Jackson Hole Symposium 2024 | Robin Xing: The US will maintain the trend of "there highs"

（原标题：Jackson Hole Symposium 2024 | Robin Xing: The US will maintain the trend of "there highs"）

南方财经全媒体记者杨雨莱 广州报道

From August 22 to 24, the annual Jackson Hole Economic Policy Symposium is being held in the US. The theme of this year's symposium is “Reassessing the Effectiveness and Transmission of Monetary Policy”.

The market's focus is primarily on the speech that Federal Reserve Chairman Jerome Powell will deliver at 10 p.m. Beijing time on August 23, which may provide hints about the Fed's next steps.

Robin Xing, Chief China Economist of Morgan Stanley, conducted an exclusive interview with SFC reporter, stating that beginning with the Bank of Japan's interest rate hike, global stock and financial markets have experienced a butterfly effect-like shock. Against this backdrop, the market is highly concerned about this year's Jackson Hole Economic Policy Symposium.

Judging from the economic data of the US, he considers the US to still be in the process of a soft landing, and it is expected that this interest rate reduction cycle will also be relatively moderate. He stated that in the medium to long term for the US, interest rates, inflation, and economic growth potential will not return to the low levels of the past 20 years. On the contrary, they will be in a relatively new state of "three highs": high economic growth, high inflation, and high interest rates.

SFC Markets and Finance: For 2024 The Jackson Hole Economic Policy Symposium, what key points do you think will be on this conference?

Robin Xing: Your question is very timely. Following the massive turmoil in global financial markets since early August, there's heightened concern about the monetary policies of central banks in the US, Japan, and beyond. The origins of this turmoil can be traced to the Bank of Japan's interest rate hike, which came slightly faster than market expectations. At this critical juncture, weakening economic data in the U.S. has fueled concerns about a hard landing for the U.S. economy, and worries that the Fed might be slow to react, cutting interest rates too gradually. This scenario has led to a strengthening yen, the unwinding of carry trades, and butterfly effect-like volatility in global stock markets and financial systems. Given this backdrop, the Jackson Hole Economic Symposium has garnered significant attention. 

However, I'd like to return to economic fundamentals. First, regarding the Fed, we don't believe it's slow to react. In fact, since the beginning of this year, we've been convinced that the U.S. economy would experience a decline this year, but will be a gradual soft landing. As part of this process, the moderation of U.S. economic indicators and the containment of CPI and PPI will open up room for the Fed to start rate cuts from September onwards. We anticipate three interest rate cuts of 25 basis points (bps) each, starting from September this year, followed by another four cuts of 25 bps each next year. In other words, this round of rate cuts is generally expected to be moderate and indicative of a soft landing. By this time next year, this rate easing cycle may have largely run its course, with the U.S. interest rate dropping to 3.625%, still higher than the average rate over the past two decades. This aligns with a research viewpoint. I've shared on various occasions in the past few years. 

Specifically, in the medium and long term, the U.S. will not see its interest rates, inflation, or economic growth potential revert to the low levels of the past two decades. Instead, it will enter a new phase characterized by relatively high economic growth, high inflation, and the ability to sustain relatively high interest rates. By next year, while the U.S. interest rate may have fallen to 3.625%, it will still reflect a resilient U.S. economy undergoing a moderate interest rate cut during its soft landing, without drastic reductions.

Of course concerns linger about whether Japan's monetary policy tightening will exacerbate volatility, especially after the global market turmoil since August. We believe that the Bank of Japan will proceed cautiously with its rate hikes, at a relatively slow pace. The next hike is anticipated in January and will not be a sharp adjustment. In our forecast for Japan's economic and monetary policies, Japan's real interest rates will remain in negative territory, potentially until the end of next year. This means that Japan's journey out of deflation and towards normalizing inflation and interest rates will be a slow and gradual process spanning several years rather than an overnight accomplishment.

In conclusion, despite the Fed's interest rate cuts and Japan's gradual hikes, the interest rate differential between the U.S. and Japan is narrowing but still exists. This broader context is crucial for understanding the mainstream policies of central banks discussed at the Jackson Hole Economic Symposium.

SFC Markets and Finance: The speech by Fed Chair Jerome Powell at the conference is highly anticipated. What signals do you think Powell's speech might convey? Will it trigger a new round of turmoil in the global capital market? 

Robin Xing: Just like the Bank of Japan's rate hike at the end of July, while the increase was slightly higher than market expectations, it wasn't the primary factor causing significant market turmoil. Rather, it was the hawkish tone adopted by Bank of Japan Governor Ueda Kazuo during his post-meeting press conference that surprised the market, hinting at consecutive rate hikes in the future. 

