主要观点:中国经济70-30分裂

1、国企高负债、产能过剩、低回报

2、....但是民营部门-占经济体的70%-已经开始复苏

3、北京应该采取一种双轨制政策措施：国企去杠杆的同时通过政策保障经济复苏

Since mid-2016, economic activity in China has rebounded quite notably. Both domestic investment and export growth picked up, while household consumption remained robust.

Against the backdrop of reduced tension over trade and easing capital outflow pressures, market sentiment has shifted notably. But concerns still linger. Some worry that the existing
structural issues are simply too large, and therefore a cyclical recovery will not last. In particular, one popular view is that de-leveraging is necessary before economic growth can recover on a two to three year basis.

We disagree. China’s debt level is high and still rising, but not every sector of the economy is overly leveraged. Instead debt is concentrated in state-owned enterprises (SOEs). Chart 1 below shows the breakdown of China’s debt by sector. At the end of 2016, the debt of the state-owned corporate sector (black line) is around RMB85trn, which is equivalent to around 50% of system-wide debt, and around 70% of all corporate sector debt. The private sector corporates (grey line), on the other hand, has around RMB33trn in debt, accounts for only around 20% of system-wide debt and 30% of corporate sector debt. Over the past few years it has actually been de-leveraging. Household sector debt has increased over the past few years, but remains at a low level.
This bifurcated debt profile is even more striking when you consider that the SOE sector, in today’s

China, is a much reduced part of the overall economy, accounting for 16% of employment and less than a third of industrial output (let alone services). Meanwhile, the private sector is now the main engine of the economy. We will elaborate more on this point later.

The divergence between SOEs and the private sector has increased over the past few years. Chart 1 suggests that private sector debt has declined since 2014, while that of the SOE sector has increased at a faster pace. From this perspective, the SOEs accounted for all of the growth in corporate debt over the past few years. This partly reflects the SOEs’ undertaking of capitalintensive infrastructure investment, but there are also clear issues with inefficiency and excessive debt dependence. Chart 2 shows that the liability-to-asset ratio of the private sector has declined from a peak of over 60% in 2003 to around 50% in 2016, reflecting a general decline in debt dependence. The decline since 2012 was particularly swift, which is consistent with anecdotal evidence of significant restructuring and balance sheet adjustment in response to the slowdown in economic growth. Meanwhile, the liability-to-asset ratio of the SOE sector has increased further over the past decade.

The gap in return has similarly widened. Using industrial sector firms’ data for example, we estimate that from around two times in the early part of this decade, the gap between SOE and private sector’s return on asset has widened to three times. This is partly because the return of the state-owned sector has steadily declined, while the private sector has been more able to retain its profitability.

From this perspective, the debt situation of the SOE sector cannot be generalised for the whole economy. This very unbalanced debt profile also implies that the best approach to ‘de-leverage’ the economy is actually to focus on the SOEs. Sector specific policies to restructure unprofitable stateowned
enterprises will go a long way to achieve this.

While SOE reform is an important issue, its predicament is hardly representative of the Chinese economy. In fact, the share of the SOE sector has declined rapidly over the past 20 years, and is now at an historic low both in terms of economic output and labour market share. Chart 3 above illustrates the importance of the SOEs from different angles. As late as the 1990s, the SOE sector still accounted for over half of urban employment, industrial production, and exports. But by 2016,
the state-sector only accounted for 10% of exports, 16% of employment, and less than a third of fixed asset investment. The mirror image of this decline of the state-owned sector, is the rise of private sector businesses, from a small pocket of the Chinese economy in the 1990s, to one that is pre-dominant in investment (over 70%), employment (over 80%), and general economic output.

More importantly, unlike their SOE counterparts, private sector businesses are both productive and very innovative in China. Apart from generating a higher return on assets, the private sector has been a key driver of the manufacturing sector’s steady progression toward higher value-add products, including automation, communication and the internet-of-things (IoT), smart home appliances, as well as high-end machineries and transport vehicles. It is also leading the fast evolution of China’s consumer sectors, which are leap-frogging into the digital age.
After five years of slowing investment and some de-leveraging, the private sector is now in a good position to capitalise on better overseas demand for exports, as well as domestic demand from manufacturing upgrading and new growth drivers such as environmental protection and urbanisation.
Chart 4 looks at the investment recovery. From a trough of 2% y-o-y in August 2016, private investment rebounded to 7% in the first four months of 2017, the main force behind the recovery in total fixed asset investment growth since mid-2016. Chart 5 shows the sector breakdown for private investment. The rebound is quite broad-based, with improvement in both the manufacturing and services (tertiary) sectors, although there is significant variation from month to month.

The more micro level indicators suggest that the recovery will likely continue for the rest of the year,and even beyond. Corporate profit growth (Chart 6) has recovered quite substantially since February 2015 and continued its upturn, reaching 30% y-o-y in the first quarter of 2017. As the re-stocking process shifts into a lower gear (moving from upstream industries to mid- stream and downstream industries), the upswing might moderate to some degree. Nonetheless, we expect it to largely continue the trend of recovery from the trough in 2015, supporting business investment.

higher-value added manufacturing and environmental protection.

In our view, the private sector-driven nature of the Chinese economy is something that is very under-appreciated in the discussions about China, and a severe shortcoming in the common framework used to understand its economy. It is partly because many of us have always focussed on SOE reform, which is high on the political agenda, and have by and large
overlooked the rapid evolution of the Chinese economy in the background. There is a Chinese proverb, “一叶障目，不见泰山” (a leaf blocks the view, and one cannot see the Tai Mountain), which we think is an apt description.

The dual-track economy raises several policy implications. Firstly, the overwhelming importance of the private sector, in every aspect of the Chinese economy means that macro policies must be geared toward it. Counter-cyclical policies that provide a stable growth and inflation outlook and policy visibility are therefore very important.
China’s macro policy makers are well-known for their multi-dimensional frameworks, which include not only cyclical objectives like growth and employment but reforms as well. This has served well over the past 20 years, when policy makers needed to reset a major part of the economy (back in the SOE reform days of the early 1990s the economy was predominantly SOE driven). In a more private-sector driven economy, macro policies should prioritise cyclical stability. Meanwhile, the reform agenda, be it SOE reform or de-leveraging, should be driven by sector-specific policies and regulators.
The recent policies to ‘deleverage the financial system’ is a case in point. In an effort to try to‘de-leverage the financial system’, the PBoC has tightened liquidity and raised short-term interest rates. This has transmitted to economy-wide interest rates, from lending rates to interest rates on short-term paper. This has achieved some de-leveraging, but increases the downside risks to growth. Macro policies, due to their ‘blunt’ nature are limited in this way. Instead, the sector specific regulators (be these from the banking industry, securities market, or insurance companies) have more micro-level regulatory power that can be used to address specific issues
and defuse risks more locally. The regulatory ‘baton’ should therefore be passed to the sector regulators, in this case. In addition, inter-agency co-operation is needed to prevent the spill-over effect on the economy.
Secondly, the nature of the debt problem, which is concentrated in the SOE sector, actually gives policy makers the opportunity to tackle it in a more local manner, using more specific
policies. To this end, policies to reform inefficient SOEs, through debt restructuring, industrial consolidation, improved management, and the closure of ‘zombie’ companies are most appropriate and will go a long way towards reducing leverage risks.