I believe most people agree with the old saying that it is better to teach people to fish than to teach people to fish, but if you ask whether China's economy will be driven by investment or consumption in the future, they will probably say the latter. In fact, in the understanding of most people, investment is fishing and consumption is fish. Although investment is also known as "stimulating domestic demand", most of it does not belong to "final demand". The purpose of investment is often to increase supply, but if demand is insufficient, there will be excess supply.

Well, under the impact of this round of epidemic, people have called for rapid investment in infrastructure, so as to stabilize the economy and protect jobs. In this regard, we might as well analyze the basic situation of supply and demand in the current economic environment.

How much more infrastructure investment can be increased--The flow of population is declining and the growth rate of goods flow is slowing down.

Whenever economic growth slows, everyone has high hopes for the government's counter-cyclical policies, including infrastructure investment, but the nominal growth rate of infrastructure investment is only 3.8% in 2019, while many sellers are expected to grow by 10% at the beginning of the year. I remember that from 2013 to 2017, infrastructure investment always maintained a high growth rate of nearly 20 per cent, which was also a counter-cyclical policy adopted to stabilize growth.

However, economic slowdown is a natural law, because the economic stock is getting larger and larger, it is impossible not to decline the proportion of increment. The same is true of investment, which made a great contribution to GDP before, just like after the family bought a new house, the main expenditure was on decoration and furniture and household appliances, and then the household expenditure was mainly on daily consumption, such as food and clothing, culture and education, leisure tourism and so on. It's impossible to pry up the floor and lay it again every year.

Moreover, the high growth rate of infrastructure investment in 2013-17 could not push up the growth rate of GDP, and now it is even more unrealistic to rely on infrastructure to boost the economy. If you look at the industrial structure of developed economies, the share of services is generally around 80 per cent, the contribution of investment to GDP is generally 20 per cent, and the contribution of Chinese investment to GDP has dropped from 44 per cent in 2013 to about 30 per cent today.

There are two important time points for China to promote infrastructure investment, namely in 1999 and 2009, the former is to deal with the Asian financial crisis, and the other is to deal with the subprime mortgage crisis in the United States. So, logically speaking, this time should be to deal with the epidemic.

The growth rate of Capital Construction Investment and broad fiscal expenditure in China

But will the continued investment in infrastructure lead to the problem of "surplus"? Two years ago, we did a study and designed the index of "relative amount of infrastructure per capita" to try to make a provincial comparison. The stock of infrastructure is roughly described by indicators such as railway operating mileage, total water supply, electricity consumption, urban public transport vehicles per 10,000 people, urban road length and the number of mobile phone users in 31 provinces, autonomous regions and cities in mainland China. According to the number of permanent residents in the province, the per capita level of infrastructure stock is calculated.

Comparison of the relative amount of infrastructure per capita between the eastern and western regions (2006-2016)

It is found that by 2016, the relative amount of infrastructure per capita in eastern, central, western and northeast China increased by 90.6%, 121.3%, 127.3% and 84.3% respectively compared with 2006. There is no doubt that the central and western regions are the main battlefield of infrastructure construction. in terms of per capita level, the gap between the central and eastern regions has significantly narrowed over the past decade, with the ratio climbing from 61% to 71%. The relative amount of per capita infrastructure in the west is ahead of other regions, and the leading edge has been greatly expanded, with the ratio of west to east from 113.9% to 135.3%.

In other words, the total GDP of the eastern part of the country accounts for more than 50% of the country, and the per capita GDP of the eastern region is much higher than that of the western region, but in terms of infrastructure investment, the per capita level of the western region is much higher than that of the eastern region. Does this mean that there is a structural imbalance in infrastructure investment in China?

Structural imbalance is not equal to structural surplus. However, from the perspective of our population flow, from the change of the proportion of regional economy, the Yangtze River Delta and the Pearl River Delta are undoubtedly the two major regions with the increasing proportion of population agglomeration, industrial agglomeration and GDP. This means that the infrastructure in some non-economic hot spots is at risk of being "idle". In the United States and other developed countries, these areas are called the "rust belt".

