After the COVID-19 pandemic, the global economy has suffered a heavy blow, and both the United States and European countries have introduced huge monetary stimulus policies. In the past, whenever the United States implemented a loose policy, hot money would pour into emerging economies with higher interest rates. Once the easing was over, these capitals would sell off overseas capital and return to the United States, which is the so-called "fleece", thus causing a financial crisis in emerging countries. So how should China, which has effectively controlled the epidemic and still maintains healthy interest rates, deal with this impact? What potential risks are brought about by Western politicians represented by Trump who are eager to blame China? Ju Jiandong, a professor at the Wudaokou School of Finance at Tsinghua University and director of the Center for International Finance and Economic Research (CIFER), Tsinghua University's National Institute of Finance, shared his thoughts with Observer.com.
Observer Network: Hello Professor Ju, thank you very much for accepting our interview. You recently mentioned in your speech at Tsinghua University’s Weizhen Forum that China should introduce cross-border capital flow tax to deal with financial security issues after the epidemic. Can you give a detailed introduction to the design of capital flow tax?
Ju Jiandong: Let me briefly explain what kind of design cross-border capital flow tax is and why it is taxed. First of all, the cross-border capital flow tax we designed is a crisis-proof tax, not a tax that must be levied under a normal economic state, which is very different from the previous Tobin tax.
What is normal state? What is an abnormal state? In normal conditions, cross-border capital flows are relatively stable. However, during times of crisis, capital flight or financial attacks occur, such as the Asian financial crisis in 1997, when Soros launched a financial attack on Thailand, it was accompanied by abnormal and large amounts of cross-border capital flows because it required buying and selling at the same time.
In order to deal with abnormal states, we now have a traffic light system. For example, if the traffic volume exceeds more than twice the normal value, it will reach the alert level. If it is tripled, the red light may be on. This is the current practice. This approach is actually a tax system, except that the tax rate is zero or infinity. There is no tax under a certain amount, and if it exceeds a certain amount, it will be stopped and you cannot do it.
If we want to design a cross-border capital flow tax, we can discuss when it will be started, but generally when the abnormality reaches twice and triple, it will definitely start if it exceeds three times.
1997 Thai baht depreciated wildly
Second, our cross-border capital flow tax is a progressive tax.
The Tobin tax before was a fixed tax rate. Some Latin American countries have used it. Brazil once imposed a 2% capital flow tax, but the effect is not good. The reason is that in times of crisis, the income difference between capital flows across borders is usually greater than tax revenue.
For example, when Soros attacks you, he expects to make a profit of 15~25%, which means that its profit will exceed the tax you collect. So he doesn't care if you collect taxes, and he can't guard against it. Or your taxes are too high, reaching 60 or 70 percent, which is no different from closing the capital market. So our tax is a progressive tax, and the marginal tax rate can continue to move upward. Through simulation, we believe that the marginal tax rate is as high as 30%.
The third aspect is that since you are progressive taxes, there is a problem of tax evasion. Because of the same investor, he can open several accounts, which will reduce the marginal tax rate. In order to solve this problem, our design is divided into two parts. In addition to the progressive tax rate, there is also an account opening fee, which is a fixed cost. If you open an account, you have to pay a sum of money. Combining account opening fees and progressive tax rates can theoretically prove that no matter how much traffic an investor has, it will not exceed 5 accounts, because it is impossible to pay for the account if it is opened too much. Even if the account opening fee is not very high, investors cannot pay for opening more accounts.
account opening fee and progressive tax are added together. No matter what happens, the cross-border flow of capital will not reach more than two or three times the equilibrium. If it does not reach more than 3 times, the equilibrium of the crisis will not occur, because the equilibrium of the crisis requires a run. Everyone is running, everyone runs, and then the crisis will only happen if the balanced crisis occurs.If you ensure that the traffic is normal, the crisis will not happen.
The cross-border capital flow tax we designed is to promote the opening of capital accounts while managing the risks of opening up. We actually discussed a new design like
from 2014 to 2015, 5 years ago. At that time, the Shanghai Free Trade Zone was opened and 40 financial articles were issued. We discussed that we hope that the capital account would be open within the Free Trade Zone. How to open a capital account so as not to impact the domestic capital market, it requires some policy design.
But later, mainly after the 8.11 exchange rate reform in 2015, our capital outflow was very serious. We used about $1 trillion in foreign reserves in about half a year, so the country's management of cross-border capital flows has become very strict, and preventing crises is the first priority. The fastest and most effective way to prevent crises is to prevent capital from flowing out. Therefore, some reform measures on capital account opening and capital account management have not moved forward.