Subsequently, amid market jitters, the Bank of Japan swiftly intervened to quell concerns. Its Deputy Governor Uchida Shinichi altered his narrative the next day, emphasizing that the bank would tailor its policies to local market conditions, and avoid overly aggressive strategies. This suggests that Fed Chair Powell, with his rich experience, is bound to draw lessons from such precedents.

Criticism that the Fed is sluggish in reducing interest rates primarily stems from the weakening in U.S. non-farm payroll data released on August 1. Many fear that the robust growth and high inflation during the pandemic enjoyed by the U.S. from 2020 to 2023, were fueled by excessive economic stimulus measures, such as fiscal policies that handed out money to citizens and monetary policies that involved significant liquidity injections and interest rate cuts.

As interest rates have remained high for some time, and fiscal policies are gradually being withdrawn, there are concerns about a sudden decline in the U.S. economy following the easing of stimulus. I believe Powell will guide market expectations. After all, we still believe the U.S. economy is undergoing a soft landing, rather than a hard landing.

If we look at recent high-frequency indicators in the U.S., despite the slightly weaker employment data in July, it's not catastrophic. The average monthly job gains is at a robust 170,000 in the past 3 months, which is completely manageable. And the unemployment rate of 4.3% remains low. Moreover, recent high-frequency data like retail sales have held up well, indicating that although there are signs of softening in the U.S. economy, they are far from suggesting a recession or catastrophic situation. Instead, the outlook leans more towards a soft landing.

I think Powell will reassure the market by guiding expectations in this direction, reinforcing the view that the U.S. will continue on the trajectory we have anticipated, with gradual interest rate cuts commencing in September, to align with the signals of a soft landing for the economy.

SFC Markets and Finance: As you mentioned, there have been many changes in global monetary policy this year, such as Japan's monetary policy moving towards normalization, and the European Central Bank cutting interest rates earlier than the Fed. What do these changes reflect about the global economic trend?

Robin Xing: I believe the key themes of the global economy over the past two years are as follows. First, the U.S. economy has demonstrated remarkable resilience,  with sustained high levels of growth and inflation. 

Second, Japan's economy has gradually shown signs of recovery, particularly in addressing its long-standing deflationary of over two decades, which now appears to be easing.

Third, a new wave of technological revolution, notably embodied in the emergence and application of AI technology raises the question of whether it can elevate global productivity in the next round. 

Following the significant turmoil in global markets since July and August, there are widespread reflections on whether these three trends can be sustained in the long term. Some concerns arise over whether certain trends have been overly consensus-driven, leading to extreme market behaviors in financial transactions. I believe such reflections are both reasonable and normal. 

However, it is also an inevitable part of the development of new phenomena. When capital markets engage in extreme trend trading that goes too far, there is a spontaneous adjustment that follows. In recent years, the overseas financial markets have been inundated with quantitative and algorithmic tools, which may have prematurely and excessively intensified certain agreed-upon trends. But this does not diminish the significance of the three trends I mentioned earlier, particularly the AI-led technological revolution that marks the beginning of a new global tech cycle. This overarching trend remains unchanged.

SFC Markets and Finance: In fact, China has also taken quite a few actions in terms of monetary policy. At the end of July, the People's Bank of China (PBOC) launched "four arrows." How do you view the current intensity of China's monetary policy? Is further easing needed?

Robin Xing: I believe the PBOC has responded promptly to the current economic indicators. Naturally, some may feel that the measures are not quite satisfying, not sufficiently robust. Especially in terms of the coordinated easing of fiscal and monetary policies in China, there may still be room for further efforts. Relying solely on the PBOC's monetary policy is not enough. Expanding the government's fiscal deficit on the fiscal side and using these deficits to enhance people's livelihoods, social security, and consumption could be the most promising path forward.

Since June and July, various economic indicators suggest that the economy remains unstable, the domestic demand stays sluggish, and the risk of a low-inflation cycle has not been mitigated.

To break this cycle, robust macroeconomic stimulus policies are necessary, especially coordinated monetary and fiscal policies. We mentioned Japan earlier, which has experienced nearly two decades of deflation, but is now showing signs of emerging from it. Drawing from Japan's experiences and lessons, I believe that after monetary policy easing in China, further efforts are needed, primarily to break through three ingrained mindsets to unleash more potential.

First, combating deflation and the exiting low-inflation cycle should be a top priority, potentially more critical than preventing inflation or asset bubbles.

Second, in terms of adopting stimulus policies, we should shift focus from the supply side to the demand side, providing greater support for consumer demand.

