The urgency of the new model of "world factory+world market" after COVID-19

Since the 21st century, with China's successful accession to the World Trade Organization, Chinese goods have rapidly entered the global market, and "world factory" has become one of the synonyms for China. The latest statistics from the United Nations show that the added value of China's manufacturing industry accounts for over a quarter of the global manufacturing industry. Among the 500 major industrial products in the world, China has produced over 220 products, ranking first in the world. In 2018, China's total exports of goods accounted for 12.6% of the global total, maintaining its position as the world's largest exporter of goods for 10 consecutive years. Since the outbreak of the COVID-19, Chinese made masks, protective clothing, respirators and other medical materials have been exported in large quantities, making important contributions to the world's joint epidemic resistance, and further highlighting the role and status of the "world factory". Objectively speaking, the "World Factory" model has played a crucial role in China's rapid development over the past few decades. On the supply side, the "World Factory" model has promoted China's technological progress, improved resource allocation efficiency, and thus increased China's potential economic growth rate; On the demand side, the "world factory" model has driven China's exports and led to rapid investment growth, thereby promoting a continuous increase in China's total demand. However, as China's economy enters a new stage of high-quality development, the drawbacks of the "world factory" model are gradually becoming apparent, especially under the impact of the current epidemic.

Under the impact of the global epidemic, China's "world factory+low consumption" model is facing severe challenges

For a long time, China has become a "world factory" relying on the development model of "high savings, high investment and high exports". However, this model has significantly curbed the consumption of residents, leading to the continuous downturn of Chinese residents' consumption. According to data released by the World Bank, the consumption rate of China's residential sector in 2018 was only 39%, while the world average was 58%, and developed economies such as the United States and the United States exceeded 65%. In recent years, the problem of insufficient consumer demand among Chinese residents has become increasingly prominent. The actual growth rate of per capita consumer expenditure for residents in 2019 was only 5.5%, close to the lowest level since 2014. The actual growth rate of total retail sales of consumer goods has also been declining, from 11.5% in 2014 to 6% in 2019, reaching the lowest point since the 2008 international financial crisis.

In the context of sluggish consumption, the development model that mainly relies on investment and exports is prone to external environmental shocks. In addition, there is a linkage mechanism between China's investment and exports, which makes the Chinese economy more susceptible to external shocks. Specifically, the global spread of the epidemic has led to a significant contraction in external demand. In the first quarter of 2020, the new export order index of Chinese PMI manufacturing enterprises was below 50%, with February dropping to 28.7%, reaching a historical low. The decline in external demand led to a sharp decline in the growth rate of investment. In the first quarter of 2020, the growth rate of fixed assets investment nationwide dropped to -16.1%, down by 22.4 percentage points compared with the same period in 2019. In the context of already sluggish consumption, exports and investment have significantly declined, making it difficult for China to effectively drive a recovery in total demand through macroeconomic and other economic policies.

Even more severe is the significant increase in resistance faced by China's exports in recent years, amidst the rise of global trade protectionism and the intensification of anti globalization trends. In 2018 and 2019, the growth rate of China's total exports denominated in RMB was only 7.1% and 5%, respectively, a decrease of 3.7 and 5.8 percentage points compared to 2017. If the issue of international divestment and economic and trade decoupling truly occurs, its harm to the Chinese economy will be self-evident.

A significant external impact may even lead to a vicious cycle of "low consumption, massive unemployment, insufficient demand, and low consumption" in the Chinese economy. Specifically, due to factors such as the spread of the epidemic and increased uncertainty in the external environment, China's unemployment rate has recently significantly increased, from 5.3% in January 2020 to 6.2% in February and 5.9% in March, consistently at the highest level since the release of statistical data. The increase in unemployment rate directly affects the disposable income of unemployed households. With the increase in expectations of future unemployment, households will also be prepared for more preventive savings, leading to a reduction in consumer spending by the household sector, which may lead to a vicious cycle of "low consumption - large unemployment - insufficient demand - low consumption" in the economy. Although this vicious cycle has not yet fully emerged, it is necessary to prevent it in advance. Moreover,

B. Expanding consumption and building a "world market" can not only increase China's attractiveness in the international market, but also effectively prevent large-scale unemployment and achieve high-quality development

