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Xu Gao's "Twenty Lectures on Macroeconomics"#

Xu Gao worked at Everbright Securities after serving as a senior economist at UBS Securities, an economist at the World Bank, a part-time economist at the International Monetary Fund, and a research assistant. He is also a council member of the China Chief Economist Forum and an advisor to the World Bank. He joined Everbright Securities Co., Ltd. in May 2011 as the chief macro analyst. In 2014, he became the chief economist of Everbright Securities. In 2016, he was appointed chief economist of Everbright Asset Management Co., Ltd. In 2018, he was transferred to chief economist of Everbright Asset Management. In May 2019, he was transferred to the position of assistant president and chief economist at Bank of China International Securities.

"Twenty Lectures on Macroeconomics: A Chinese Perspective" is a lecture that analyzes current macroeconomic phenomena in China through the lens of macroeconomic thought and theory.#

1. "Chinese Perspective" and "Macroeconomics"
   The term "Chinese perspective" has two layers of meaning.

The first layer means that this lecture focuses on the Chinese economy as the subject of analysis. Is there structural imbalance in the Chinese economy? What should be the relationship between structural adjustment and stable growth? Is China's debt too high, and will it lead to a debt crisis? Has China issued too much currency, and is there an issue of excessive currency issuance? Is there a real estate bubble in China?

The second layer means that the lecture selects macroeconomic thoughts and theories to be introduced based on the study of the Chinese economy, and elaborates on the theories around the analysis of the Chinese economy. This lecture fully embraces general equilibrium theory and rejects ad hoc models. An ad hoc model is one that assumes specific quantitative relationships between macroeconomic variables.

• Theoretically, the quantitative relationships between macro variables are unstable; changes in the behavior of micro residents and enterprises can make these relationships disappear (for example, the disappearance of the Phillips curve).

Core ideas of the Phillips Curve:
Inverse relationship: When the economy approaches or reaches full employment (low unemployment), the labor market tightens, and companies will raise wages to recruit and retain employees, leading to rising inflation.
Trade-off between inflation and unemployment: Policymakers can choose between low unemployment and high inflation or high unemployment and low inflation within a certain range.

When we abruptly present a money demand function, the focus on these deep economic forces will be obstructed by the exogenously set functional relationships. Analyzing the economy in this way will always encounter some "mysterious" black boxes that hinder thinking from penetrating the fundamental logic of economic operation.

Only by grasping these streams of thought that influence people's thinking can we delve into the depths of policy debates and touch upon the deepest causes of macroeconomic phenomena.

The acceptance of the economic ideas behind macroeconomic theory is so widespread that it has become an unspoken premise of mainstream Western economic theory. However, because of this, these assumptions also delineate the boundaries of the applicability of mainstream theory. China is a transitional economy, and its market operations have many characteristics that differ from those of the West, with many aspects that do not conform to the premise assumptions of mainstream Western macroeconomics.

2. Two Perspectives

The lecture organically combines the "water" and "stone" perspectives to integrate the Chinese perspective with macroeconomic analysis methods:

"Water" represents the operating laws of a market economy. Ideally, a market economy is as flexible as water—whatever shape the container holding the water takes, the water takes that shape. The operation of the Chinese market economy is still constrained by many remnants of a planned economy.
"Stone" represents the constraints faced by market operations. If we cannot see how the stones in the river hinder the flow of water, we cannot understand why the river is so turbulent.
Just as water is water wherever it is, the basic laws of market economy operation are the same everywhere. However, under different constraints, the phenomena presented by the laws of market economy operation may vary significantly. Therefore, it is essential to combine the realistic constraints of China to deduce the operational characteristics of the market under these constraints.

3. Three Clues
   The lecture strings together three main clues to organize the analysis model of macroeconomics, forming a unified framework for understanding the Chinese macroeconomy.

Structural Imbalance in the Chinese Economy:

In theory, consumers will weigh between consumption and investment. If investment has become excessive, lowering the return on investment, consumers will allocate more income to consumption rather than investment—thus automatically forming an optimal allocation of resources between consumption and investment.

The biggest "stone" in the Chinese economy is the lack of a market mechanism to adjust consumption and investment. There are many savers in the Chinese economy who do not consume. They are not sensitive to the return on investment and are less likely to cut back on their investments due to a decline in investment returns. As a result, the market mechanism for adjusting investment fails, leading to an imbalance of excessive investment and insufficient consumption. Furthermore, since investment projects lead to an expansion of production capacity once completed, excessive investment naturally evolves into overcapacity. In the context of overcapacity, insufficient demand becomes a bottleneck for long-term growth in the Chinese economy.

