to be conservative and not forget to retreat when advancing.For us ordinary people, we should also have an understanding that during the Great Recession, don't dream of making money, it's not bad if you don't lose money.Even Li Ka-shing, Buffett, and Bill R26; Gates all lost money, so it is understandable for you to lose some money.For us ordinary stockholders and ordinary people, what kind of mentality should we use to manage money?I tell you clearly: you will lose no matter what you invest in, don't have illusions. Because the real currency pricing power is in the hands of the U.S. government, so don’t ask me whether the price of gold will rise. Whether the price of gold will rise depends on how the U.S. government operates.Don't ask me whether the price of the euro will rise. That is not a question of whether the European economy is good or not, but depends on what the US government does.As long as the U.S. government makes a major move, such as issuing a large amount of currency, the dollar may fall.If there is a hearing to rectify the speculators behind the oil price, causing the oil price to drop from 147 US dollars a barrel to more than 60 US dollars a barrel, the US dollar will strengthen, and the US dollar will strengthen, and other currencies in the world will fall.Then you may have to ask again, when will the dollar be strong?Let me tell you, my level is limited, but the US government is full of talents. They are much smarter than me. I can understand what they are doing. As for what they want to do, I have no such level of prediction.In today's Chinese society, there are very few people who can realize their own shortcomings. We don't have many things today, but there are so many talented people.