Li Xunlei: Chinese GDP Will Turn Negative in Next 5 to 10 Years

Li Xunlei of Haitong Securities sees negative GDP growth at some point in the coming decade.

CE: You had represented the end of 2015 China's economic growth will continue downward in 2016, whether now or hold this view? China's slowdown in economic growth momentum when to stop?

Li Thunder: My view rarely changes, and 2016 China's economic growth point of view as well. China's economic growth is now in a continued downward trend among. As for when to stop this trend, my view is a very long period of time can not stop, even in the next 5 - 10 years there will be negative growth.

CE: In the past 30 years, the Chinese economy has never seen negative growth, why do you think the next 10 years there will be negative growth?

Lee Thunder: Why can not the Chinese economy negative growth? See China's stock market in the past 20 years, 11 years of negative growth. The stock market can be a negative growth, of GDP why not? In fact, all countries in the world in recent years, there have been negative growth. Such as South Korea and Japan appeared to have negative GDP growth in the year, but they are two countries after World War II the most successful economies in transition. Look at our neighbor India, economic growth in the past two years it is very strong, GDP growth rate even more than the Chinese, but it also appeared in 2008 and 2012 had two negative growth.

Chinese economy over the past few decades indeed has maintained rapid growth, which in the world are rare. Negative economic growth in itself is not surprising, sometimes negative growth is normal and healthy.

CE: But negative economic growth may bring a lot of business closures and rising unemployment, which it not worth worrying about it?

Lee Thunder: In fact, this concern is not necessary. The traditional view is that economic growth must reach the number of thousands of people to solve the employment problem. For example, in 2008 we proposed to "protect eight" because at that time that the GDP growth by 1 percentage point can only solve the problem of 80 million jobs to solve was added more than 600 million working population, GDP growth it is necessary to reach 8%. But now, the number of new jobs 7% GDP growth corresponding to more than 10 million, that is to say a percentage point can drive about 150 million jobs, this is because the economy is in transition, the proportion of the service sector to improve, to solve the employment problem GDP growth also will be required for getting low.

As for the large number of companies will go bankrupt concerns, it does not make sense. Now our GDP growth is still very high bar in the world are leading, but why there are so many companies require close? This is because the efficiency of enterprises is not high, like the United States GDP growth in China are not even half, but the return on net assets of their businesses as a whole are Chinese companies more than doubled. Currently, there are a bunch of very low productivity and even loss of business, but their contribution to the GDP is positive.

GDP growth rate reflects the total amount of economic growth, and we should be concerned about is the quality of economic growth, enterprise productivity and competitiveness. Do not put the economic downturn and negative growth is seen as a phenomenon, it is actually a result of the economic restructuring, business growth, lack of motivation inevitable result.

CE: So what specific reasons led to this result appears negative economic growth is?

Lee Thunder: Risk factors currently facing China's economy more, mainly excessive leverage, market bubble more obvious, including the real estate market, the stock and bond markets, these markets are likely to be broken at any time.

In order to make these bubbles will not be broken, we have to go to these markets inject some liquidity. Although the central bank is to keep your implement prudent monetary policy, but this so-called prudent monetary policy corresponding to the rate of expansion is about twice the size of GDP growth, the amount of currency is actually very impressive. Resulting, are financial assets and liabilities of the institutions are more and more, which leads to transactions between financial institutions are becoming increasingly frequent, and the situation prior to that with the US subprime mortgage crisis is very similar to when the US financial transactions between institutions is also very active. In between such financial institutions transactions by leaps and bounds, the huge size of the case, the payment of a major financial institution as long as there is a problem, it will be like falling dominoes as rapidly transmitted to other financial institutions, just as that American Ray Lehman brothers bankruptcy the same.

Financial institutions may detonate payment crisis many factors, one of the most worthy of attention is China's rapid population increase rate lever, and this is also the case before the US subprime mortgage crisis like. In May this year, total loans of Chinese residents is three times the long-term corporate loans. Prior to this, the size of our population mortgage is far better than the long-term corporate loans. In addition, in the first half of this year, the size of loans Chinese residents has exceeded the level of the year last year.

The essence of financial products traded between financial institutions, bonds, and bonds are behind real assets, real estate is one of the important piece. Once the real estate prices fell sharply, then it could be detonated payment crisis in the financial institutions, like the United States subprime mortgage crisis occurs. This payment crisis will lead to financial crisis, giving the economy a huge destruction.

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