Under complex circumstances such as the impact of the epidemic and the rise of trade protectionism, the downward pressure on China's economy is constantly increasing. The solution is to create a new model of "world factory+world market". The "world market" not only refers to the large Chinese market that is open to the world, but also refers to the need for the domestic market to be large enough to become a world-class market. Significantly increasing residents' consumption, accelerating the cultivation of domestic markets, and making them sufficiently large are the prerequisites and key to developing the "world market". We need to further maintain our position as the "world factory", especially accelerate technological progress and transformation and upgrading, and improve the quality and technological content of Chinese products. At the same time, we also need to significantly expand consumption, create a new role for China as the "world market", and respond to the current difficulties and future development problems faced by China with a new model of "world factory+world market". The significance of this new model is reflected in the following three aspects.

It helps to prevent China from falling into a situation of economic and trade decoupling. With the accelerated spread of the epidemic worldwide, countries have adopted varying degrees of mandatory measures such as trade controls and tourism bans, leading to an increase in barriers to cross-border movement of goods, services, and people worldwide. If coercive measures tend to become long-term and normalized under the influence of the epidemic, coupled with the continuous rise of trade protectionism and populism, it will further exacerbate the process of anti globalization and the possibility of decoupling trade between China and the United States. Even limited decoupling will have a significant impact on the Chinese economy. Having a huge market is already China's advantage, and further expanding, strengthening, and optimizing the domestic market can help enhance China's advantages. Therefore, by building a new model of "world factory+world market", China's huge market potential can be fully unleashed, and its negotiating power and attractiveness in the international market can be enhanced, thereby effectively preventing China from falling into a situation of economic and trade decoupling.

It helps to drive employment in all aspects. Employment is the foundation of people's livelihood, and "stable employment" is the fundamental guarantee and prerequisite for social stability, ranking first among the "six stability" and "six guarantees" proposed by the central government. From a short-term perspective, under the impact of the epidemic, the catering, accommodation, tourism and other industries have been the first to bear the brunt, with most related enterprises shutting down and stopping production. Due to the fact that the proportion of employment in China's secondary and tertiary industries exceeds 70% of the total employment, the epidemic has had a significant impact on employment. While investigating the rise of the unemployment rate to historical highs, the demand for employment in enterprises has also remained sluggish. Currently, in addition to an increase in recruitment demand in the manufacturing industry, recruitment demand in industries such as finance, import and export trade, and service industries has decreased by over 40%. From January to March 2020, the PMI index of non manufacturing employees was 48.6%, 37.9%, and 47.7%, all of which were at historical lows. By continuously expanding consumption through the new model of "world factory+world market", we can create orders for enterprises, effectively increase their labor demand, and help the Chinese economy overcome difficulties and achieve stable recovery. From a long-term perspective, as China's aging population continues to deepen, residents' demand for medical and elderly care services will continue to increase. This can provide a suitable development environment for the new model of "world factory+world market", and the labor demand in the service industry will also increase, thereby driving employment growth to a greater extent.

Helping to better achieve high-quality development. The report of the 19th National Congress of the Communist Party of China pointed out that "China's economy has shifted from a stage of high-speed growth to a stage of high-quality development", which is a new positioning for the development stage of China's economy. High quality economic development means that China will no longer blindly pursue the speed of economic growth, but instead pay more attention to the quality of economic development. Expanding residents' consumption to improve their welfare level is one of the most important connotations of high-quality economic development. In the context of the significant inhibitory effect of the epidemic on residents' consumption, the new model of "world factory+world market" can provide higher quality commodity and service consumption for the residential sector, which is one of the key measures to achieve high-quality economic development.

C.Optimizing development models and reform methods can truly expand consumption and form a "world market"

The current sluggish consumption in China is not only related to the development model, but also to factors such as low growth rate of residents' income, low quality of consumer goods, and inadequate social security system. Only by taking multiple measures can we effectively expand consumption and truly form a "world market" in China, thus establishing a new model of "world factory+world market".

