Photo:VCG

Editor's note:

In 2023, how did the Chinese economy perform? In 2024, what will become the engine for China's economic growth? Recently, Global Times reporters Chen Qingqing and Bai Yunyi (GT) interviewed Hong Hao (Hong), Partner & Chief Economist at GROW Investment Group, to review China's economic transformation in 2023 and look ahead to next year's growth prospects. He told the Global Times that China is moving away from the traditional path of stimulating the economy. New energy and high-end manufacturing will become the engines of future economic growth in China. He also believes that during China's economic transition, it's unnecessary to rigidly set a fixed growth target. Instead, more attention should be paid to managing inflation and unemployment rates.

GT: Looking back at China's economic development in 2023, some voices suggest that China's post-pandemic economic recovery hasn't been as strong as initially anticipated. What's your perspective on this view, and what do you think are the reasons behind this phenomenon?

Hong：At the beginning of the year, the world was overly optimistic about China's real estate market because we have always relied on real estate to drive investment, production, sales, and create credit demand, thereby stimulating the entire economy. However, now it's different from the past. Investment in real estate has seen a negative growth year-on-year, failing to drive economic growth.

This time, we see that the government's approach to real estate is to "support" rather than "stimulate" it, not pressing down as before to stimulate the rise of the real estate market to drive the economy. I think this is intentional, with funds being invested in other areas such as new energy and high-end manufacturing. Currently, China has already shown significant advantages in these two fields.

What I see in the development of China's economy in 2023 is a kind of transformation. Additionally, I believe that when assessing China's growth, we should not only look at the Gross Domestic Product (GDP) but also at the Gross National Product (GNP). At present, many of China's manufactured goods are actually exported to the US via other countries, and many Chinese companies have set up factories in Mexico, Vietnam, and other countries, with the Belt and Road Initiative involving extensive overseas investments. When discussing Japan's economy, we often talked about Japan's overseas assets, but when discussing China's economy, GNP is rarely taken into account and calculated.

Looking ahead, we should pay more attention to China's GNP, and we will find that the resilience of the Chinese economy is more optimistic than the current statistical figures suggest. Some people are overly pessimistic about the future of China's economy, but I completely disagree with their views.

GT: What do you think will be the driving force or engine for China's economic growth in 2024 and the coming years?

Hong: I believe it will be the breakthroughs in high-end technology manufacturing. Huawei has already developed its own chips, and its smartphones are quite impressive. BYD, for instance, can be said to have outpaced Tesla, which is quite remarkable. I am very optimistic about China's prospects in the field of high-end technological manufacturing.

Of course, investing in these sectors can be costly, but we are not starting from scratch. We already have a strong foundation. Industries like semiconductor manufacturing not only have high added value but also generate a broad range of upstream and downstream demands and supply chains, possibly even more extensive than real estate. Additionally, investments in these areas are sure to create new jobs and will involve borrowing or bond issuance through the financial system, creating a multiplier effect.

Many people are still fixated on traditional indicators like real estate, and feel pessimistic when they see falling housing prices or stock markets. However, this perspective is misplaced. We cannot continue to view real estate with the same importance it held over the past two decades. It's time for a change in thinking.

GT: What growth rate do you think China's economy can achieve in 2024?

Hong: During China's economic transition, I don't think it's necessary to rigidly set an annual growth target above 5 percent. Western economics primarily focuses on two indicators: inflation and employment, and they rarely set a specific growth target, allowing for more flexibility in decision-making. Moreover, during a period of economic transition, many things are unpredictable, with numerous uncertainties, such as sudden restrictive policies from the US in a specific sector.

I believe it's normal for China to experience faster growth in some years and slower in others. The important thing is to maintain stable price levels and employment. China is unlikely to see negative growth.

GT: We've noticed that some economists recently suggest stimulating growth by increasing inflation. Do you agree with this viewpoint?

Hong: I disagree with this approach. It's easy to trigger high inflation, which can elevate nominal GDP, but a high inflation environment is detrimental to people's lives and social stability. If the inflation target is set at 6 percent, the actual inflation rate will likely reach 8 percent or even 10 percent. Currently, I don't see any indications that the government is stimulating the economy by inflating prices. Stable, low inflation is the most appropriate policy approach.

GT: You've been working in Hong Kong for a long time. Whether Hong Kong's status as an international financial center is being shaken attracts international concerns. Recently, there have been remarks joking that "Hong Kong has become an international financial relic." What's your view on these concerns and on the prospects for Hong Kong?

Hong: The impression that Hong Kong's financial status is waning mainly arises from the low volume of IPO financing and transactions this year. However, even with these low volumes, Hong Kong's market situation is still better than Europe's Euronext. Some say Hong Kong is being replaced by Singapore, but that's not really the case. Apart from iron ore futures and A50 futures, which are China-related, other stocks traded in the Singapore exchange have very low volumes.

Hong Kong's current low trading volume and financing amount are mainly due to the overall poor market conditions. We have experienced worse situations, such as during the 1997 financial crisis and the 2008 financial crisis, but we have overcome them. As long as the business environment is good and companies can make a profit, foreign capital and enterprises will continue to flow into Hong Kong.