Blockage of the Transmission Path of Chinese Monetary Policy:

Most macroeconomics textbooks assume that the transmission path of monetary policy is completely smooth—money flows smoothly into every corner of the economy once it is released.
In the Chinese economy, the flow of money faces many obstacles and frictions, resulting in a non-uniform distribution of money within the economy. This causes differences in liquidity conditions across different parts of the economy.

Historically, around the year 1500, China surpassed India to become the world's largest economy, maintaining this status until the early 19th century. Before the Opium War, the Chinese economy accounted for about one-third of the world economy, making it the largest economy in the world. The Opium War opened a humiliating modern history for China, leading to significant changes in its economic situation. China's share of the world economy continued to decline, reaching a low of about 3% before the reform and opening up, which is an astonishing drop. Meanwhile, the United States rose, and the global economic throne shifted in the 19th century. By the end of the 19th century, the U.S. economy surpassed China's, and throughout the 20th century, U.S. GDP remained the highest in the world. After the reform and opening up, the Chinese economy entered a fast lane, rapidly growing in scale, and around 2010, China's GDP (calculated at purchasing power parity) surpassed that of the United States. Even when calculated at market exchange rates, China's GDP is expected to exceed that of the United States by 2030. The rise and fall of the Chinese economy has never happened in history. Therefore, we live in such an era, experiencing a period that will surely be remembered in human history during our youth, and standing at the center of events is fortunate.

Economic Methods for Analyzing Chinese Economic Issues

Supply and Demand Curves

• 1. Supply and Demand Analysis—Taking China's Real Estate Economy as an Example. Approximately 80% of China's investment consists of real estate investment, infrastructure investment, and manufacturing investment. In recent years, the growth trend of infrastructure investment and manufacturing investment has declined, while real estate investment has driven the overall growth of the economy, becoming the most important part. Further observation of the appreciation rate of housing prices and housing sales area reveals a close positive correlation between the two, with changes in the growth rate of housing sales area occurring before changes in housing prices. This leads to the conclusion that the price fluctuations in China's real estate market are primarily influenced by demand factors. The main reason for this situation stems from China's land policy: land supply is limited, and prices mainly change due to demand-side fluctuations. Therefore, the government cannot regulate housing prices through supply-side reform plans of "price drop and quantity increase," but can only do so through demand-side reform plans of "price drop and quantity drop" or "price increase and quantity increase." Considering the ultimate goal of "controlling housing prices" and the actual factors driving economic growth through real estate investment, the government needs to find a balance between the two. When residents believe housing prices are too high, the government can control prices through demand-side measures, such as tightening financing; when prices are relatively low, it can stabilize housing prices to ensure that real estate investment drives economic growth. (Refer to slides p26-29)
• 2. Supply and Demand Analysis—Taking Pork Prices as an Example. In recent years, there has been a significant divergence between the CPI and PPI change rates in China, with CPI inflation occurring alongside PPI deflation, leading to the phenomenon where consumers perceive prices as increasingly expensive while producers perceive them as increasingly cheap. In fact, CPI inflation is almost entirely driven by rising pork prices. An analysis of the number of live pigs slaughtered and pork prices shows a clear negative correlation, with changes in slaughter numbers occurring slightly ahead of changes in pork prices. Thus, we conclude that pork price inflation is primarily influenced by supply-side factors. Therefore, demand-side reform plans will not significantly impact pork purchasing behavior. Currently, pork prices are influenced by supply-side changes, resulting in "price increase and quantity decrease" or "price decrease and quantity increase." The government's monetary policy will not affect the pork stock and cannot reverse the prevailing perception among consumers that pork is too expensive. In the long run, the current situation of pig farming will not positively impact the trend of pork prices. The number of live pigs and the replenishment rate are far below the slaughter rate. It can be anticipated that pork prices will further rise in the future.
• 1. Structural Imbalance: Insufficient Consumption;
• 2. Monetary Policy Transmission Path: Viewing Money Distribution through Total Money Supply;
• 3. Debate on Say's Law: Orthodox Adam Smith, Hayek vs. Unorthodox Keynes, Malthus, Marx;

1. The Origin and Impact of Current Mainstream Macroeconomics (New-New Classical Synthesis)
   

1. The Opportunity from "Classical Theory" to "New Classical Synthesis": The Great Depression of 1929

Classical economists: The market operates efficiently.