Third, regarding specific implementation, China can vigorously strengthen and improve its social security system.

By breaking these three mindsets, the gradual, incremental interest rate cuts we've seen so far could evolve into a broader, more potent, and coordinated easing effort spanning both fiscal and monetary policies.

SFC Markets and Finance: You just mentioned that the PBOC also made a timely response to the economic indicators in the first half of the year. In the first half of the year, exports performed well. From January to June, the contribution rate of net exports of goods and services to China's economic growth reached 13.9%.  Looking at the whole year, can exports continue to drive China's economic growth?

Robin Xing: Overall, I am optimistic about exports. However, it would be difficult for exports alone to serve as a pillar to address the current low-inflation negative feedback loop in our economy. In terms of exports, the outlook is generally positive.

First, from a global economic perspective, key external demand sources like the U.S. are experiencing a soft landing rather than a dramatic recession or crisis, which is beneficial to China's export demand. As we analyzed earlier, if the U.S. maintains its medium and long-term trend of relatively high growth, high interest rates, and high inflation, it will not be detrimental to China's external demand.

Second, China's export competitiveness continues to improve. Especially since the initiation of the first round of trade frictions by the U.S. against China in 2018, despite the imposition of tariffs, China's control over the global industrial chain has not weakened but strengthened. 

We have analyzed 10 major export sectors, which encompass the "new trio", such as lithium-ion batteries, electric vehicles, photovoltaic and wind energy, as well as traditional industries such as chemical engineering, traditional machinery, and consumer electronics. Among these 10 major categories, only one has seen a decline of China's share in the global market over the past six years. In the remaining nine categories, China's export share in the global market has increased over the past six years, unaffected by the first round of trade frictions with the U.S.. In this regard, the improvement in China's competitiveness is a reason why exports remain a highlight.

However, we also recognize that exports cannot address all the economic pressures faced by the country, especially given the current insufficient domestic demand. Relying solely on exports can easily trigger potential reactions overseas in terms of geopolitics, tariffs, and others. Therefore, more efforts should be focused on boosting domestic demand. This is our view.

SFC Markets and Finance: You mentioned that "more effort should be put into promoting domestic demand". What other policies can be introduced to stimulate consumption and improve consumer confidence?

Robin Xing: Stimulating consumption has been a topic of discussion in various policy forums over the past few years, with numerous suggestions and recommendations put forward. The reason why policies might seem to be enacted relatively slowly or cautiously can be attributed to the three ingrained mindsets I mentioned earlier.

First, there's a historical belief that aggressive stimulus measures could easily lead to asset bubbles, resource misallocation, and inflation.

However, we've also analyzed Japan's gradual exit from two decades of deflation. Insufficient stimulus can lead to indecisiveness, and perpetuate a long-term low-inflation cycle, ultimately costing more. This first misconception that must be overcome to effectively stimulate consumption.

The second misconception is that in the past, government fiscal expenditures, bank credit, and quasi-fiscal tools all focused on the supply side instead of consumer demand. The potential risk here is that in times of inadequate domestic demand, additional infrastructure and capacity could further exacerbate overcapacity without generating corresponding internal demand, and failing to create a positive feedback loop. Thus, we should redirect our fiscal tools, such as the annual one trillion CNY ultra-long-term special treasury bonds and the 3.8 trillion CNY local government special bonds, towards promoting consumption and improving people's livelihoods.

The third is perhaps the most important one. I believe the pivotal step is to break this misconception. The optimal measure to stimulate consumption in China lies in strengthening and improving the social security system. After all, we can't follow the Western path of handing out money or vouchers to everyone due to practical constraints. 

However, there's ample room to enhance our social security system. As we can see, many new urban residents and migrant workers refrain from spending due to limited coverage of healthcare, pension, affordable housing, and education in major cities. They must save for precautionary purposes, which inhibits consumption. Currently, China's public social security expenditures, namely the government's expenses in this aspect, including pensions, healthcare, unemployment insurance, work-related injury insurance, and maternity support, account for about 8% of China's GDP, double that of 2012. While this ratio has increased from 4% to 8% over the past decade. The average level of developed countries stands at 20% in the Organization for Economic Co-operation and Development (OECD), indicating that one-fifth of a nation's GDP is dedicated to public security.

Therefore, our public expenditure on social security the level of government expenditure, is still inadequate. There is a large disparity in the social security level among different groups. For example, between urban and rural residents, between formal employees working in state-owned sectors such as civil servants and those working in informal sectors in private enterprises or flexible employment positions, there are huge gaps in terms of security standards.