Optimize the development model to achieve high-quality development. Although the development model of "high savings, high investment, and high exports" has led to rapid economic growth, such a development model inevitably leads to a significant deviation of capital accumulation from the golden law level. When the capital stock is adjusted from an excessively accumulated state to the golden law level of maximizing welfare, it will cause a decline in overall economic growth rate. For a long period of time after the reform and opening up, pursuing high-speed economic growth was the main goal, and a significant decline in economic growth was undoubtedly unacceptable, which was the fundamental reason for the continued sluggish consumption of Chinese residents. In view of this, only by adjusting and optimizing the development model can we truly expand the consumption demand of Chinese residents, thereby raising the consumption rate of China's residential sector to the international average level or even close to the level of developed economies.

Effectively reduce residents' debt, especially housing debt, significantly increase their disposable income, and enable them to have money to spend. Currently, the debt risk of the residential sector in China is relatively serious, mainly concentrated in real estate loans. By the end of 2018, measured by the proportion of resident debt to disposable income, the leverage ratio of China's resident sector had reached 120.2%, surpassing the United States by 20 percentage points. If the borrowing of residents from relatives and friends is taken into account, the actual debt risk of residents is higher. The high level of household debt has a significant inhibitory effect on household consumption. Therefore, it is necessary to reasonably control the leverage ratio of the residential sector, reduce the debt burden of the residential sector, and make it possible for households to increase consumption. In addition, it is necessary to effectively improve the income level of residents. Since 2016, the income situation of Chinese residents has undergone significant changes, and the reason for the widening income gap has shifted from the rapid growth of income for high-income groups to the rapid decline of income growth for middle-income groups. Especially in 2018, the per capita disposable income growth rate of the middle-income group was only 3.1%, while the per capita disposable income growth rate of the high-income group remained as high as 8.8%. As the main force of consumption, the decline in income growth rate of middle-income groups has become the main factor restricting overall social consumption. Therefore, it is necessary to deeply implement the measures proposed in the report of the 19th National Congress of the Communist Party of China, such as "improving the system and mechanism of distribution according to factors" and "fulfilling the government's regulatory function of redistribution", in order to improve the income level of middle-income groups and reverse the situation where the growth rate of disposable income of middle-income groups has slid too fast.

Deepen supply side structural reform, improve product quality, and meet the potential high-quality consumption needs of residents. Resident consumption is determined by both demand and supply. If the supply side is unable to provide the products and services that residents need, even if residents have the desire to expand consumption, it is difficult to achieve rapid growth in resident consumption. This is precisely the prominent problem that China is currently facing: the increasing demand for high-quality education, healthcare and other livelihood products and services by residents, but the domestic market supply is clearly insufficient, which significantly suppresses the expansion of domestic consumer demand. An increasing number of people are starting to purchase foreign products in large quantities through methods such as "purchasing on behalf of others" and "overseas shopping", which is a true reflection of this problem. To solve the current situation of high quality products in short supply, it is necessary to deepen the supply side structural reform. On the one hand, reducing regulations in fields such as education and healthcare, allowing private capital and foreign investment to enter the market more smoothly and enjoy a fair market environment. On the other hand, while strengthening its position as a market entity, the government effectively fulfills its regulatory functions, focusing on improving the quality of the entire supply system and improving the adaptability of the supply structure to the demand structure with higher standards and stricter supervision.

Fundamentally solve the worries of the majority of residents about education, medical care, elderly care, housing, etc., and encourage them to dare to consume. In addition to reducing residents' preventive savings through three measures, it is another key measure to unleash consumer demand. For a long time, the supply of services such as education, healthcare, elderly care, and housing has been insufficient, leading to persistent problems such as difficulty in attending school, seeking medical treatment, and providing for the elderly. The report of the 19th National Congress of the Communist Party of China clearly points out that "the main contradiction in our society has been transformed into a contradiction between the growing needs of the people for a better life and imbalanced and insufficient development." Only by addressing the concerns in education, medical care, elderly care, housing, and other areas can we solve the main contradictions faced by our society and make people's lives better. It should be emphasized that there are institutional and institutional reasons for the problems of "difficulty in going to school, seeking medical treatment, and providing for the elderly". Therefore, it is necessary to further promote supply side structural reform, fill gaps, and benefit people's livelihoods in order to fundamentally reduce residents' preventive savings and dare to consume. Only in this way can China truly expand consumption and form a "world market".