In 2025, which direction will the global economy take?

This text is the full text of Zhu Min's keynote speech at the 2024 Shanghai Global Asset Management Forum jointly organized by First Financial and Bank of China. The text contains some macroeconomic viewpoints worth reading, and interested friends can take a look. Let me share with you my observations on the world's economy and finance, the reshaping of the entire economy and finance, and our response. First, the global economy is in a process of sustained low growth, which is a new feature that I think understanding is important. Second, after anti-globalization and trade fragmentation, trade is no longer the engine of economic growth, which is a huge change. Third, globally, government debt and fiscal deficits are rising, leading to the continuous accumulation of financial risks, which is a major potential financial risk. Fourth, global economic uncertainty and geopolitical risks are sharply rising. These are some of the main characteristics of the global economy and finance that we see in 2025. By the way, there is no talk of pessimism or optimism, I am just reporting some observed facts to everyone. The world has changed, and the changes are beyond our control. In terms of mindset, I think it's simple, these four points of a changing world are our new constraints. All of you have always been successful individuals, constantly optimizing your businesses within a given set of constraints, so when the constraints change, everyone needs to rethink their constraint model, which I believe is the most important. The existing trends and structural changes, I believe cannot be changed. It is changing your business model that is most important to become a future winner. So I always say there is no talk of pessimism or optimism, it's just about what you see. Countries have also made major strategic adjustments, proposing new growth models. China's new growth model has new developments, mainly focusing on the domestic consumption market, while also focusing on our core competitive strengths, such as manufacturing. Developing future core competitive capabilities, such as carbon neutrality transformation, technology, and data capital, to address the uncertainty of the global economy in these aspects. So when we see a downward trend in the growth of the economy as a whole, in fact, China's economy will face significant structural changes. For entrepreneurs, company growth is important, but structural changes are even more important because profit opportunities mainly lie within structural changes. For a long time, growth trends were too strong, with growth driving structural changes, so everyone placed structural changes in a secondary position. But in the future, it will be the structural changes that drive economic growth, so please take note of this. When economic growth declines, don't worry, because all opportunities lie within structural changes. I believe this is the most important and crucial aspect of today's global economic and financial changes for all of you. The global economy is experiencing sustained low growth, as you can see, there was an economic rebound in 2022, a slight rebound in 2024, and now in 2025, it is basically flat compared to 2020. Originally predicted to move forward slightly, it is now flat, and then gradually declining. The entire economy is growing at around 2.7% this year, and will be around 2.7-2.8% next year. Over the next 3-5 years, it will probably be maintained at this level, which is a relatively low level of global growth. Why is that? There are several reasons. One reason is that the trauma caused by the pandemic on the global economy is still significant. If there had been no pandemic, we predicted that the global economy would follow the yellow line; the pandemic caused a decline in 2020, and we optimistically estimated that by 2022, we could follow the red line, experiencing a strong rebound. However, if we look at the forecast for 2024 now, the global economy will follow the blue line, and this gap is the trauma caused by the pandemic. This gap is a permanent gap and has already created a $7 trillion gap for the global economy, so this curve can never return to its original trajectory; we are essentially moving parallel to the original growth trajectory, entering a low-growth trajectory, and it is crucial to understand this. There is no going back to equilibrium, only a new normal. We always assume it will return to equilibrium, but it cannot, so this impact is significant. Further looking at it, it is particularly interesting that the global labor productivity is generally declining. For example, the blue line represents developed countries, and the red line represents developing countries. The labor productivity of developed countries grew at a rate of about 2% from 2000 to 2004, but in the coming years, it will likely grow at a rate of less than 1.5%, including factors such as declining capital penetration, declining employment rates, and declining labor productivity. Why is the economy declining and labor productivity decreasing? Because of the restructuring of the industrial chain, the driving force of trade no longer exists; geopolitical fluctuations have impacted the organizational structure of the entire economic production, which is still in the process of adjustment; artificial intelligence has not yet formed a new productive force, so this chart will likely dominate the economic trends in the coming years. During my work at the International Monetary Fund, I found that whenever an economic crisis occurs, economic growth rates tend to decline after the crisis. From 2001 to 2008, the average global economic growth