Hence, increasing social security investment not only aligns with the concept of common prosperity, enhancing people's sense of gain from reforms, but also immediately reduces precautionary savings and gradually unleashes consumption potential. This is the most crucial path forward. To achieve common prosperity by strengthening and improving our inadequate social security system.

SFC Markets and Finance: The outlook for China's economy is also related to the adjustment of the real estate market. You once proposed that "the adjustment of the real estate market, lasting for three and a half years, is expected to approach the end in the remaining time of this year and next year."  What is the prospect of the real estate market in the next few months? will the policy packages already implemented play this year?

Robin Xing: I think the question you just asked and its premise is excellent. If the real estate market adjustment is gradually entering its latter stage, and nearing an end, this year and next year might mark the end of this round of adjustment. It's based on an assessment of whether the policies implemented by the government will be effective. This judgment not only relies on fundamentals, but also necessitates policy support. 

From a fundamental perspective, compared to other countries that experienced significant ups and downs in real estate, such as the bursting of the housing bubble in the U.S. in 2008, the decline after the peak in Japan in the 1990s, and the fluctuations in Spain and Ireland, the volume adjustment of our current real estate market is basically in place. There's still some room for price adjustment, but not by a significant margin. 

In terms of volume adjustment, starting from 2021, China's sales volume and construction starts have both fallen by 50% to 60%. So compared to international real estate cycles and their degrees of adjustment, we are basically well-positioned in terms of volume, with some room for price adjustment, but not substantial. However, China's real estate market still faces an inventory "quake lake".

Although compared to the international real estate boom-bust cycles, our real estate market's adjustment in volume and price seems not far from finally stabilizing, we face a major obstacle in the form of an inventory "quake lake". If this "quake lake" issue is not resolved, the real estate market may linger at the bottom for an extended period. As for how to address this problem and shorten the adjustment period, the government's role is crucial.

In May, the government introduced a 300 billion CNY re-lending program to assist local governments in repurchasing unsold commercial properties, thereby reducing inventory. However, I believe this re-lending tool is constrained by several factors, including its small scale and limited usability. To enhance its effectiveness, it should be upgraded into a larger-scale financial rescue package fully backed by the central government's fiscal resources. Such a measure could significantly help local governments gradually resolve the current quake lake-like inventory issue and shorten the subsequent adjustment cycle. In other words, our current re-lending tool needs two primary adjustments. 

First, its scale should be expanded to several trillion CNY, rather than the current 300 billion CNY. Second, since re-lending inherently involves costs and typically has a relatively short repayment period of one to five years, it should be transformed into a fiscal tool fully guaranteed by the central government's finances. This would allow local governments to use it to repurchase commercial properties and convert them into affordable housing, thereby achieving two goals with one action, and aligning with the current push to build a social security system for migrant workers who have become new urban residents, particularly in terms of affordable housing. Commercial properties are repurchased and gradually converted into affordable housing. The re-lending program is largely based on whether the rental yield generated by the program is satisfactory. With various market-oriented and legal restrictions in place, it may be difficult to implement the current re-lending tool effectively.

In conclusion, regarding the real estate market, if we are willing to adopt a central government rescue plan to help shorten the digestion period of the inventory "quake lake", this round of real estate adjustment will likely conclude by the end of this year or next. If we fail to do so, the adjustment period will be prolonged. 

SFC Markets and Finance: What are your expectations for China's overall economic growth this year? What changes in domestic and international factors are worth paying attention to?

Robin Xing: Here lies a difference in perspective. From a decision-making standpoint, when we look at GDP growth rate, often it's about the quantitative growth, which is what we commonly refer to as output. Currently, the GDP growth rate is approximately 4.5%. But what do markets and enterprises pay the most attention to? It's the growth in the total amount, which combines quantity and price. Because for enterprises, we look at operating revenue, and for markets, we look at return on investment, both of which are nominal values. It's not just about production output. Nominal values are currently under relatively high pressure, in a rather sluggish state.

Therefore, I believe that an important turning point now is if policymakers shift their focus from merely the quantitative GDP growth of 4.5% or 5% to include concerns about prices, CPI, PPI, and the nominal GDP felt by the public and enterprises, it's evident that the current policy intensity might still be insufficient, and requires further reinforcement. 

SFC Markets and Finance: From January to July of this year, China's high-tech industry investment increased by 10.4% year-on-year, with a growth rate 6.8% higher than that of all investments. The momentum of new quality productive forces is continuously escalating. Will the development of AI bring new growth momentum to China's economy?

Robin Xing: Looking ahead to the global competitive landscape over the next five to ten years, three trends are undeniably crucial.