Keynes, Samuelson: The market may not be as efficient as classical economists believe; the Great Depression proved that the market can fail severely, and the market and government must work together. When the market fails, the government can guide the market back to effective operation through macro-control policies.

2. From "New Classical Synthesis" to "New-New Classical Synthesis": Stagflation

In the 1970s, the emergence of "stagflation," where economic growth stagnated alongside high inflation, triggered the "rational expectations revolution." Economists realized that people's behavior changes due to changes in their environment, causing the relationships between macroeconomic variables to become unstable; that is, the rational response of the public to macro policies can render policies ineffective, and economic cycles are the optimal response of the market to technological shocks. Economists regained confidence in the market, believing that the application of macro policies should be limited to the short term.

3. The Theme of the Development of Macroeconomic Thought: The Relationship between Market and Government

4. The Impact of the New-New Classical Synthesis Worldview on the Chinese Economy

Currently, the biggest debate regarding the Chinese economy is how much the government should allow the decline in economic growth and to what extent it should use fiscal and monetary policies to support economic growth. During the "4 trillion stimulus policy" and the following years, this debate manifested as a struggle between "structural adjustment" and "stabilizing growth," and later as a struggle between "supply-side" and "demand-side."

Critique of New-New Classical Macroeconomic Policy 1: It argues that the slowdown in China's economic growth is due to a decline in potential output levels, represented by the "end of the demographic dividend."

Critique of New-New Classical Macroeconomic Policy 2: There will be a debt crisis in China. Proponents of this view believe that the scale of debt is too high, which will inevitably lead savers to stop lending to it, resulting in a debt crisis. However, China's high debt is caused by the economic structure of excess savings; before the economic structure is adjusted, suppressing debt expansion will only destabilize the real economy. At the same time, policies that suppress the conversion of domestic debt into domestic investment have instead strengthened financial institutions' motivation to evade regulation, leading to new channels being created, resulting in a series of chaotic phenomena in the Chinese economic system after the subprime mortgage crisis.

Raise questions about the "New-New Classical Synthesis" and further critique below.

2. The Challenge of the Subprime Mortgage Crisis to the "New-New Classical Synthesis"

1) Challenges from Three Aspects:#

Difficult to explain the occurrence of the subprime mortgage crisis: In the "New-New Classical Synthesis," the financial system is absent or is at a marginal position. In the "New Keynesian" model, the entire financial system is only summarized by a "nominal interest rate," but in the subprime mortgage crisis, the financial system was the "epicenter" of the crisis.

In the post-crisis era, the operation of the global economy and the application of macro policies cannot be satisfactorily explained by the "New-New Classical Synthesis." The "New-New Classical Synthesis" believes that the market will, in the long run, let resources be allocated most efficiently, and deviations from the effective state will only exist in the short term; correspondingly, macroeconomic policies will only be effective in the short term and can only be implemented in the short term. However, in the post-crisis era, the long-term adjustment mechanism of the market has not been effective, and the global economy has remained sluggish for a long time.

The "New-New Classical Synthesis" lacks explanatory power for the main features of the world economy before and after the crisis, such as "global imbalances" and the various consequences that followed. To a large extent, the U.S. real estate bubble that triggered the subprime mortgage crisis stemmed from global excess savings, but in the post-crisis era, global excess savings evolved into insufficient global aggregate demand, trapping economic growth in a long-term slump. In the "New-New Classical Synthesis" framework, the belief in the market's efficient adjustment power means that there is no occurrence of excess savings and insufficient demand.

2. Conclusion: The various economic practices after the subprime mortgage crisis do not conform to the "New-New Classical Synthesis" framework, and the gap between this framework and the real world is widening. Based on the previous notes on the Chinese economy (insufficient consumption caused by state-owned enterprises), we understand that the market adjustment mechanism assumed by neoclassical economics does not manifest in the reality of the Chinese economy.

3. Discussion on the Chinese Economy#

1. In the past decade, the polarization tendency of the Chinese economy has been very obvious.

The cycle of "release to live, live to chaos, chaos to collect, collect to die" is evident.

