[copper and Aluminum Summit] Guan Qingyou: an interpretation of the Global Economic situation and Policy orientation in 2018

On March 22, 2018, at the "2018 (13th) Shanghai Copper and Aluminum Summit," jointly organized by the Shanghai Nonferrous Metals Industry Association and (SMM), the Shanghai Nonferrous Metals Industry Association, Guan Qingyou, president of the Financial Research Institute and chief economist, Focusing on the global economic recovery, the tightening of monetary policy, the progress and impact of US tax reform policy, the changing trend of the eurozone, the follow-up impact and response mechanism of supply-side reform after the 19th CPC National Congress, the landing of domestic environmental protection policies, and policy trends, A comprehensive analysis has been made in the aspects of.

A 2018 Global Macro study: from Virtual to Real

Turning the momentum of the Global economy: from the Center to the periphery

The global economy is expected to continue its recovery in 2018. In early 2018, the global economy continued to recover and was strengthened by global growth. In its Global Economic Outlook, released on January 22, the International Monetary Fund's (IMF) further raised its forecast for global economic growth for 2018 and 2019 by 0.2 percentage points to 3.9 per cent.

Europe and emerging markets may be the main drivers of growth in 2018: the US economy led the global economic recovery in 2017, but the momentum of recovery in Europe and emerging markets in 2018 is expected to take over from the US as the main driver of global economic growth. On the one hand, the U. S. economy lacks stamina. The negative effect of tighter monetary policy on the US economy may begin to appear; The arrival of Trump's tax reform policy has given a certain boost to the US economy in the short term, but the rise in the long-term economic hub of the United States is very limited and close to neutral, and the space for subsequent expansion of US household consumption is limited. Europe, on the other hand, is in a solid and comprehensive recovery cycle. Europe's recovery is expected to continue, driven by two rounds of household consumption and investment spending; emerging markets' growth in 2018 will be driven by sustained capital inflows and a warming trading environment.

The turn of Global Policy Competition: from Virtual to Real

The global wave of monetary policy shift: from the past "virtual monetary policy competition" to "real fiscal and structural reform competition".

In 2017, the pace of interest rate hikes in the United States tightened three times in the whole year, the United Kingdom raised interest rates once, Canada raised interest rates three times, and eurozone interest rates decided to reduce the size of QE. In 2018, the United States will still raise interest rates three times and four times. Japan is also raising the possibility of raising interest rates without withdrawing from the QE. The world emerged from the competition of currency release + exchange rate depreciation from 2014 to 2016, and entered the competition of currency tightening + exchange rate appreciation + reform process in the second half of 2017.

Global: general monetary tightening + universal interest rate rise + general appreciation with the exception of the United States dollar + general promotion of structural reform

The turn of Global Geo-targeting: from North Korea to Trade

The concerns about global cooperation in 2017 are mainly in the United States and North Korea. In 2018, as relations between the DPRK and the United States eased sharply, US trade unilateralism entered a substantive friction.

Trump's key word in 2018 is "trade friction," an inevitable response to the November midterm elections, but the real impact has a lag and greater uncertainty.

Progress: us trade policy has gradually tightened since mid-2017. In terms of negotiations, the US Government is engaged in the renegotiation of the North American Free Trade Agreement (NAFTA) and the US-ROK Free Trade Agreement, launched preparations for the US-UK free trade negotiations, and studied the feasibility of carrying out free trade negotiations between the United States, India, Pacific, and Africa. In terms of policy tools, Trump has made greater use of trade relief tools, including anti-dumping, countervailing investigations, articles 301, 201, 232, and so on. In early 2018, the US government imposed tariffs and quota restrictions on imports of solar panels and household washing machines under Article 201, tariffs on imports of aluminum and steel under Article 232, and launched a double reverse investigation on imports of aluminum alloy plates from China.

Outlook: under the pressure of the mid-term elections in the United States on November 6, 2018, the United States is bound to have constant friction in foreign trade, and the tightening of trade policy will become the main tone of US policy throughout the year. in order to ensure voter support, it will win a majority of seats in both houses of the November midterm general election. Trump is tough on trade, and his political aspirations are stronger than his real economic demands. In the short term, it does not affect the actual growth rate of global trade, but aggravates the uncertainty of the future, and the impact of landing has a certain lag relative to the "politics of the mouth".

Recent focus: the United States plans to impose high tariffs on aluminum and steel is only a starting point?