Therefore, the problem of structural surplus of infrastructure should have emerged. So is there a surplus of some infrastructure? Epidemic factors aside, just from the 2019 data, I think there is a total surplus in some infrastructure. For example, China's total passenger transport volume showed a negative growth (- 1.9%) in 2019, which is related to the continuous decline in the number of floating population in China.

Among them, is there a surplus of the total mileage of low-grade highways below the second class and the excess number of airports in non-core areas?

In addition, there is a matching problem between the stage of economic development and infrastructure, infrastructure construction is too advanced, not only do not generate revenue, but also have to pay maintenance fees. Judging from the future trend, with the development of the Internet and artificial intelligence, online services and express delivery services will become more and more developed. for example, in 2019, the total business volume of China's postal industry increased by 31.5% over the previous year, and the total volume of telecommunications business increased by 62.9% over the previous year. Online retail sales of physical goods increased by 19.5% over the previous year, accounting for 2.3% of the total retail sales of consumer goods.

Therefore, infrastructure investment is certainly needed, but attention should be paid to changes in structure and trends. It is important to boost economic growth and provide jobs, but the money should be spent where it is really needed. The decline or slowdown of population flow and goods logistics are matched with the decline in economic growth, and the characteristics of China's stock economy are becoming more and more obvious. In this case, it is unlikely to match the 5 per cent or lower GDP growth rate with more than 10 per cent growth in infrastructure investment.

New infrastructure requires heavy investment--But don't invest blindly

Recently, everyone is talking about the new infrastructure. In December 2018, the Central Economic work Conference put forward the concept of new infrastructure for the first time, pointing out that it is necessary to "increase the technological transformation and equipment upgrading of the manufacturing industry, speed up the pace of commercial use of 5G, and strengthen the construction of new infrastructure such as artificial intelligence, industrial Internet and Internet of things". Therefore, new infrastructure construction mainly refers to infrastructure related to high-tech industries.

Today, the new infrastructure in the documents includes seven industries: base station construction, UHV, inter-city high-speed railway and urban rail transit, new energy vehicle charging piles, big data center, artificial intelligence and industrial Internet.

In fact, the National Bureau of Statistics has long defined infrastructure investment as investment in transport, postal services, telecommunications, radio and television and satellite transmission services, the Internet and related services, and water conservancy, environment and public facilities management. It has also included the content of the new infrastructure.

It can be seen that the new infrastructure actually contains two definitions in the narrow sense and the broad sense: the new infrastructure in the narrow sense takes science and technology as the core and focuses on laying the foundation for the upcoming era of the Internet of things, mainly including 5G base stations, data centers, artificial intelligence, industrial Internet, new energy charging piles, etc.; in a broad sense, new infrastructure is an extension of "old infrastructure" in new areas, emphasizing deficiencies, including urban rail transit, UHV, environmental protection, and so on.

According to our review of the investment direction of PPP projects, the traditional infrastructure projects represented by transportation and municipal construction account for more than 70% of the investment, which is still the main force of infrastructure investment, while the narrow sense of new infrastructure investment accounts for only about 0.5%, the broad sense of new infrastructure investment accounts for about 16%, the proportion is not high. In terms of scale, the volume of the new infrastructure in the narrow sense in 2019 is only about 88 billion, and the proportion is relatively stable; the scale of the new infrastructure in the broad sense is almost 2.9 trillion, and the proportion in the infrastructure has increased.

The pulling effect of Infrastructure Investment on nominal GDP growth (%)

Therefore, the pulling effect of new infrastructure on GDP is limited, and we can not deliberately increase the scale of new infrastructure investment in order to stimulate GDP. In the past, there have been many cases in which various places rushed to invest in new projects in our country, resulting in serious surplus. Take the base station construction of telecom as an example, in the past, the three major telecom operators built their own base stations, from 2G to 4G, resulting in a waste of resources. Therefore, now the construction of 5G base stations, hope to be able to rational layout, co-construction and sharing.

