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Consumption, not investment, now key to growth

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CAI MENG/CHINA DAILY

Scholars and policymakers in China have not yet reached a consensus on whether stimulating consumption is the top priority for the Chinese economy at the moment. Some economists argue more about the need to boost growth by expanding investment, as they believe that stable investment will be the fastest way to encourage economic expansion.

My understanding is that competent policymaking departments and economists need to better realize and identify the importance of boosting consumption. Under China’s 20 years of stabilizing investment through infrastructure construction, it is necessary to completely change such concepts and realize the significance of encouraging consumption. There is still a lot of work to be done on this front. If this year’s policy is still the same as last year’s and the year before, it will affect growth stabilization performance in 2023.

What makes stimulating consumption for growth so important? The main reason behind it is that China’s economic structure has changed. In normal situations, consumption contributes about 65 percent of GDP growth in China. Therefore, as the proportion of fiscal funds spent to stabilize growth conforms to the economic structure, roughly 65 percent of fiscal funds are used to stabilize consumption, and the remaining 35 percent are put toward stabilizing investment. Yet, in practice, most of the fiscal funds are used to stabilize investment. This disrupts the overall growth structure.

With China’s economy developing and upgrading rapidly, consumption has now become the core factor in economic growth. The country has moved beyond the stage of 20 years of rapid urbanization and rapid industrialization, and infrastructure investment has been oversaturated. Therefore, if the method of stabilizing investment is once again applied to stabilize growth, it will seriously distort the driving force of China’s economic growth. However, I think such understanding has not yet been widely recognized by economists and policymakers, and therefore, further study on this matter is needed.

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China’s previous strategy of stabilizing investment has caused distortions in the overall fiscal expenditure structure. Last year, China’s total GDP reached 114 trillion yuan ($16.2 trillion). The total amount of investment in fixed assets was 55 trillion yuan, while fixed-asset investment accounted for 48 percent of GDP. In comparison, in developed countries such as the United States, Australia, Japan and European nations, the annual total investment in fixed assets accounts for only about 20 percent of the country’s GDP.Long-term distorted structure caused by China’s large proportion of fixed asset investment in GDP is unsustainable.

I would argue that if the current economic structure is corrected and adjusted in the next 10 years, investment in fixed assets will drop from 55 trillion yuan to 30-40 trillion yuan and then decline further. Its high growth will undoubtedly crowd out consumption in the economy, and have a negative impact.

Here are some ways to boost consumption:

First, efforts should be made to promote consumption in terms of raising incomes, instead of working from the production standpoint. Since 2020, in Europe and the United States, the key measure to stabilize consumption has been to issue consumption vouchers to residents, and this has generated a notable effect in boosting the economy. If people’s disposable incomes decline, consumption will definitely drop. Therefore, efforts must be made to find a way to increase disposable income of Chinese consumers. However, if we talk about increasing disposable incomes and only work on stabilizing employment, it would not be sustainable over the long term. It is a long-term policy to stabilize employment as well as improve the social security system, medical system and education system, whatever the circumstances are. The core of stabilizing consumption is to increase household incomes. One way to bring this about is to increase current incomes; that is, issue consumption vouchers or money to residents. It is the correct way to stabilize consumption from the income side. Another way of effecting this is to increase investment income, such as making the stock market more prosperous, so that everyone makes money, thus leading to higher consumption.

Second, efforts should be made to increase the public’s marginal propensity to consume by cutting interest rates. The best way to increase the marginal propensity to consume in the short term is, in fact, by reducing interest rates, which frees up credit. The two methods for stabilizing consumption in Europe and the US in 2020 were distribution of money and lowering of interest rates. By raising incomes through distribution of money and lowering of interest rates, it is possible to increase the general public’s marginal propensity to consume. People’s incomes are divided into two parts. One part is used for saving and the other part is used for consumption. When savings increase, consumption decreases. Savings are closely related and very responsive to interest rate changes. When Europe and the US faced economic downturn pressure in 2020 and wanted to stabilize consumption, they once lowered interest rates to zero or even negative. But China seems to be more conservative with regards to cutting interest rates.

