On April 8, the Macro-Finance Salon (No. 159) was held online. This is the second salon under the series of “Learn from the spirit of the Two Sessions--finance supports the start of the 14th Five-Year Plan”. This salon was themed China’s economy and capital market in the 14th Five-Year Plan period. Participating the salon were Zhong Zhengsheng, Chief Economist and Director of Research Institute of Ping An Securities, who delivered the keynote speech, Fan Xiwen, Chief Risk Officer of the China-Latin America Cooperation Fund, Guan Qingyou, Director and Chief Economist of Rushi Finance Research Institute, Liu Qingsong, Council Member of Securities Association of China, and Wang Changyun, Dean of Hanqing Advanced Institute of Economics and Finance at RUC. The salon was chaired by Zhao Xijun, Co-Dean, Academy of China Capital Market, RUC.

First of all, Dr. Zhong Zhengsheng released the report themed New Pattern, New Drivers—— China’s Economy and Capital Market in the 14th Five-Year Plan Period. The report focuses on the link between China’s economy and capital market from three aspects:

I. New changes in China’s economy;

II. Long-term prospects for RMB assets;

III. The development trend of China’s capital market.

The key takeaways of the report are as follows:

I. New Changes in China’s Economy

1. With the pandemic spreading across the globe, China’s economy took the lead in achieving a V-shaped rebound.

2. The first half of 2021 has seen China’s economy continuing to be export-driven. The degrees to which the economy recovers in countries are affected by the progress of vaccination. Economic recovery in the European countries and the US will pick up to support China’s exports; Countries where the progress of vaccination is significantly lagging behind are expected to seize China’s export market share after Q3.China’s export growth is expected to decline significantly after June, as the global economic recovery peaked in Q1 and Q2 of 2021.

3. The real estate industry chain remains high prosperity. With the real estate sales growth accelerating in 2020, despite further tightening of real estate supervision, real estate investment still shows good resilience.

4. The growth momentum in manufacturing investment has increased. China’s manufacturing sector is at the start of a new round of capital expenditure (CapEx) cycle, with industrial capacity utilization climbing to a high level in Q4 last year, further strengthening the logic of capital expenditure start-up. It is expected that the high prosperity in export to last till mid-2021 and the targeted support policies in the manufacturing industry will also bring some support to manufacturing investment.

5. Consumption is a weak link in China’s economy. Consumption remains a weak link in China’s economy, and there is a clear gap between the residents’ income growth before and after the pandemic, which increases preventive savings in China. How long it takes to return to normal in the later period determines the future consumption expansion.

6. China faces mainly import-type inflationary pressures. Large-scale fiscal stimulus and infrastructure projects by the US, coupled with the continued damage to commodity supply as a result of the pandemic, have led to a surge in international commodity prices. China’s supply-side structural reform advances, catalyzing the rise in steel, coal and some other commodity prices. The price rise in industrial products has a different impact on the entire supply chain than when the price of raw materials rises too fast, which may increase the production and operation risks in the middle- and lower-reach enterprises.

7. China’s economic growth momentum will gradually peak. After four quarters of post-pandemic recovery, China’s economic growth is close to peaking in terms of quarter-on-quarter growth. The export driver for the Chinese industry is concentrated in the equipment manufacturing industry in the middle reaches, for whom, however, the growth rate of inventory of finished products has been at a high level, thus a limited space for replenishing inventory. Once the export driver weakens, the turning point of quarter-on-quarter growth may soon follow.

8. The fiscal and monetary policies are moving towards normalization. Monetary policies this year will be a combination of “credit stabilization + strict supervision”, with special attention paid to the progress and strength of “credit tightening”. The path to fiscal normalization will be slower than expected.

II. Discussion on the Long-term Prospects of RMB assets

1. Emerging markets are under the pressure of the “returning dollars”. The upward peak of US bond yields is forecast to be around 2.5% before 2023, and the second half of 2021 is expected to see the next upward movement. The US debt interest rates will show a slower upward movement, leading to a weakened marginal impact on US stock valuations. The current US stocks, compared to the US debt, remains a high performance and price ratio, to which the one-year RMB assets may be inferior.

2. Medium-and long-term RMB assets remain attractive. The reasons are in three aspects: (1) Compared with those of the major developed economies, RMB assets has an income advantage, attracting the active allocation of global assets. (2) US stocks face adjustment risks in the medium and long term. (3) Adding RMB assets to the portfolio is a good strategy.

3. The 14th Five-Year Plan attaches great importance to high-quality development and releases a number of policy dividends. In the 14th Five-Year Plan, two relative growth targets are mentioned: First, “the growth of labor productivity is higher than the growth of GDP”; Second , “the growth of per capita disposable income of residents is basically synchronized with the growth of GDP”. At the same time, five policy signals are released: (1) stimulating the vitality of the market players;(2)innovation-driven development;(3) implementing the Rural Revitalization Strategy across-the-board;(4) perfecting the New Urbanization Strategy;(5) implementing a high-level Opening-up Strategy;

III. Discussion on the Development Trend of China’s Capital Market

The main mission of the capital market in the new development stage is market-oriented resource allocation and incentive and restraint mechanism. For market volatility, citing President Yi Huiman, as long as there is no excessive leverage, there will be no big deal, and the key is to have a reasonable capital structure. At present, the registration system reform in China has achieved the stage results featuring the progress made from 2019 SSE Star Market pilot registration system to 2020 GEM registration system promotion. The CSRC has strengthened the control and supervision in the registration link on the quality of the examination by the exchanges, offering conditions, and information disclosure. The IPO progress also shows the regulatory care for the stock market

In the future, we should promote the institutional opening up of the capital market. Hot money moving extremely rapidly in and out of any market can be harm to the healthy development, which is to be strictly regulated. Last March, the collapse in US dollar financing caused a huge shock in global financial markets. Compared with emerging markets, China’s stocks fell narrowly and bond markets largely did not see net outflow. It can be seen that China’s capital market has the ability to resist risks and extreme market fluctuations. Under such circumstances, China should adhere to the principle of self-development, “What is important is to do our own things well”.