rate was 3.5%, the crisis hit in 2008, and from 2009 to 2019, this 10-year period saw a growth rate of 3.12%, a decrease of 0.4%. We predict that in the future, the global GDP growth rate will be around 2.5%-2.6%. Recently, Goldman Sachs made a prediction that by 2070, global economic growth will gradually decline to around 1.7%. This chart is highly controversial because it revolves around how much artificial intelligence will change this chart, which remains unclear at present, but if artificial intelligence does not undergo major changes, the current trend on this chart is likely the consensus. Understanding this point is particularly important because it is the constraint for all of us. Economic downturns, changes in geopolitics lead to significant changes, so there have been significant changes in trade. Since 2008, trade has been changing; you can see that global trade growth was rapid, rising from 30% to 60%, with major growth particularly between 2001, 2002, and 2008 due to China joining the WTO. However, beginning in 2008, you can see that trade is notIn fact, the fluctuation has never exceeded 60%, which is the proportion of trade to GDP. This means that before 2008, the growth rate of trade always exceeded the growth rate of GDP. Trade is the most important engine driving global economic growth.After 2008, the growth of trade and GDP basically kept pace, so the proportion of its growth did not change. Trade is no longer the main engine of global economic growth. This is another important change. Below, you can see a sharp decline in exports of technology products and manufactured goods, which is influenced by geopolitical factors. Regarding the reset of the industrial chain, I'll give a simple example. Before 2018, China's exports of electronic products to the US accounted for 40% of US imports, but now it has decreased significantly, while exports from ASEAN to the US have increased. A substantial portion of this increase is re-exports by Chinese companies to ASEAN, but it has fundamentally changed the global industrial chain configuration and also changed China's GDP and GNP configuration. Therefore, when there are changes in trade, financial changes are also profound. The most profound financial change is the sharp increase in fiscal deficits. Similarly, our prediction is that without the pandemic, global government deficits would have gradually increased from around 83% to 87%. After the pandemic, deficits expanded sharply, and are expected to gradually decrease in the future but have recently started rising again. By 2028, global deficits will reach 100%, which is a new standard. Our traditional fiscal standards are a deficit of 3% and debt of 60%, which is a rigid leverage limit. This year, this curve has risen sharply due to fear of the pandemic and populism. Countries like the US, Europe, and Japan have increased social services to please the public, resulting in massive fiscal deficits. As interest rates rise, government debt costs also increase. Therefore, this curve will continue to rise. In this scenario, global finance is not secure because fundamentally, finance follows fiscal policy, and government debt has a huge impact on financial markets. Japan has the highest debt at 250%, while the US is only at 130%. Previously, Americans mocked European debt levels, but now US government debt exceeds Europe's, indicating a significant change in debt structure. Using the US as an example, the basic deficit is around 3%, which can be sustained at 3.5%, but the interest costs keep rising sharply. Why? Because interest rates have increased from 0 to 5%, and with continuous deficit spending, interest costs will keep rising, making it impossible to control the fiscal deficit. Therefore, the rising fiscal deficit poses a major financial risk in the future, and someone will have to pay for it - the central bank. Taking the Federal Reserve as an example, in 2008, the Federal Reserve's balance sheet expanded from around $0.7 trillion to $1.4 trillion, doubling. It continued to rise gradually, but in 2020, the Federal Reserve surged significantly. The gray line represents the ECB, while the yellow line represents Japan. Global central bank balance sheet expansions have been significant, well above previous levels. According to our theoretical assumptions, if they return to previous levels, financial stability could be achieved. However, this is not possible as it would trigger an economic crisis. As the Federal Reserve remains at high levels, monetary policy can only move in stops and starts, with fiscal expansion continuing. This represents the biggest potential risk in the financial industry, accumulating continuously. Under these circumstances, central bank interest rates will have to decrease, but will not be able to go down to 0. The red curve shows central bank interest rates gradually decreasing above 5.5, and they cannot go back to 0. Central bank interest rates will remain at a high level, with inflation around 3%, central bank rates at 3-3.5%, and economic growth around 2.5%. This is what we can expect as the new normal in the future. The above discusses fundamental changes, and now let's consider unexpected events that may impact the fundamentals and cause fluctuations. The most recent indices on uncertainty are the Fragility Index, which shows a sharp increase in global economic fragility, and the Geopolitical Index, which decreased after the Russia-Ukraine conflict but has been rising again with progress in two ongoing wars. Global fragility and geopolitical risks are increasing significantly. Additionally, there is a significant fragmentation of the global economy. In 2023, the number of industrial