Firm Belief: Zero Interest Rate Is A Long-Term Trend.

In the short term, because of the ambiguous attitude, the interest rate trend is complicated. However, looking at the long term, the trend of interest rates is clear at a glance.

In August, 14, we made a clear-cut statement that "zero interest rate is a long-term trend" (see the special report "zero interest rate is a long-term trend - the perspective of demographic structure"), which immediately caused great controversy. After all, the shortage of money in 13 years is still vivid. At that time, the average repo rate in the 7 days was more than 10%, and the interest rate of the 10 year treasury bonds was close to 5%.

Today, we believe that the market is no longer unfamiliar with zero interest rates, and that zero interest rates are spreading across the globe. In the past month, we have witnessed the Swiss interest rate cut to -0.75%, and its 10 year interest rate has even dropped to a negative range. Japan's 5 year treasury bonds traded at zero interest rates, while Germany's 5 year treasury bonds were auctioned at zero interest rates, while the US 10 year treasury bond rate fell to 1.7%, close to the lowest point in the past 100 years. So recently, even gold began to rebound, because gold was found to be equivalent to zero interest rates, but it was better than negative interest rates. With so many countries with negative interest rates or even zero interest rates, we don't seem to be exaggerating about China's zero interest rate.

However, we should not ignore the high interest rates in India and Russia. The interest rate of the 10 year treasury bonds in India is as high as 7.7%, and that in Russia is more than 10%. Then, is the interest rate of the 10 year treasury bonds in China going to zero interest rate or up to the high interest rate?

The core logic of our report last year is population structure. We find that a common feature of developed countries with low interest rates is the aging of the population and the end of the real estate cycle. This means that the long-term trend of interest rate is highly related to the population structure. From the past 100 years' data in the United States, the interest rate trend of the central bank is highly consistent with the growth rate of the 25-44 year old population. It also confirms from the side that the peak of the youth population will lead to the peak of the real estate cycle, which will lead to lower interest rates. One of the main reasons for the high interest rate in India is that it has the world's most young population structure, and its real estate cycle is far from over, and interest rates are hard to fall.

The high interest rate in Russia is related to the exchange rate. The recent devaluation of the renminbi has also led to worries about the RMB exchange rate. But in our view, there is a clear difference between the depreciation of the RMB exchange rate and the depreciation of the rouble. We visited several European clients last year and exchanged their understanding of emerging markets. From their perspective, emerging markets can find many countries with high interest rates, but they are not the first choice for their investment, because the exchange rates of these countries with high interest rates, including India and Russia, have all depreciated sharply, so for them, the stability of exchange rate is more important than the interest rate. So for them, the exchange rate of the emerging market is ahead of the interest rate, not because of the high interest rate, but rather to assess the stability of the exchange rate, which is related to the structure of foreign exchange reserves. So if we look closely at foreign exchange reserves, we can see that Russia mainly depends on the oil dollar, so the drop in oil prices will lead to a significant loss of foreign exchange. India does not have a favorable balance of foreign trade and relies mainly on capital inflows. The biggest difference between China and China is that the structure of foreign exchange reserves is very stable. China has huge foreign trade surplus, like China, which has greatly appreciated before. China's foreign trade surplus is as high as 50 billion US dollars a month, so it is enough to withstand the hot money outflow on the same scale.

It can be seen that in the eyes of overseas investors, China's RMB does not have the driving force of the trend of devaluation, so the current round of depreciation is more likely to be the active depreciation of the central Mama's initiative, reflecting the first depreciation of the middle price. The main reason behind this is that the US dollar index has risen sharply by 20% over the past six months, leading to a 20% rise in the US dollar index linked to the US dollar. Historically, China's export growth is highly related to the RMB index. Therefore, the sharp appreciation of the RMB index has a serious negative impact on the export of 15 years. Therefore, the government has the power to guide the RMB moderately depreciate in a short time and ease the export pressure. Under the relatively stable exchange rate expectations, China's central Mama does not have pressure to raise interest rates to attract funds to return, and more arbitrage funds flow into China, further reducing China's interest rate, because China's 10 year debt rate is higher than the US 200bp, higher than Germany and Japan 300bp.

Just now, we have discussed the reasons for the decline in China's interest rate from the perspective of population structure and exchange rate, but we are not excited enough to hear it. Let's talk about two more powerful reasons.

The first is that I recently read a book called the history of interest rates, which studies the trend of interest rates in the history of mankind, and finds that with the development of civilization, interest rates tend to decline. Interest rates have been decreasing in the past 1000 years. The rise in interest rates in the second half of twentieth Century is only a small episode. This means that interest rates decline in history is normal, and the rise in interest rates is abnormal.

The other is our research on the objectives of the new government. We find that the drop in interest rates is consistent with the new government's ideas.

In recent years, many phenomena have taught us that it is very important to understand the concept of the new government and to keep pace with the general direction so that we can make mistakes and get rich.