Observer Network: So since we already have a traffic light system, and re-recommending cross-border capital flow tax, what is the necessity? Under the epidemic, is there any difference between the risks of the global financial crisis brought about by the US's huge profits from before? Ju Jiandong: Why do we re-mentioned this matter now? In fact, it is not entirely a re-mentioned. This issue was discussed academically before, but now it needs to be further discussed in depth and further discussed at the operational level. The current situation is different from the past, that is, we are not only facing the risk of financial crisis and capital flight, but also facing the risk of financial blockade.
The risks of the financial crisis have been discussed a lot. On the other hand, under the epidemic, the monetary policies of the United States and Europe are desperately trying to release money and distribute money. Because the US dollar is an international currency, the substantial consequence of the US is actually to pay for its crisis, especially China. Anyway, you send him the things and he can print the money to you.
But what we are more worried about now is the financial blockade.
The Trump administration has made it clear that it will blame China for its new coronary pneumonia, and then it will punish China again. As for whether he can continue to do it, he doesn't know, but the financial sanctions on China have been put on the agenda, including not paying back the US debts in China. Although I think Trump is stupid on this issue, if he does not pay back the national debt, the United States will suffer much greater losses than China. But as long as it is feasible, Trump will do it, and we need to be mentally prepared.
According to US media reports, when Trump discussed claiming compensation from China for the new crown epidemic, he talked about refusing to repay China's debts
So our current problem is different from the 8.11 exchange rate reform, we need to prevent double risks. It is the risk of financial crisis and financial blockade. To prevent the risks of financial crisis, you can manage the cross-border capital markets and even prevent them from flowing in the short term. But the risk of financial blockade is troublesome. Because it is a financial blockade, your capital account needs to be opened because people want to get stuck.
If you want to settle in US dollars, you must pass its SWIFT, which is the cross-border payment system. What should you do if it doesn’t let you use it? It will suppress high-tech companies in China, such as Huawei. What should you do?
Under such circumstances, our capital market is open to the public. Faced with the situation of financial blockade, your internationalization of the RMB, the opening of capital accounts, etc., these things cannot be waited for. It used to be just a matter of order. I felt that we would wait for the opening of the capital market, but the impact may not be great. Isn’t it good to use US dollars? But now there are risks in using US dollars.
Observer Network: Some people may be worried that increasing the opening of the capital market will also amplify risks and make international capital more likely to impact the Chinese market. What do you think of this issue? The opening of the capital market is actually mainly to promote the internationalization of the RMB itself? Ju Jiandong: Our financial system now relies on the payment system dominated by the US dollar and the United States. It is indeed too stressful and too dangerous for us, and we must find a way. But this method can only be to expand opening up. There is a risk of crisis when the capital market is open, and there is a risk of financial blockade when the capital market is not open. What should I do?
The internationalization of the RMB is not only based on trade, but also makes people willing to use and hold the RMB. Then we are facing a very difficult problem. What should we do with our cross-border payment system? When I buy and sell goods, can I pay in RMB?
If you want the other party to accept your RMB, you have to make it useful. If someone takes your RMB and it is not easy to spend and cannot exchange it for other money, what's the use?
RMB must be valuable. Why do people like to get US dollars now? Because the US dollar is valuable, I can exchange it for other things at any time. The RMB must be useful, at least you must be convertible, and then cross-border capital can be flowing. It can come to your China to buy things, and you can buy things outside after you get the RMB. Therefore, China's capital account convertibility must be implemented as soon as possible.
Observer.com: So what is the acceptance of capital flow tax in other countries? We are open and taxed, will we suffer political doubts or even attacks? Ju Jiandong: Our reform faces a dilemma. must not only make it open, but also prevent the risks of financial crisis. is facing the risk of financial blockade, and our capital account can no longer wait. So our suggestion is that you have to do it, then you add a firewall. Even if adding a firewall brings some doubts, others say that you are still in charge since you are open, which is much better than opening up completely naked. After all, you have another way to control the crisis.
I opened my capital account at once, and a bunch of people in Shanghai and Beijing would sell their houses and then go to the United States to buy a house. Because your average family assets in Shanghai are more than 8 million yuan, which is more than 1 million US dollars. This is just about Shanghai and Beijing, not the whole country. Many people have several houses. If you open your capital account, it is likely to cause a huge impact of capital outflow. So before the capital account is opened, the first thing to do is to repair a firewall, which becomes very important.
