Fu Peng: Seeking truth from facts, raising questions, discussing issues, is the only way to come up with solutions

Some people always attribute the lack of confidence, believing that constantly mentioning various issues will only weaken everyone's confidence, thereby exacerbating the vicious cycle of problems. However, they have not thought about the fact that if problems cannot be described, accurately identified, and discussed, everyone will just bury their heads, ultimately leading to an information cocoon, resulting in even more serious deviations, which will have a huge negative impact on investment decisions and overall decisions.

---Fu Peng, Chief Economist of Northeast Securities

The risk of further economic pressure exacerbated by the storm of hedge

In September, we paid exceptional attention to current economic issues, observing that economic pressure has been intensifying since July and there are signs of a spiral feedback. At this moment, there is a continuous call to take rapid measures to prevent the risk of further economic slowdown. From the Phoenix Forum in early September to September 11th, I have been emphasizing the need to promptly introduce policies to address the current economic situation (full text link on September 11th).

In the past two days, from the financial sector to higher-level policy announcements like a storm, the aim is to hedge the current economic risks as quickly and effectively as possible. The core direction of all policies is aimed at the main economic contradictions and issues at present.

The current policy objectives are very clear: "The spiral feedback caused by insufficient effective demand must be hedged and blocked." To achieve this goal, strong hedging measures need to be taken against the pressures currently faced by the corporate sector and the household sector.

Presenting and studying problems is essential to formulate effective response strategies

Looking at a series of economic phenomena over the past six months: savings have sharply increased, credit is sluggish, consumption continues to be weak, employment situation is deteriorating, asset prices are generally falling, and both the household sector and the corporate sector are showing signs of fatigue in expectations, especially the expectations for future financial assets are bleak, which is a microcosm of the economic situation in the first half of the year.

Faced with these phenomena, we need to ask: Why is the investment willingness of the corporate sector so weak? Why are the income and consumption expectations of the household sector so poor?

A spiral feedback is forming between these two sectors this year—companies are cutting jobs and salaries to reduce costs and improve efficiency, leading to a decrease in household income and further contraction of consumption; the contraction of household consumption in turn affects the sales performance and profit expectations of companies, forcing companies to take further cost-cutting and layoff measures.

What factors have led these two sectors to fall into such a serious predicament? Some people always attribute the lack of confidence, believing that constantly mentioning various issues will only weaken everyone's confidence, thereby exacerbating the vicious cycle of problems. However, they have not thought about the fact that if problems cannot be fully described and accurately questioned, causing everyone to bury their heads, it will ultimately lead to an information cocoon, resulting in even more serious deviations, which will have a huge negative impact on investment decisions and overall decisions Only by raising questions and studying problems can effective response strategies be formulated. If we dare not ask questions or speak up, how can we find solutions? By observing phenomena truthfully and accurately describing problems, we can only address issues by bravely raising them, initiating discussions, seeking ways to solve problems, rather than avoiding them.

Why is there a gap between residents' income and consumption expectations?

The growth of income, resource allocation, concerns for the future, and wealth effects are all core elements affecting their consumption capacity. My belief has always been: consumption does not need deliberate stimulation, the key lies in accurately grasping these four core issues. As long as these four core factors develop positively, consumption will naturally increase.

There are class differences in residents' income and consumption: the biggest challenge faced by the lower class is the difficulty in earning income and the immense pressure on income. At the same time, the middle class is also facing severe tests from asset shocks, with these employment and income shocks gradually affecting the middle class.

This year, many residents suddenly felt unprecedented changes, which actually only affected them or their social class.

At the previous Changbai Mountain Forum, I had in-depth discussions with Professor Li Yang on this issue. We both agreed that although the impact on the lower class is the first to appear, its reaction in overall demand consumption is not the most significant. Only when the middle class is affected, will the overall demand consumption show the most obvious fluctuations. This reflects the transmission path that residents have experienced in recent years.

Different social classes face different challenges, which intertwine and collectively influence the overall economic landscape.

Different age groups are currently under different pressures, with young people facing job competition, income expectations, and the challenge of finding (suitable) employment.

Real estate has its unique characteristics, as expansion can trigger significant wealth effects, stimulating residents' wealth accumulation; however, contraction can impact residents' wealth effects and may even lead to a spiral feedback on the balance sheet, adversely affecting consumption.

Furthermore, real estate exhibits unfairness in reality. In the expansion phase, those unable to buy houses will feel pain; while in the contraction phase, those who have already bought houses will also face troubles. The root of this feeling lies in the fact that real estate's wealth effect mainly relies on the long-term debt of continuous homebuyers. This also means that this wealth effect is built on the basis of new entrants continuously joining.

We must realize clearly that with changes in the demographic cycle and the advancement of urbanization stages, real estate can no longer sustain continuous snowball-like development as it did in the past. Ultimately, the number of future "new entrants" is limited, which will have a profound impact on the future development of the real estate market.

Therefore, the key words currently proposed are "stop" and "stability," rather than the widely anticipated vigorous promotion. The essence of these two words lies in avoiding the significant impact caused by the real estate market, thereby preventing a spiral negative impact on residents, forming a vicious cycle between consumption and enterprises We need to stop this vicious cycle of feedback, stabilize the overall pace, and the core strategy is to stabilize the market, gradually digest existing leverage and debt over time, rather than stimulate or transfer these economic burdens again.

For the grassroots, it is still necessary to increase the supply of public rental and affordable housing to meet the different housing needs of different classes. Education, healthcare, social security are the concerns for the future, continuously improving the safety net for the future, can alleviate the pressure on residents;

The growth and stable expectations of service industry income are closely linked to the consumption status of the middle class. Once there is a contraction or decline in middle-class consumption, it will undoubtedly have a profound impact on many service industry practitioners, especially individual operators and small and micro enterprises. Most of these service industries rely on stable customer consumption to make a living, therefore, compared to reducing their costs through tax cuts, the feedback from the current contraction in customer consumption market has a more significant impact and shock on them.

The income and future prospects of other industries are often deeply affected by the operational conditions of corporate sectors. The decline in corporate profitability, the increasingly fierce internal competition, and the strategies of reducing personnel and improving efficiency to cope with economic pressure have all had profound impacts on these industries.

At the same time, the income of some government departments is closely linked to specific administrative policies. Therefore, when discussing the stability of income and future expectations of these groups, we need to delve into the operating mechanisms of corporate sectors and government departments to reveal the core issues.

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