First, the widespread adoption of AI. Second, the rise and prevalent use of robots. Third, the medical revolution leading to longer lifespans and better health for humanity. These will stimulate productivity and reshape the global economy in the coming decade. 

Since the late 1990s, when the internet revolution and globalization of industrial chains took hold, we're witnessing the most significant technological transformation in three decades. Among these, China's short-term prospects are closely tied to the rise and widespread use of robots, given China's strong industrial chain in this area. Our analysis shows that the emergence of humanoid robots faced several bottlenecks, such as limited data, inadequate learning and observation capabilities, a lack of reasoning and predictive abilities, and constrained human-robot interaction.

However, with the application of AI tools like large language models, these obstacles are being addressed, enabling humanoid robots to observe and mimic behaviors in the physical world, communicate and respond in natural language, and iterate in data centers.

Under such circumstances, the global labor market's demand for humanoid robots is expected to explode in the next five years especially in industries characterized by repetitive, hazardous, and physically demanding tasks. These industries are particularly suitable for the application of humanoid robots. For industries of agriculture, construction, mining,  and cleaning and maintenance, the demand for robots is substantial. We estimate that by 2040, at least eight million jobs in the US will require humanoid robots, generating revenue of 300 billion USD. However, the primary challenge facing humanoid robots in the West is their high cost.

For instance, Elon Musk's Optimus Gen 2, with its current component prices, has a material cost of nearly $60,000 per unit, making it economically unfeasible for widespread adoption. But if China's industrial chain achieves further scale effects, and overseas enterprises collaborate with efficient supply chains in Asia and China, we estimate that the manufacturing costs could drop to less than one-third of their current levels, enabling broader scale effects.

This presents a new opportunity for China's manufacturing chain, as the widespread adoption of humanoid robots in developed countries and across the globe relies heavily on China's robust component supply chain. As for the other two trends, the promotion of AI and the medical revolution, the US currently holds certain advantages.

Nevertheless, there is reflection on whether the market enthusiasm for AI has become overly exuberant, especially since the emergence of ChatGPT in late 2022.  Full-scale adoption and productivity enhancement remain distant goals. Drawing from the experience of the internet revolution in the late 1990s, this process could take at least three years and up to five to seven years. 

In this context, if China supports private enterprises, fosters a more transparent and stable regulatory environment, and provides greater certainty, Chinese enterprises may have the opportunity to catch up and gradually gain momentum.

SFC Markets and Finance: You stated that AI will drive the rise of humanoid robots. Is the rise of humanoid robots more beneficial than detrimental, or vice versa? How do you view the new technological revolution? 

Robin Xing: In terms of robots themselves, as we've discussed, they are primarily tools for enhancing productivity, more suited to sectors and industries. In every technological revolution, there's always a fear of machines replacing humans. But history has shown that people often end up engaging in more creative industries rather than worrying about being replaced by robots. The industries that robots typically replace are those where reducing risks and automating repetitive tasks are necessary. This is a pattern we've observed in technological revolutions throughout history.

Currently, there's also a reflection on whether the AI revolution has generated excessive enthusiasm, even to the point of being considered a bubble. Personally, I believe that in three to five years, as AI's contribution to productivity becomes more evident, people's concerns and pessimism will likely diminish. The first wave of beneficiaries are, of course, those providing AI-related equipment and tools, like GPU suppliers and companies offering large language models. This is the first stage.

The second stage will involve manufacturing industries incorporating AI technology, such as smartphones, smart cars, and other devices, which will gradually reap the benefits. We are gradually entering this second stage.

The third stage is where traditional industries benefit from AI-driven efficiency gains, and the overall societal productivity greatly improves. We are currently transitioning from the first to the second stage. While the third stage may still lack concrete evidence, we've seen some anecdotal evidence of AI enhancing productivity in sectors like Silicon Valley's tech giants, as well as consulting, legal, and finance. But we should recognize that widespread adoption of AI across society will take three to five years. I don't think this means the AI revolution is currently a bubble. I believe we should not be deterred by fleeting concerns. Looking ahead five years, AI's contribution to enhancing societal productivity is likely to remain the main theme.

（市场有风险，投资需谨慎。本节目嘉宾意见仅代表本人观点。）

策划：于晓娜

监制：施诗

编辑：李依农

记者：杨雨莱

摄制：蔡于恬

新媒体统筹：丁青云 曾婷芳 赖禧 黄达迅

海外运营监制: 黄燕淑

海外运营内容统筹: 黄子豪 

海外运营编辑：庄欢 吴婉婕 龙李华 张伟韬

出品：南方财经全媒体集团