Recently released by the central bank, the household assets and liabilities survey of urban residents' households showed that the average household assets of Beijing and Shanghai residents exceeded 8 million
The firewall was repaired, and I changed everyone's expectations. For example, our per capita cross-border capital flow is 50,000. If you want to sell a house and take the money to the United States in the short term, and the circulation of cross-border capital reaches more than a few million, it will be levied at a very high marginal tax rate, which will not be paid, and everyone will not do it.
In fact, after the 2008 financial crisis, South Korea has been managing the circulation of cross-border capital, and it has done quite successfully. The International Monetary Fund's attitude towards this issue has also changed greatly. In the past, it was believed that capital flows should be completely liberalized, but in recent times, mainstream research by the International Monetary Fund has tended to be managed across border capital.
There are a lot of studies showing that whenever the Federal Reserve's monetary policy reverses, its capital is like a tide of ebb. Then when the tide is gone, capital will surge back to the United States, it will usually bring financial crises to developing countries. So under such circumstances, it is necessary to manage cross-border capital. South Korea has always insisted that their cross-border capital management is not a cross border capital flow management, which is called prudential policy, which is macro-prudential policy.
Of course, the United States is unwilling to manage other countries because the United States needs to make money. But it will attack you whatever you do. The current Sino-US relations have passed this stage, and whether to attack or not is not a problem.Because he will attack whatever you do, the most important aspect is not to consider whether it attacks you or not, but to consider whether the policy is effective and whether your strength has been enhanced.
Observer Network: In your research in previous years, you also mentioned the issue of RMB floating exchange rate. The combined combination of the two means of floating exchange rate and capital flow tax can ensure the complete independence of China's monetary policy. How should this be understood? Ju Jiandong: In the past few decades, our RMB exchange rate has actually been basically bound to the US dollar. After the exchange rate reform of 8.11, there have been some ups and downs. What is the meaning of binding to the US dollar? The exchange rate is bound to the US dollar. In fact, the US dollar represents two economies, China and the United States. China's monetary policy is also bound to the US monetary policy. Your interest rate and its interest rate cannot be too far apart. This is how powerful the US dollar is.
There is a so-called tripartite paradox in economics, that is, independent monetary policy, fixed exchange rate, and free flow of cross-border capital. These three cannot be obtained at the same time.
So what did we give up before? It is cross-border capital circulation. We basically guarantee a fixed exchange rate and an independent monetary policy, but we have abandoned cross-border capital circulation. So now we cannot give up cross-border capital circulation, so I must break my fixed exchange rate. Because our independent monetary policy cannot be given up, and we cannot bind interest rates to US dollar interest rates like Hong Kong. So I have to break the fixed exchange rate.
has another very important significance in breaking the fixed exchange rate, which is that our financial pressure is getting greater and greater. As long as you have a fixed exchange rate, you must guard it. Just like in the second half of last year, everyone was desperately discussing whether you are guarding or not at the seventh level of your US dollar to the RMB exchange rate? As long as you are fixed in a certain place, this market always asks you, are you guarding or not? In order to keep an exchange rate, you may have to invest a large amount of foreign reserves. We don't have much capital to keep a fixed exchange rate now. So if you want to not keep it, you must let it float.
On the other hand, our foreign reserves are facing various problems, and they are still scaring you, will the foreign debt you lent out to you? In fact, he doesn't need to act. He just said that this matter will immediately have an impact on your fixed exchange rate. China may not be able to take out the foreign exchange reserves and cannot keep the fixed exchange rate. Will the RMB depreciate?
If I had let go, the United States would yell, my currency depreciation was a little bit more depreciated, and he was still anxious because it was more convenient for me to export, and he was anxious.
Observer Network: China has always tended to maintain a relatively fixed exchange rate. Did it also consider that the impact of floating exchange rates on our import and export trade will be relatively large? Ju Jiandong: Is it unclear whether the fixed exchange rate of is more stable or the floating exchange rate is more stable.
China's policy changes have always had a problem of path dependence. We have been doing this before, but now you have to change it. The fixed exchange rate becomes a floating exchange rate. Of course, the entire market will fluctuate in the short term.
From a fixed exchange rate to a floating exchange rate is a very big change. The entire financial market will be affected, and your company must also have tools to hedge exchange rate risks. The decision-making level needs to be considered. Do I need to make such a big change? My fixed exchange rate now looks pretty good. I have so many foreign reserves, why not continue to use it?