There are many reasons for China to be shy about cutting interest rates. These include the need to prevent real estate bubbles, avoid a stock market sell-off, safeguard against rampant inflation, and stabilize the RMB exchange rate. The goal of monetary policy is complicated and has many facets. It needs to work not only to maintain economic growth, but also to stabilize prices, support the capital market, undergird the housing market and stabilize the exchange rate. Currently, in terms of the stock market, the Chinese bourse has a flat performance during the past 10 years, and share prices of many listed companies have fallen to historic lows. A rise in the stock market can increase investment income and benefit consumption. In terms of prices, China’s producer price index has entered negative growth since October. Currently, we do not have serious inflation, so from the perspective of prices, cutting interest rates will also work. In terms of the RMB exchange rate, now that the appreciation of the US dollar has ended and interest rate hikes outside China have slowed, the pressure of RMB appreciation is gradually picking up. Therefore, to increase the public’s marginal propensity to consume and to stabilize consumption, we should cut interest rates.

In addition, it is also very important to boost consumption by creating consumption scenarios with engaging consumption activities, where consumers can truly interact with shops and products. If consumers cannot have such interactions, contact consumption in many scenarios will not be realized. This involves the impact of COVID-19 and how to contain the pandemic in a science-based, accurate way, instead of a one-size-fits-all approach.

To sum up, only by realizing the importance of consumption and work on the income front, cutting interest rates and creating more engaging scenarios for consumption can the Chinese economy likely see a rebound in the first quarter of next year.

The views don’t necessarily reflect those of China Daily.

The author is the director of the Wanbo New Economic Research Institute.

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MOF: Govt to establish high-level facilitation platform to oversee potential, approved strategic investments

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KUALA LUMPUR: A meeting with 70 financial fund investors and corporate members at the recently concluded Joint Investors Meeting in London has touched on the MADANI government’s immediate action to stimulate strategic investment in important technologies, according to the Ministry of Finance (MoF).

In a statement today, it said that the government is serious about making investments a national agenda through the establishment of a high-level investment facilitation platform to ensure the implementation of potential and approved strategic investments through a “Whole of Government” approach.

Minister of Finance II Datuk Seri Amir Hamzah Azizan (pix), who led the Malaysian delegation to the Joint Investors Meeting from April 20 to 22, said that the National Investment Council (MPN) chaired by the Prime Minister is an integrated action that reflects how serious the government is in making Malaysia an investment hub in the region.

Among the immediate actions taken by the government is establishing the National Semiconductor Strategic Committee (NSSTF) to facilitate cooperation between the government, industry players, universities, and relevant stakeholders to place the Malaysian semiconductor industry at the forefront and ensure the continued growth of the electronics & electrical industry, especially the semiconductor sector, as a major contributor to the Malaysian economy.

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The government also aims to empower Malaysia as a preferred green investment destination as well as remove barriers and bureaucracy in the provision and accessibility to renewable energy, especially for the new technology industry, including data centres, said Amir Hamzah.

He also said that the country’s investment prospects have reached an extraordinary level, with approved investments surging to RM329.5 billion in 2023 from RM268 billion in 2022.

He said about 74 per cent of manufacturing projects approved between 2021 and 2023 have been completed or are in process.

In addition, Amir Hamzah said the greater initial stage construction work completed in 2023 (RM31.5 billion) and 2022 (RM26.3 billion) shows a positive trend for future investment opportunities.

“From a total of 5,101 investment projects approved in 2023, as many as 81.2 per cent or 4,143 projects are in the services sector, 883 projects in the manufacturing sector, and 75 projects in other related sectors,” he said.

Before this, Amir Hamzah met with international investors in New York and Washington to clarify the direction of the implementation of the MADANI Economic framework to improve investors’ confidence in Malaysia’s economic level and strengthen the perception and investment sentiment of foreign investors towards the country.

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Want $1 Million in Retirement? Invest $15000 in These 3 Stocks

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Compound interest is a thing of magic. It’s also one of your best bets if you’re looking to retire rich.

It might take time and patience but there’s not a whole lot of heavy lifting when it comes to a buy-and-hold investment strategy. What matters most is having decades of time in front of you, which will allow you to maximize the benefits of compounded returns. And, of course, choosing the right investments is equally important.

The magic of compound interest

With a decent return, building a million-dollar portfolio might not be as hard as you think. An initial investment of $15,000, returning 15% annually, would be worth just shy of $1 million in 30 years.

First off, 30 years is a long time, which means you’ll need to be planning your retirement far in advance. However, all it takes is one initial investment of $15,000 and the right stocks to build a $1 million portfolio.

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Additionally, it’s important to remain realistic and acknowledge that a stock returning 15% annually is not exactly common. That being said, the TSX certainly has its share of dependable companies with track records of returning far more than just 15% per year.