policies implemented worldwide increased from around 100 in January to 1600-1700. The World Economic Forum recently published the 2024 Global Financial Risk Report, listing the main risks in the next two years as misinformation, extreme climates, social division, cyber insecurity, armed conflicts between nations, economic opportunities, inflation, and recession. Out of the top ten global economic and financial risks in the next two years, three are economic and seven are political. Looking ahead over the next decade, issues such as extreme climates, biodiversity, resources, information, artificial intelligence, migration, cyber security, social division, and pollution are not primarily economic. What does this mean? In the process of globalization, we used to think we lived in an economic world, but now we live in a world dominated by politics and uncertainty. Therefore, when considering overall constraints, it is not just economic constraints, but many unfamiliar factors that will become new limiting conditions. In this context, how should China respond? I believe the major strategic direction proposed by the country is to introduce a new growth pattern concept. As you can see, China's economic growth has gradually declined since 2008 due to its increasing scale. After rebounding in the 2000s, it stabilized at around 5%, with per capita GDP continuing to increase. The next step is to maintain growth in the range of 10.5% to 5% because the overall scale has increased. Gradually moving forward at a moderate pace from $13,000 in average per capita GDP, the growth rate has slowed down, which is a natural phenomenon.The quality of growth will improve.o there are several things that must be done here. The first thing is to expand domestic demand, because in the face of global uncertainty, it becomes especially important to focus on the domestic market. You can see that the proportion of demand for material products in China has decreased from around 40% of GDP to about 32%, and with the decrease in per capita income growth, this is normal. But we cannot increase our demand for material products anymore, because the consumption of essential goods is decreasing and the demand for real estate is also decreasing. What is the future demand? The future development space for arts, tourism, health, and medical care is still significant. The core of consumption is shifting from material product consumption to development-type consumption, moving towards service-type consumption. This is a structural transformation that China must undergo at the stage of $13,000 per capita GDP today. Therefore, the future prospects for consumption are very significant, and the central government has officially proposed changing and strengthening consumption from the supply side, which is very important. The second thing is that our core competitiveness lies in manufacturing, and we must make manufacturing bigger and stronger. China's manufacturing accounts for about 30.3% of global manufacturing, surpassing the total of the United States, Japan, Germany, and South Korea. In the first 20 years of reform and opening up, China's manufacturing became the cheapest in the world. In the next 20 years, China's manufacturing has become both cheap and good in the world. In the next 20 years, China's manufacturing will become cheap, good, and high-tech, maintaining a 30% proportion, becoming unbeatable, which is a significant strategic change. This is also related to the development of new productive forces in the Third Plenary Session of the Central Committee, including industries such as technology, biology, new energy, new environment, and nurturing future quantum information, humanoid Siasun Robot & Automation, even artificial intelligence, etc. Everything revolves around the development of a global manufacturing industry that is cheap, good quality, and high-tech. Therefore, our investment in manufacturing has increased to over 50%, and manufacturing is a key focus. Looking ahead, an important aspect is carbon neutrality. For China, this is especially important because in the first 40 years, we were still in the catch-up mode of industrialization, and in the next 40 years, we hope to be in the green field, not catching up anymore, but running alongside and even leading the world. For China to truly become a strong country and move towards the world, a green transformation is a necessary step. We have analyzed that by 2050, China's GDP will double to over 400 trillion RMB, but China's carbon emissions will be reduced by 90%. Think about how significant this structural adjustment will be. The first step in carbon neutrality is the energy revolution, because coal accounts for 57.7% of all energy consumption in China. The first thing to do is to reform coal. In the future, the proportion of coal in the entire energy structure will drop to around 22%, while the proportion of clean energy such as wind power, solar power, and nuclear power will continue to rise. Today, the cost of solar power is already lower than coal power. In 2021, the cost of solar power in Sichuan has dropped to 1.4 cents per kilowatt-hour, lower than coal power in Zhengzhou, Henan. This is why I wrote a report one day announcing the rise of Chinese photovoltaic companies and the "death" of Chinese coal. This does not mean that coal will forever exit the market, but in a market economy, costs determine everything. If the cost of solar power is lower than coal, we have hope to continuously expand solar power. The cost of wind power has also dropped to 2.5 cents per kilowatt-hour, and when it drops to two cents, it can compete globally. Additionally, our new energy installed capacity is