It has been described by Song Guoqing as the "ping-pong ball" of economic operation—economic operation is converging towards the extremes of "overheating" or "overcooling," being pushed back to the middle area by macro policies, rather than fluctuating around the potential output level.

Currently, the Chinese economy is in the process of converging towards the "overcooling" extreme, with output below the potential output level.

2. There is a need to create demand through expansionary aggregate macro policies to stabilize economic growth. Allowing economic growth to decline will lead to an economic crisis characterized by overproduction—similar to the years from 1998 to 2002.

3. The three paths for the Chinese economy:

Best strategy: Major reforms beneficial to income distribution for the resident sector, effectively promoting consumption transformation.

Moderate strategy: Before income distribution reforms are implemented, continue to stimulate total demand through expansionary aggregate macro policies to stabilize growth.

Worst strategy: If income distribution reforms are not made and aggregate macro policies do not stimulate total demand, China will drag the entire world into an economic crisis—China is already a major country with significant spillover effects on the global economy.

4. Understanding the Six Layers of Thinking in the Chinese Economy

1) First Layer of Thinking: GDP-Only Theory#

"Development is the hard truth."

Clarified the direction of work.

Established the status of "development" (using development to solve problems encountered during development), bringing huge returns to China.

In practice, development often focuses on GDP, forming a "GDP-only theory."

Simple, clear, and easy to implement.

Local government GDP competitions have made the government a "supporting hand" for the economy rather than a "predatory hand."

GDP is the best economic statistical indicator related to national welfare.

2) Second Layer of Thinking: Naive Market School—The Impact of the New-New Classical Synthesis Worldview on the Chinese Economy#

The relationship between "development" and "marketization."

Since the reform and opening up, development has been the goal, and marketization has been the means, with no contradiction between the two.

In the post-crisis era, the downward pressure on economic growth has increased, and development increasingly relies on government-led stable growth policies, leading to contradictions with market-oriented guidance.

Naive market advocates believe that current problems mainly stem from insufficient marketization.

They believe that the "old road" style of stable growth delays (or even hinders) the advancement of marketization.

They believe that economic structure should be adjusted through market clearing.

They view the market as a goal, creating an imperceptible yet significant gap with the guiding principle of "development is the hard truth."

3) Third Layer of Thinking: Realism (Perspective of Second-Best Theory)#

Second-best theory (Lipsey, Lancaster, 1953).

The optimal functioning of a market economy requires a series of preconditions to be met.

When these preconditions cannot all be met simultaneously, having more preconditions does not necessarily yield better results.

Finding the second-best often requires specific analysis of specific situations.

Second-best theory is the theoretical basis for the two approaches to the transformation of Eastern Europe.

Shock therapy.

Gradual reform.

The structural imbalance of the Chinese economy is rooted in income distribution.

The income distribution structure determines the insufficiency of private demand (especially private consumption) in the demand structure.

Before the income structure is adjusted, allowing attempts at "market clearing" will only lead to a hard landing of the economy.

The "old road" approach to stabilizing growth is a second-best choice, similar to the "GDP-only theory," using stimulative policies to stabilize GDP growth, but having already undergone a process of negation of negation, the understanding has already improved.

4) Fourth Layer of Thinking: Realistic Market School#

Through realistic market-oriented reforms to escape the "second-best."

Market-oriented reforms are a process in which the real constraints faced by the market are continuously exposed and resolved.

The pain of economic conditions sliding from "second-best" to "next-best" points out the true constraints that restrict the success of marketization.

Analyzing problems realistically and loosening constraints step by step is the only way to continuously promote marketization.

The difference between realistic marketization and utopian marketization:

Realistic marketization: Views the pain of reform as a signal to discover key constraints.

Utopian marketization: Ignores the signals released by the pain, naively believes that as long as reforms continue to advance, the pain will disappear, resulting in prolonged pain.

Examples:

Interest rate marketization reform: Distortion of financing platforms—cleaning up financing platforms—replacement of local debts.

5) Fifth Layer of Thinking: Overall Designer Thinking#

Is the breakthrough of key constraints accidental or inevitable?
A metaphor:
A child goes missing in a mountain village, and the whole village mobilizes to search for him. Eventually, the child is found. Where the child was found and who found him is an accidental event.
The result of finding the child is inevitable (clear goals, systematic search project).
The essence of China's reform and opening up success:
"Development is the hard truth."
"Crossing the river by feeling the stones."