For the United States, high tariffs can reduce the trade deficit and increase employment, but conflicts with multinational trade will intensify, with the risk of raising downstream economic costs.

High tariffs are imposed on steel imports, mainly from Canada, Brazil, South Korea and Mexico. In 2016, the United States imported 16.1%, 13%, 10.2% and 9% of the total steel imports from the above countries, respectively, while China accounted for only 2.2%. High tariffs on aluminum imports, mainly against Canada, Russia, China and Arab aluminum imports. In 2016, the United States imported 46.5 per cent, 12.7 per cent, 9.4 per cent and 8.9 per cent of its total imports of aluminium from Canada, Russia, Arabia and China, respectively.

Although high tariffs on steel and aluminum imports in the United States can protect jobs in the country's steel and aluminum industries and narrow the trade deficit. But this policy will intensify trade relations between the United States and many countries (especially Canada, Brazil, South Korea, China and other major trading partners), while also increasing the cost of imports of domestic steel and aluminum.

For China, high tariffs will have a greater impact on the aluminum industry than steel trade frictions between China and the United States in 2018

Since China's steel exports to the United States account for less than 2 percent, aluminum and its products account for 16.57 percent of exports to the United States. Therefore, if the United States intends to impose higher tariffs on iron and steel and aluminum imports, the impact on China's aluminum export industry is greater than that of the steel industry.

It is expected that trade frictions between China and the United States will continue to increase this year. From an industry point of view, if the United States further exerts protectionist pressure, some domestic industries with large trade surpluses and high dependence on exports will have a greater impact on the United States, in accordance with the HS commodity classification standards of the World Customs Organization. Such as machinery, household appliances, furniture, toys, shoes, clothing and other industries increased pressure.

Domestic Macro Research and judgment in 2018: from supply to demand

Grasping the logical main Line of Macro: from supply to demand

2015-2017: supply is dominant

Supply side: de-capacity plus code propulsion, supply side shrinkage is obvious.

Demand side: due to real estate, exports, pre-ppp project stock investment and other toughness, demand is not weak.

Results:

Supply exceeds demand, PPI goes up, profits of industrial enterprises repair, nominal GDP goes up, capacity utilization rate increases, industry concentration increases

2018-the Future: demand is dominant

Supply side: the supply side advances normalization, and the supply side shrinks slightly to stability.

Demand side: multi-element toughness weakens in the early stage, demand shows weakness

Results:

Under the trend of relatively certain weak demand, profit depends on the relative speed of supply and demand. at present, the impact of weaker demand may be greater than the normal small contraction on the supply side, and it is difficult for bulk prices to have a new high, and PPI continues to decline. Nominal GDP will fall back.

The 2018 target for capacity removal is significantly lower than the pace of progress over the past three years

Overall: all four resilience weakened in 2017 and demand weakened in 2018

1. statistical factors: the marginal slowdown of supply-side reform and the weakening of the impact of enterprises under the rules

2. export factors: the recovery in global trade continues and the marginal pull of exports weakens

3. inventory cycle: from replenishment to depot in the second quarter of 2017, which will continue into 2018

4. real estate investment: a negative turn in sales is a drag on real estate investment. it is more likely to slow down than to go fast.

III key macro data projections for 2018

Growth: the economy as a whole is stable, investment is down, consumption is stable, and exports continue to pick up

Inflation: high before inflation and low after inflation, mild 2.3% for the whole year

Structurally: in the investment structure, the pull coefficient of the upstream cycle is weakened.

Problem: it seems that the total demand has not fallen much, the GDP is still estimated at 6.6%, but it should be noted that the total decline is accompanied by a weakening of the pull coefficient, the impact of the two on the upstream will be significant.

Real estate investment: Jian'an contributes less than half of the real estate growth rate, the same real estate investment on the upstream pull coefficient weakened. While there has been little numerical change (from 7 per cent in 2017 to about 5.5 per cent), the pull force for the real upstream cycle has weakened. Real estate investment = construction and safety costs + land acquisition fees, about 80% of the 6.9% real estate growth rate in 2016 is driven by Jian'an, and 20% is land acquisition costs. In 2017, Jian'an pulled down to about 40% (2.8 ≤ 7), land acquisition costs accounted for 60%, but land acquisition fees included in nominal real estate investment is only a statistical problem, acquisition fees themselves do not have a pull coefficient on the upstream cycle and so on.