But after the changes, we can also build new supporting systems. Judging from the practices of various countries, it is hard to say which one is more stable to the market, is more stable. Because even if you have a fixed exchange rate, the price is still moving, right? If the exchange rate is floating, but you have the means to hedge risks, you will be less affected. So it's not clear.
Everyone thinks that as long as you change, there will be risks. Who is willing to take the risk to do such a big thing? I am also afraid that after suddenly turning into a floating exchange rate, there will be competitive depreciation. Just like our exchange rate reform on 8/11, we are still talking about it. If you grit your teeth and persist for two weeks in 8/11, you might be able to successfully change it.8.11 just wanted to change to a floating exchange rate. After changing it for two days, I became nervous and took it back.
But now there is nothing we can do. The cost of supporting a fixed exchange rate is too high. I think we must change it to a floating exchange rate as soon as possible.
Originally, there are three dimensions in the policy level: cross-border capital circulation, monetary policy, and floating exchange rate. So on top of these three , I add a cross-border capital flow tax, and I have an additional tool, which is a very important thing. was originally a three-dimensional space, but now it has become a four-dimensional space, with one-dimensional space, so my policy room will be much greater.
I can use cross-border capital flow tax to regulate the inflow and outflow of the entire capital market. I can change the monetary policy without changing it, but only changing the cross-border capital flow tax. Even if I don’t use it there, I have an extra tool on my hand and I can use it when I want to. For example, because the United States lets money go in, hot money will flow in. After making money, he will run out, so I will be taxed when you come in. The long-term interest rates in the United States and Europe are now 0, and my interest rates are 2% to 3%. If they are not adjusted, their money will have to come to China. After making money, they will run away. That's very simple. If you come in, if it's a long-term investment, I don't care; as long as you are short-term and I add taxes, you will not be able to impact me and you will not be able to gain advantage.
After the epidemic, the world situation has changed a lot. There are two things. The first is the change of the international order. We need to have a base. The second is that the international financial system may de-Sinicize, and we need to break the possible financial blockade. Both of these things cannot be waited for and need to be dealt with actively. Our suggestion is to build an Asian community in the establishment of a base. To break the financial blockade, our suggestion is to first establish a cross-border capital flow tax, build a firewall, and then open the capital account and float the exchange rate. We need to remember the profound lessons of the Asian financial crisis. We cannot wait until the pressure of depreciation is too high, and then we can't hold the fixed exchange rate and then abandon it. That is the financial crisis.
We have prevented the epidemic and cannot have problems in international finance. There is now discussion to maintain the stability of the RMB exchange rate. What is stability? A fixed exchange rate that cannot be maintained is the biggest instability and the source of risk. If there is another pressure of depreciation, will you keep it or not? How many foreign reserves do you have to guard? If we cannot keep it, there will be a financial crisis, and then our economic bleeding and sweating will be wasted. At present, China's economic fundamentals are good, especially compared with European and American countries. The financial system is healthy. We do not have any pressure to depreciate. This is a window period. We need to decisively float the RMB and decisively remove the fixed exchange rate mine. When the exchange rate fluctuates, the foreign reserves will be liberated, and we are not afraid of someone threatening our foreign reserves.
Observer.com: Let’s talk about the domestic economy next. You mentioned just now that the long-term interest rates in the United States and Europe have dropped to zero, and some countries have even negative interest rates, but China has not cut interest rates as comprehensively as the market expected. China's stimulus is much smaller than that of European and American countries. What is this for? Ju Jiandong: The path of liquidity in our financial market to the real economy is different from that of the European and American markets. After we released the water, the house prices rose the fastest, and small and medium-sized enterprises were not necessarily the ones that benefited. So we have created many tools, targeted reserve requirement ratio cuts, etc. After releasing the water, we have to tell the bank that you must lend to small and medium-sized enterprises, which means you have to pass administrative measures. Our financial market itself has its own problems, and has been discussed many times. Liquidity is idle in the financial industry.
Regarding the issue of water release, you need to pay attention to it. After you release water, the financial industry will make money. Of course, I am very happy, right? But can the lifting of money and interest rate cuts directly benefit small and medium-sized enterprises? Can't explain clearly. This is the first question.