I’ve put together a list of three Canadian stocks that are perfect for hands-off investors who are looking to retire rich.

Constellation Software

It will require a steep initial investment, but Constellation Software (TSX:CSU) is well worth its nearly $4,000-a-share price tag. When it comes to market-crushing returns, the tech stock has been in a league of its own over the past two decades.

Even as the company is now valued at a massive market cap of close to $80 billion, the impressive returns have continued. Shares are up more than 200% over the past five years. That’s good enough for a compound annual growth rate (CAGR) of 25%.

At a 25% annual return, a $15,000 investment would be worth a whopping $12 million in 30 years.

Descartes Systems

Descartes Systems (TSX:DSG) is another tech stock that’s no stranger to delivering market-beating returns. The company is also only valued at a market cap of $10 billion, leaving plenty of room for growth in the coming decades.

There’s a reason why Descartes Systems is one of the few tech stocks trading near all-time highs today. This stock is a proven winner, with lots of growth left in the tank.

Over the past five years, the stock has had a CAGR just shy of 20%.

goeasy

The last pick on my list is a beaten-down growth stock that’s trading at a serious discount.

The consumer-facing financial services provider has been hit by short-term headwinds from sky-high interest rates. With potential rate cuts around the corner though, now could be an excellent time to be loading up on goeasy (TSX:GSY).

Even with shares down 25% from all-time highs, the stock is still nearing a return of 300% over the past five years.

goeasy was crushing the market’s returns before the recent spike in interest rates, and there’s no reason to believe why the company won’t continue to do so for years to come.

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FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES CLOSING OF APPROXIMATELY US

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TORONTO, April 24, 2024 /CNW/ – Flagship Communities Real Estate Investment Trust (the “REIT” or “Flagship“) (TSX: MHC.U) (TSX: MHC.UN) announced today that it has completed its previously announced public offering (the “Offering“) of 3,910,000 trust units (the “Units“) on a bought deal basis at a price of US$15.35 per Unit for total gross proceeds to the REIT of approximately US$60 million.

The Offering was completed through a syndicate of underwriters co-led by BMO Capital Markets and Canaccord Genuity Corp.

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The REIT intends to use the net proceeds from the Offering to fund a portion of the approximately US$93 million aggregate purchase price for the REIT’s previously announced acquisition of seven manufactured housing communities comprising 1,253 lots (the “Acquisitions“) and for general business purposes. In the event the REIT is unable to consummate one or both of the Acquisitions, the REIT intends to use the net proceeds of the Offering to fund future acquisitions and for general business purposes.

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The REIT has also granted the underwriters an over-allotment option to purchase up to an additional 586,500 Units on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the date hereof.

About Flagship Communities Real Estate Investment Trust

Flagship Communities Real Estate Investment Trust is a leading operator of affordable residential Manufactured Housing Communities primarily serving working families seeking affordable home ownership. The REIT owns and operates exceptional residential living experiences and investment opportunities in family-oriented communities in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois. To learn more about Flagship, visit www.flagshipcommunities.com.

Forward-Looking Statements

This press release contains statements that include forward-looking information (within the meaning of applicable Canadian securities laws). Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may”, “can”, “could”, “would”, “must”, “estimate”, “target”, “objective”, and other similar expressions, or negative versions thereof, and include statements herein concerning the use of the net proceeds of the Offering.

These forward-looking statements are based on the REIT’s expectations, estimates, forecasts and projections, as well as assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies that could cause actual results to differ materially from those that are disclosed in such forward-looking statements. While considered reasonable by management of the REIT as at the date of this news release, any of these expectations, estimates, forecasts, projections, or assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations, estimates, forecasts, projections, or assumptions could be incorrect. Material factors and assumptions used by management of the REIT to develop the forward-looking information in this news release include, but are not limited to, that the conditions to closing of the Acquisitions will be met or waived in a timely manner and that both of the Acquisitions will be completed on the current agreed upon terms.

When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as they are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors, many of which are beyond the REIT’s control, could cause actual results to differ materially from the results discussed in the forward-looking statements, such as the risks identified in the REIT’s management’s discussion and analysis for the year ended December 31, 2023 available on the REIT’s profile on SEDAR+ at www.sedarplus.com, including, but not limited to, the factors discussed under the heading “Risks and Uncertainties” therein and the risk of the REIT’s plans with respect to debt bridge financing for the Acquisitions not being achieved as anticipated. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Forward-looking statements are made as of the date of this press release and, except as expressly required by applicable Canadian securities laws, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

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