Infrastructure investment: infrastructure may also show a high-end trend, in line with the national communications, optical cable and other directions of infrastructure investment or share of the increase, the upstream pull coefficient of the largest proportion of iron public aircraft decline. In the context of emphasizing that quality takes precedence over quality, both the amount of investment mentioned in the government's work objectives and the actual monthly national railway investment data show a marked decline, even if the growth rate of infrastructure investment is limited from the same period last year. However, after the decline in the share of iron public aircraft, its pull force on the upstream cycle will also be weakened.

From the political and economic point of view: quality takes precedence over quantity and quality demand traction high quality supply

The report of the 19th National Congress of the Communist Party of China (CPC) has made it clear that "China's economy has changed from a stage of rapid growth to a stage of high-quality development, and is in a key period of changing the mode of development, optimizing the economic structure, and transforming the driving force for growth."

1. equalization of fiscal expenditure: surprise spending at the end of the past year, the beginning of spring after the two sessions of the second year is the peak of investment, because of the landing of the budget law, local expenditure has begun to average. The investment peak of the following spring as a result of subsequent surprise spending is likely to weaken.

2. when the ranking of officials' performance changes, the phenomenon of GDP will weaken: under the background of controlling local debt and advocating quality first, the economy has transitioned from obvious shortage economy to stock economy. In the past, GDP was the only performance for officials to promote, but in the future officials' performance will be more complex, including debt prevention and control, risk resolution, and the implementation of environmental protection. the bottom line for growth is to stabilize local employment. There has been a marked increase in the tolerance of the upper echelons to economic fluctuations. Example: the suspension of subway projects in many places at the beginning of the year is in fact a kind of pressure on the past.

Recent focus: why did real estate investment rise in January-February? Toughness is not sustainable

Real estate investment rebounded. From January to February, real estate investment increased by 9.9 percent over the same period last year, an increase of 2.9 percentage points.

Why is the real estate investment data growing faster?

First, the price factor plays a certain role in pulling up real estate investment. Real estate investment is a nominal variable, and while new construction area (2.9 per cent) and construction area (1.5 per cent) fell in January-February compared with the previous year, steel and cement prices were high compared with the same period last year. Price factors lead to higher costs, driving up real estate investment.

Secondly, it may be related to the sharp increase in land acquisition last year and the postponement of the payment of land acquisition fees. Real estate investment mainly depends on construction and safety costs and other costs (land acquisition costs account for a large proportion), respectively, through the "sales-financing-new construction-construction costs" and "sales-financing-land acquisition costs" two chains of transmission. Therefore, we analyze the reasons for the higher-than-expected growth in real estate investment from two aspects: construction and safety costs and land acquisition costs.

First of all, let's take a look at the cost of construction and safety. Sales fell, financing tightened, construction declined, new construction fell back, restricting the increase in construction costs. If the price factor is excluded, the effect of land acquisition in 2017 through construction and safety costs to stimulate real estate investment is not significant.

Let's take a look at the land purchase fee. After land acquisition in 2017, land acquisition fees are usually repaid in instalments and completed within a year. therefore, we believe that real estate investment rebounded more than expected in January-February 2018, or was related to the sharp increase in land acquisition last year and the postponement of land acquisition fees. However, the cost of land acquisition does not take into account GDP, in the economy is not the actual pull coefficient.

Third, PSL launched a large number of support for shed reform, supporting the upward investment. From the point of view of real estate sales structure, the sales of commercial housing in the central and western regions and the northeast are more than 25% compared with the same period last year, higher than the national average (15.3%), while sales in the eastern region are only 6.7% compared with the same period last year. At the beginning of the year, a large number of PSL investment supported the monetization and resettlement of shed reform, and formed a support for investment at the beginning of the year.

Fourth, the Spring Festival dislocation factors may also lead to high real estate investment compared with the same period last year. This year's Spring Festival is late, therefore, the impact of the Spring Festival holiday on real estate investment compared with previous years is relatively lagging behind, or lead to real estate investment on the high side of the same period last year.

Four 2018 Real Estate Investment faces one supporting three challenges

Real estate investment will face one support and three challenges in 2018.

One support is the surge in land acquisition in 2017, which is expected to remain high in 2018.

Three challenges: first, the external financing environment is tightening, housing enterprises are facing challenges;

Second, the pulling effect of land acquisition is weakened, the long-term mechanism of housing increases the proportion of low-cost rental land, and reduces the cost of land acquisition.

The third is the challenge of price factors brought about by the decline in PPI compared with the same period last year.