At the end of last year, I had a very strange experience. I was invited by a leading member of the media to talk about the "Eighteen big". business organization At that time, the first reaction was pressure mountain, and quickly reported to the leadership: "I have not participated in the eighteen big, can not say!" later, the leader said that we wrote the eighteen comments on the line, the focus is on our comment above, we believe that the core goal of the new government is "common prosperity".

In the past, we always used the GDP growth rate to represent the government's goal, and said that "development is the absolute principle". But we think that the goal of the new government in the future is not necessarily to pursue high GDP. We can give you a few details.

First of all, we studied the history and found that the government first proposed "GNP doubling" at the twelve big time, and GNP is gross national product. It is a concept of national income and represents the money earned by Chinese people. Later, it gradually changed to GDP, and GDP is a concept of production. As long as it is produced in China, it does not matter whether the Chinese earn money. But the eighteen major development goals have become two. In addition to the doubling of GDP as we know it in 2020, another important goal is doubling the income of urban and rural residents. This means that the revenue target has returned to the government's vision, and the income target is different from that of the GDP.

Let's take another look at the construction of the "one belt and one road" concept, which is totally different from GDP. The full name of GDP is GrossDomestic Product, and it is emphasized that it must be produced locally. Therefore, in the past, we engaged in the development of the western region, the revitalization of the northeast and the rise of the central part of China, all of which were the GDP of China. But now we are no longer building China on the new silk road. We are going to build the world. If we go to other countries to produce, it is to help others build GDP, no longer China's GDP, but we will get income and profits. So from this perspective, we find that the new government is pragmatist, and we prefer to give GDP to others, so long as it can bring income and profits and bring benefits. From this point of view, the revenue of the new government should be more important than GDP.

There is another detail worth paying attention to, which fully shows that learning is very important. In the past, a macro study in China will find that China lacks a data, the Gini coefficient, which has never been announced by the government. Because the data is relatively sensitive. If Gini coefficient is too high, how can we prove the superiority of our system? But we noticed that at the end of 13, the Statistics Bureau officially released the Gini coefficient of China, and it was indeed very high, ranking the top in the world, indicating that the widening gap between the rich and the poor is the number one problem that the new government attaches importance to. Latin American experience shows that economic development can not be sustained after the gap between the rich and the poor is too large. While the US economy is strong, inflation One of the important reasons is that the gap between the rich and the poor is too large, so economic growth can not drive the rise of residents' wages.

It can be seen that reducing the gap between the rich and the poor should be the number one target of the new government. In the the fourth Plenary Session of the 18th CPC Central Committee report, the four words of "common prosperity" were officially written. From this, I recalled the political textbooks I learned in primary school. "First of all, let some people get rich first and then move towards common prosperity". At present, China's per capita GDP has exceeded $5000, and the well-off society has already been realized in advance. The more important thing in the future is to let more people enjoy the fruits of development. Therefore, common prosperity should be the core goal of the government in the future, and this means that "income" is more important than "GDP".

So why do we realize common prosperity at this time? Why can't we do that before?

Here we can use the theoretical model of economics. We know that economic growth has three elements: labor, capital and technology. We put technology aside. In the short term, the main input is labor and capital. From the perspective of factor endowments, in the past, China was in a demographic dividend period and a large number of people, and at the same time, capital accumulation and money were few. This means that people are not worth money, and money is very valuable, so we are willing to enter foreign capital families because of China's Return on capital The wages are very high, and the wages of the labor force are very cheap. But now China's demographic dividend is over, people are gone, and at the same time, capital is surplus. Even overseas money wants to come in, so it means that people are very valuable, and money is not worth the money. Therefore, observing the structure of China's income distribution, we can see that after 08 years, the growth rate of residents' income has exceeded GDP growth for the first time. The average annual growth rate of GDP in the past few years is about 8%, while the actual growth rate of residents' income is about 10%, and the proportion of residents' income in GDP has a upward inflection point. So if the new government doubles the income of the residents as the core goal, it will be much easier to double the difficulty than GDP.

In addition, a recent book, especially known as the twenty-first Century Das Kapital, is the core of the conclusion that life is very important and that daddy is good, because the richer the richer, the reason is that if the rate of return on capital exceeds the speed of economic growth, it will lead to the widening gap between the rich and the poor. We should actually understand this conclusion. If the goal of the new government is to reduce the gap between the rich and the poor, then the future will inevitably reduce the rate of return on capital and increase the return on the labour force.

So if we observe a series of reforms done by the new government, we are changing the structure of factor allocation. In the past, if you want to make a fortune in China, you must have capital, such as resources, land or capital, etc., but labor is not worth a lot of money. However, we found that the distribution relationship is now reversing, and we have made the reform of resource goods prices. As a result, the price of resources reflects the relationship between supply and demand. After that, we have made the financial reform. After the reform, interest rates are also falling. We are still doing land reform. If we can really transfer land, we believe that land prices should also be reduced, because China is so.