rising very fast, leading globally in speed, with 37.5% of the national power generation capacity being from new energy. The only downside is that energy storage is insufficient, the power grid is inadequate, and the power generation capacity is insufficient. So the next step in reform is to reform the power grid and increase energy storage equipment to make use of this energy. For example, hydrogen energy. The cost of producing hydrogen is about three US dollars per kilogram, and products for exporting hydrogen have already appeared in Shanghai, so our hydrogen energy industry chain has been established. Because hydrogen can be used for energy storage, heavy-duty trucks, chemical industry, it also changes the energy structure. For example, nuclear power plants. We have reactivated the construction of 276 nuclear power plants. The first nuclear power plant in China, the Daya Bay Nuclear Power Plant, was financed by the Bank of China, which is something to be proud of. We have imported nuclear power plant models from France, Russia, and the four best nuclear power plants in the world, the AP1000 of the United States, are all in operation in China because the United States does not allow nuclear power plants to operate. We have also developed our own Hualong One, so nuclear power will develop in China, which will be a significant industry. With new technology, we can reduce the pollution and waste generated by nuclear power by about 10%. With nuclear power in place, the next step is to reform the power grid. The first step in this reform is to introduce competitive bidding for power grid access. The second step is to establish a decentralized power grid system. I believe that these are all inevitable developments. Supporting all of this are the two pillars that the country places great emphasis on, which are scientific and technological capabilities. The first is artificial intelligence. In the field of artificial intelligence, we have entered an era of intelligence. In the Newtonian era, we observed science, technology, and products. Today, we go from data to knowledge, directly to products. We further realize that for the first time in history, humans have found a second way of cognition, machine cognition. And we have discovered that machine cognition may not only replicate human cognition, but also enrich human cognition, changing the world significantly. Large models are fully integrating into China's industrial chain, including new energy, communication equipment, consumer electronics, etc., and the next step is to comprehensively build the artificial intelligence industry chain. Combining with China's manufacturing industry, I will give two examples of breakthroughs that will be made in China. The first is autonomous driving vehicles. Except for Tesla, all of the world's leading companies in the development of autonomous driving vehicles are Chinese, now at level L3 and gradually moving towards L4. China's pilot cities for autonomous driving and future urban road networks will rapidly develop. The second is Siasun Robot & Automation, an industry that combines physical space, artificial intelligence, and mechanical manufacturing. China has a great advantage in this area, from hands, arms, elbows to sensors, etc.The components of iasun Robot & Automation are mainly produced in China, accounting for approximately 50% of global production.The last, I think the most important future topic - data capitalization. When developing artificial intelligence, our computing power and algorithms are bottlenecks, so what is left as the core resource? It's data. China is already the world's largest data superpower, the question is how to use the data. The central government made a major decision last year, proposing 20 regulations on data. We abandoned the issue of data ownership that has been plaguing us for a long time, following the policy of the household contract system from 1978, setting aside ownership and redefining it as data holding rights. By turning it into a product through production rights and making profit through management rights, we have opened the door to the vast data reserves. Subsequently, in August last year, the Ministry of Finance issued a particularly important document, allowing data to be included in the balance sheets. Data inclusion in balance sheets means that data can be treated as assets, liabilities, and capital. Once this path is opened, the development of data capital is unstoppable. Therefore, we have observed a series of phenomena such as data mortgages, data enhancements, data loans, data investments, etc., with scales ranging from millions to billions. The nation has started to authorize the management and operation of government data, opening up the data. A few days ago, I saw a small city in Zhejiang package its data and list it on the Shanghai Stock Exchange, and the transaction was successful. If we look at all these things together, the future of the global economy and finance has undergone significant changes - low growth, high fiscal deficits, financial uncertainty, fragmented trade, rising geopolitical uncertainty, these are the new normal we are facing. In this new normal, China's decision-making is to maintain stability. We have built a new growth model, focusing on the domestic consumer market, our core competitive manufacturing industry, and the future green industry, artificial intelligence, and the wave of data capital. This world has really changed. While we used to focus on growth, now we need to focus on structural changes. The opportunities brought by structural changes are far greater than those brought by growth. I wish everyone becomes a winner in the future. Thank you.