6) Sixth Layer of Thinking: Road Confidence#

The first five layers of thinking reflect a sense of admiration for the West—transforming China according to Western standards (checking China against Western standards).
It reflects the West's leading position over China in many areas (military, technology, politics, culture) and reflects a lack of confidence in China.
We must see the strengths of the Chinese model:
The capital cost advantage brought by insufficient savings.
The positive role of state-owned enterprises.
Different eras call for different spirits of the times—China's rise will inevitably restore China's confidence.
Not all differences between China and the West are deficiencies; some are merely differences, and some are even better.
Replace inferiority with confidence, but do not let confidence turn into arrogance.

Introduction to Financial Economics and Basic Issues for Discussion

• 1. Definition of Financial Economics: Financial economics is a branch of economics that studies finance. Economics allocates resources, and finance, as a branch, studies the allocation of financial resources.
     Among them, "the future" is closely related to two factors—one is "intertemporal," and the other is "uncertainty."

The trading of financial assets always occurs between the supply and demand sides of funds. Suppliers invest in demanders to obtain financial assets, becoming asset buyers; correspondingly, demanders become asset sellers and provide returns to suppliers in the future. However, financial transactions and supply and demand always begin with human behavior. More specifically, it is the dynamic behavior of people under uncertainty.

3. Theoretical Basis of This Course: Generally speaking, "positivity" can be derived from supply and demand. For example, when supply is positive, it is the asset supply side; when supply is negative, it is the asset demand side, and vice versa. Therefore, there is no clear boundary between the two sides. However, when the asset seller is a company, the situation differs from that of individuals. To explore the demand for funds and assets by companies, we use "corporate finance" theory.

Corporate finance theory is the discipline that studies corporate financing, investment, and risk management, with the main goal of optimizing corporate financial decisions to maximize corporate value. Here are some key corporate finance theories and concepts:

• 1. Modern Portfolio Theory (MPT)
     Concept: Proposed by Harry Markowitz, it emphasizes reducing the risk of a portfolio through diversified investments. This theory indicates that investors can optimize the trade-off between expected returns and risk by combining assets.
     Key Points:
     The risk and return of assets can be reduced through diversified investments.
     Expected return is associated with the risk (standard deviation) of assets in the portfolio.
• 2. Capital Asset Pricing Model (CAPM)
     Concept: CAPM is a model that describes the relationship between expected returns of assets and market risk.

It studies the financial economics of individuals and enterprises.

• The first methodology is supply and demand equilibrium, starting from people's supply and demand psychology. The advantage is that it establishes asset prices from nothing, while the disadvantage is that many assumptions must be made to explore equilibrium, thus slightly reducing accuracy.

• This leads to the second methodology. The second methodology is non-arbitrage pricing, inferring prices of other assets from known asset prices.

• The third methodology is financial friction, such as information asymmetry, which can prevent financial transactions from being realized and affect transaction outcomes.
  In addition to these three, we will also briefly discuss market efficiency. Based on the theory of Nobel laureate Robert Shiller in 2013, the market is inefficient. Therefore, behavioral finance was established to explore the irrational behaviors of both supply and demand sides.

As shown in the figure, the famous "asset pricing problem" is to explore how the current asset P should be priced given future returns Xu, Xd, and their respective probabilities q, 1-q.

6. Since the possibilities q, 1-q corresponding to Xu, Xd are unknown, we can only estimate future asset returns by calculating the "expected asset return rate."

I. Key Issues Related to the Chinese Economy#

1. Supply and Demand Analysis

① Taking the real estate market as an example.

② Taking the pork market as an example.

Inflation trends diverge: consumer inflation, producer deflation. CPI mainly comes from pork.
Negative correlation: Pork prices are influenced by supply.
Monetary control of demand, so there is no reason to tighten monetary policy; money should be released, according to the price department of the National Development and Reform Commission.

Economic research aims to uncover the real individuals behind the economic numbers.

The language of supply analysis is a vague trap: the apple paradox.

We must clarify the concept: demand comes from the preferences of health experts, the demand curve extrapolates, and transaction prices rise; while the second statement indicates that the clearing point moves under the condition of an unchanged demand curve; we must avoid meaningless debates.

1. Key Issues in the Chinese Economy#

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap.

• The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.
  The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences.

First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare.

Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find conclusions. Due to the clear advantages of mathematical language in precision and reasoning convenience, economics has become highly mathematical in recent decades. This mathematical approach has, in turn, led to significant developments in economics. However, it is essential to remember that mathematics is merely a tool; our true goal is to find answers to real-world problems. Beautifully written mathematical formulas do not necessarily mean that the problems are answered well. The most important aspect is the economic logic presented by mathematics. It can be said that mathematics is just our boat to cross the river. After we have clarified our thoughts using mathematical tools, we should be able to completely set aside mathematics and explain the logic in plain language that is convincing. Only then can the problem be considered truly solved.

• Purchasing Power Parity (PPP) is a method for calculating the equivalence coefficient between currencies of different countries based on their different price levels, to avoid the interference of market exchange rate fluctuations on comparisons and to more reasonably evaluate the economic scale of each country. Compared to calculations based on market exchange rates, the economic scale calculated using purchasing power parity will be larger for China.

• The middle-income trap is a term created by the World Bank, describing the phenomenon where a country, after reaching a middle-income level, gradually loses the cheap labor and other factors that supported its rapid economic growth, leading to a slowdown in economic growth. If this country cannot find other sources of growth, its income level will stagnate at the middle-income level as if it has fallen into a trap. The demographic issues facing China: The middle-income trap is just one of the economic growth issues we need to worry about. The family planning policy strongly promoted after the reform and opening up has profoundly changed China's population structure, leading to a rapid arrival of an aging society. As the proportion of the working-age population declines, there are concerns that the end of the demographic dividend will lead to a decline in China's economic growth. The increasing proportion of elderly people in the population also raises concerns that China may grow old before it becomes rich, leading to a series of economic and social problems.

• The consequences and measures of low resident consumption ratio: The low proportion of resident consumption has brought two adverse consequences. First, because consumption is the main way for residents to enhance utility, a low consumption ratio means that the fruits of China's economic growth have not been fully transformed into improvements in residents' welfare. Second, because consumption and investment together constitute the internal demand of an economy, a low consumption ratio means a high investment ratio. Investment will ultimately lead to an expansion of production capacity. Thus, the imbalance between ultimate demand (consumption) and production capacity in the Chinese economy has become increasingly prominent, ultimately forming a pattern of insufficient demand and overcapacity. This is the main reason for the sluggish growth of the Chinese economy after the subprime mortgage crisis. In response to this situation, the Chinese government has proposed a policy direction for consumption transformation, hoping to increase the proportion of consumption in GDP and shift China's economic growth model from investment-driven to consumption-driven.

2. Economic Methods for Analyzing Chinese Economic Issues
   CPI and Pork Prices: Pork price fluctuations have a significant impact on CPI. CPI is the Consumer Price Index, which reflects the average change in prices of a basket of goods, indicating the overall price change situation faced by consumers. In the CPI, pork accounts for nearly 3%, making it the largest single commodity. The volatility of pork prices is also very severe, with annual increases often exceeding 50%. Thus, due to the large proportion of pork in the CPI basket and its severe price fluctuations, the inflation pressure of CPI often mainly comes from pork. Some jokingly say, "CPI inflation is anxiety triggered by a piece of pork." (Refer to slides p30-34)

Glossary:#

• IMF: International Monetary Fund
• Purchasing Power Parity: Exchange rate determined by the relative prices of the same group of goods
• Middle-Income Trap: A process where per capita GDP experiences a sudden decline after a period of growth, followed by a slow recovery.
• Li Keqiang Index: Average of credit, electricity generation, and railway freight volume, which can more objectively and realistically reflect local economic conditions.
• M2: Broad money supply
• Monetary Policy: (Excerpted from Baidu Encyclopedia) Monetary policy refers to the various policies and measures adopted by the central bank to control and adjust the money supply and credit volume to achieve specific economic goals.
• Local Government Financing Platform: Also known as urban investment companies, refers to state-owned enterprises established by local governments, which typically obtain financing from financial markets and invest in infrastructure projects, such as a city's subway company.
• ROA: (Excerpted from Baidu Encyclopedia) Generally refers to Return on Assets. ROA = Net Profit After Tax / Total Assets

Using mathematics to analyze the reasons for economic issues: Once the deductions are expressed in mathematical language, the ambiguities in thinking become apparent. Thus, many confusions and disputes arising from the imprecision of natural language can be resolved. Moreover, once theories are expressed mathematically, complex logical reasoning can be completed through mathematical derivation, making it easier to find