Under the epidemic--The more you teach people to fish, the better.

In ancient times, fishing techniques were poor, and there were many fish but few fish. Therefore, it was reasonable to teach people to fish. Nowadays, due to overfishing, there are fewer and fewer wild fish, most of which rely on aquaculture. For example, China accounts for more than 50% of the world's freshwater fish production, resulting in the problem of overcapacity. Overcapacity is not due to too much fish, but to the lack of effective demand, that is, many families still cannot afford to eat fish.

China has become the largest exporter of freshwater products and seafood, and most of the exports are farmed aquatic products. In 2018, the per capita output of aquatic products is as high as 46 kg, but the per capita consumption is only 14.3 kg. Per capita consumption is also much lower than that of other large aquatic products countries. According to the data of the Food and Agriculture Organization of the United Nations, the annual per capita consumption of aquatic products in South Korea, Japan and Norway is about 50 kg, while that in the United States and Canada is about 20 kg, which is higher than that in China.

In 2018, the per capita consumption of aquatic products of rural residents in China is only 7.8 kg, but it is only about 1 kg of the consumption of urban residents, which shows how important it is to give fish to rural residents. Of course, this "fish" is in a broad sense. Under the continuous downward trend of the Engel system in our country, residents need to upgrade their consumption, such as to meet the needs of leisure and entertainment, health care and so on.

Affected by the epidemic, many enterprises in China have difficulties such as a substantial reduction in customers, disruption in the supply chain, insufficient orders and so on, which are in urgent need of relief; but on the other hand, when enterprises are underemployed or out of business, the income of workers will also be reduced, and even employment difficulties will occur. From the early fiscal policy and monetary policy, there are still many kinds of subsidies and support for enterprises, but in the case of insufficient demand, this kind of relief can only be saved for a while.

Because even if there is no epidemic, the average life cycle of small and medium-sized enterprises is still on the short side, some say 3-5 years, others say that the average life cycle of individual industrial and commercial households is only one and a half years, so the problems of difficult and expensive financing will naturally arise, which is not only a Chinese problem, but also a global problem, indicating that it is best to teach people to fish through market-oriented means.

But teach people to fish-by subsidizing residents to increase final demand, when demand expands, the production capacity of enterprises can be released, enterprises can survive, employment can be increased, it is easy to form positive feedback.

In this outbreak, the United States has also adopted the method of giving fish to humans: 75000 US dollars per year.

The British government will pay 80 per cent of the salary for people affected by the epidemic, up to £2500 a month; British companies will also receive interest-free loans for 12 months; and French President Jean-Claude Macron has announced a reduction in the cost of living for French residents. rent, electricity, taxes, gas and taxes are all exempted. Spanish Prime Minister Sanchez announced 200 billion euros (20% GDP) to mitigate the impact of the epidemic, and individual businesses are tax-free for a year. It can be seen that in order to deal with the epidemic, Western countries have both taught people to fish and taught people to fish.

For our country, it is difficult to teach people to fish, because it is impossible for all enterprises to be rescued, choose which enterprises to rescue, which enterprises do not help, with a strong subjectivity, the implementation effect is often not good. In the past, however, our country seldom adopted the method of "giving people fish", because when the issue of subsidies involving all residents was involved, there would be a great deal of controversy, that is, the so-called "inequality without poverty."

However, I am afraid that the greatest pressure on China's economy this year is employment. Even if there is no epidemic, the "six stability" put forward by the central government last year still puts stable employment in the first place. China's economy has shifted from investment-driven to consumption-driven, and how much consumption depends on income. Therefore, I suggest that at present, we should speed up and step up efforts to "teach people to fish" and put too much emphasis on "teaching people to fish". It may be more risky and do not do well, and they will "fish with all their might".