The 'L' shape consists of three points and two lines. Where exactly is China's economy on this path? Several economists shared their views at the third Shenzhen Damesha China Innovation Forum on November 4-5. Some believe that if China's economy is following an 'L'-shaped growth, it is now close to the bottom, or has basically bottomed out; others argue that the turning point has not yet arrived. Li Yining, an 86-year-old economist, stated that the turning point for China's economy is still far off, and next year will remain a phase of 'seeking progress while maintaining stability,' with no major improvements. Zhu Baoliang, chief economist at the Economic Forecasting Department of the State Information Center, told Yicai that the economy has initially stabilized, but whether it has bottomed out is hard to say. Infrastructure investment is currently playing a significant role in driving the economy, but the pressure to rely on infrastructure investment for future growth is increasing. "There is a debate about whether government-driven infrastructure investment crowds out or stimulates private investment. I believe government infrastructure investment has minimal crowding-out effect on private capital; on the contrary, it stimulates industries such as automobiles, steel, non-ferrous metals, and cement," Zhu said. "Bottoming out will not happen overnight" Some economists at the Damesha Forum believe that China's economy is already close to the bottom, or has already hit it. "China's economy is largely close to the bottom, and the next one to two years will be a critical period for bottoming out," said Liu Shijin, former deputy director of the Development Research Center of the State Council. He noted that China's past high-speed growth was mainly driven by high investment, particularly in exports, infrastructure, and real estate. These three areas have now declined significantly. Therefore, from the demand side, China's economy is close to the bottom. Liu also said that as the three major demands declined, heavy industry also fell, but at a slower pace, leading to severe overcapacity. For example, in the steel industry, even the best state-owned enterprises experienced losses in their main business last December. Now, with government push, capacity reduction has achieved some results. "But being close to the bottom is different from actually hitting it. We cannot say we have fully bottomed out yet," Liu said. The next one to two years will be critical, and "bottoming out will not happen overnight; it will be a complex process that may require multiple verifications." "China's economy has basically bottomed out," said Cao Yuanzheng, chief economist at Bank of China, at the forum. If China's economy is following an 'L'-shaped growth, it is now near or at the bottom. In addition to the GDP growth rate of 6.7% in the first three quarters, Cao emphasized two other data points: the PPI (Producer Price Index) turned positive in September after 54 consecutive months of decline, indicating that corporate sales are growing and the sales environment is improving; and the PMI (Manufacturing Purchasing Managers' Index) in October rose to 51.2%, up 0.8 percentage points from the previous month, the highest in over two years, indicating growth in both private and state-owned enterprises. Hai Wen, dean of Peking University HSBC Business School, also told Yicai at a previous Peking University Global Finance Forum that with economic growth at 6.7% in the first three quarters, he basically agrees that the macroeconomy is operating at the bottom, but whether it will rebound next year remains to be seen. Hai said that China's current problems are not only macroeconomic but also micro-level industrial structure issues. More importantly, after entering the middle-income stage, China faces a deep industrial structure adjustment. Far from the turning point "U-shaped or V-shaped are not what will happen in the future; it will be more of an L-shape, which fits the current reality," Li Yining said at the Damesha Forum. According to the latest data from the National Bureau of Statistics, the GDP growth rate in the first three quarters did remain at the same level, but we must not think that the turning point for China's economy has arrived—"it is far from it." Li Yining Li said that coal and steel prices have indeed risen recently, but this is a normal phenomenon in the context of destocking and does not mean that downward pressure has eased. "Economic transformation cannot be completed in the short term; it often takes a long time because there is much work to be done." Li's views resonated with many business owners. A factory owner in Shenzhen who runs an electronics factory is pessimistic about the future. He told Yicai that high-end industries have not developed, while labor-intensive industries are shrinking, creating a vacuum. "Take our industry, which is labor-intensive. Competition is increasing, profits are thin, and companies are unwilling to increase R&D investment," the owner said. Many of his friends in business have invested in real estate. Even though Shenzhen housing prices have fallen after the 'National Day' property market regulation, most still believe real estate is more worth investing in than industry. Recently, a friend wanted to buy a factory building around Shenzhen, not for his own use but as an investment. Wang Xiaoyi, head of Shenzhen Delica Medical Equipment Co., Ltd., also told Yicai: "Our industry is not doing well overall. Ordinary companies are struggling, and conventional products are hard to sell." Wang recently attended the China International Medical Equipment Fair (CMEF) and noticed that several companies that had participated for years in this largest domestic medical device exhibition had withdrawn, and some foreign 'leaders' did not come. "This shows that the entire domestic industry is not thriving, and foreign giants have hit a bottleneck in China," Wang said. "I don't have macro data to support whether the economy has bottomed out, but there are no signs of improvement in our industry to prove it has." In Wang's view, enterprise development still relies on technological and efficiency improvements. Their products sold well a few years ago, but now users demand higher quality and performance, and are more demanding in service. Companies must maintain significant R&D investment to survive. In recent years, Wang's company has consistently invested over 20% of sales revenue in R&D each year. "That's quite high," he said with a smile. "All the money earned is spent." Next year's focus: risk control Beyond judging whether the macroeconomy has entered or is close to the 'L' bottom, many economists believe next year is a key year for 'risk control.' Liu Yuanchun, executive dean of the National Academy of Development and Strategy at Renmin University, said at the forum that risk control is the core for next year and a prerequisite for growth. Liu Shijin also said that the 'L' shape means it will not decline further, but there will not be a significant rebound. In fact, it enters a platform of medium-speed growth. "The next one to two years are critical for bottoming out, and some factors may have a significant impact, such as real estate bubbles and financial risks." Zheng Xinli, former deputy director of the Central Policy Research Office, said that there are still some abnormal problems in the current economic operation, notably the huge contrast in investment structure, including the contrast between state-owned and private investment, real estate and manufacturing investment, and the surge in overseas investment versus the slowdown in domestic investment. "The three 'ice and fire' contrasts in investment structure harbor risks, so effective measures must be taken," Zheng said. Based on the judgment of 'risk control' next year, Liu Yuanchun said that the logic of stable growth next year needs adjustment. First, risk control is a key prerequisite for stable growth, not the previous understanding that growth speed is the basis for capital sustainability. Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, told Yicai that the third-quarter macro data shows that the characteristics of economic stabilization are already quite obvious. China's economy still has much potential, and some reform dividends have not been fully released. If the dividends from rural land reform, urbanization, and state-owned enterprise reform continue to be released, they will surely generate huge momentum for economic development. Xu Xiaonian, professor of economics and finance at CEIBS, said that whether the 'L' shape has reached its tail or bottomed out is a matter of opinion. "How long the horizontal line of the 'L' lasts is not important; what matters is returning to the source of economic growth. What is the source of growth? In my view, it is the improvement of economic efficiency, partly from market expansion and partly from enterprise efficiency improvement, which relies on innovation." Source: Yicai Daily (ID: yicairibao)