The second problem is that our domestic economic situation is very different from that in Europe and the United States. By the second quarter, we have basically returned to normal, and will basically have normal growth in the second half of the year, except for foreign trade. Foreign trade is not our problem, foreign trade is a problem abroad.Our normal growth rate is about 6%. If foreign trade drops by 10% to 20%, and exports contribute about 20% of GDP, then the impact of foreign trade will probably affect 1% to 2% of GDP growth. That is to say, even if we subtract the foreign trade part, our growth in the second half of the year will be about 4%. Compared with the global growth of minus 4, minus 5 or even minus 6, that is quite good.
and 4% growth, there is no problem with our employment and the normal operation of the entire economy. Since I know there will be no problem in the second half of the year, all I need to solve is the problem in the next two months to solve the current problems of small and medium-sized enterprises. For example, some provinces and cities say that they are under great pressure, so they can solve their problems. Let small and medium-sized enterprises survive in the past two months, which cannot be solved by interest rate cuts. It is useless for you to cut interest rates. You have to be interest-free, and you even have to ask them to postpone repayment of their loans.
So if you want them to live, relying on monetary policy is not effective, you can only pass fiscal policy. This is the difference between us and the European and American markets at present. Our economy in the second half of the year is pretty good and it is a situation where we can develop firmly. Our current problem is just how to make small and medium-sized enterprises that were impacted in the first half of the year, especially foreign trade enterprises that were still affected in the second half of the year, survive.
The happiest thing about monetary policy is the financial market and real estate. As long as you let the money go, the real estate industry will rise again and the risks will be suppressed again, but is the real economy idle again?
Observer.com: So how severe the impact of the epidemic in the United States and Europe is, will it be a long-term recession? Ju Jiandong: The impact of on Europe and the United States is very clear, it is much bigger than that for us. There are several reasons. First, their reactions are relatively poor, and second, the service industry accounts for a relatively high proportion in their economic size. The service industry in the United States is almost 80%, and the service industry is the most affected by the epidemic.
So the second question, how long is it? Now, this round of epidemic in the United States will not end in at least August. Whether the impact will be longer depends entirely on when the next wave of epidemic will come. If the next wave of epidemic does not come, the situation will be much better. If the next wave comes again, he will face a dilemma immediately. Will it stop the economy again?
The European and American economies are facing such an uncertain situation. Even if the epidemic no longer comes at the end of the year, the entire investment will not rise. because no one dares. So this year one year or even next year, until the epidemic is completely under control, the European and American economies will be impacted by this uncertainty.
The advantage of China is that we have adopted different methods of fighting the epidemic, which is to rely on the systemic fight against the epidemic by government organizations, and now it seems to be successful. We don’t have to rely on vaccines, or we need herd immunity. We don't need it, we can handle it. So far, Europe and the United States have no evidence that they can survive.
The success of China, or Singapore, South Korea, and Japan is not entirely a political system, but is actually a problem of the way of social economic organization. The organizational methods of China and Eastern countries are more collectivized and emphasize collectivism. The organizational capabilities of communities are much stronger than those of Western society. The personal freedom of Western society has its benefits. Different economic organization methods respond to different problems, and their responses are different. Those individual freedoms are very beneficial to innovation, but resisting natural disasters requires collective organizational capabilities.
Observer.com: Some calculations before the epidemic believe that China may surpass the United States by 2026-27. So after the epidemic, will this certainty of transcendence be higher? Ju Jiandong: The issue of is hard to say, it depends on finance, that is, the internationalization of the RMB. If the RMB is internationalized, then as long as the fundamentals of China's economy are good, the big trend is that the RMB will appreciate. If it weren't for the special strong position of the US dollar, the exchange rate should have reflected the fundamentals, the US dollar would have depreciated, and the RMB would have appreciated.If the RMB appreciates, we will surpass the United States in 2014 based on purchasing power parity GDP. If the exchange rate more accurately reflects fundamentals, the nominal GDP this year may exceed it. However, if the international financial problems are not solved and the RMB still depreciates, it will be difficult to say, and it will be difficult to say in a few years.
So the worst thing we have compared to the United States is finance. Of course, we don’t talk about military affairs, military is another matter. In the future, competition, or disputes and conflicts between China and the United States will be reflected in the finance aspect.
Our financial opening is a very urgent issue. You have to overcome this hurdle.
Observer.com: You have recently proposed that you should directly find cash to the people to deal with the epidemic, and directly subsidize a certain proportion of the per capita wages to 1/3 or 1/2 of the people in the country. However, some people also believe that China's savings rate is very high and can survive the impact of these months, so there is no need to find cash. Moreover, if you find that cash may not be converted into consumption, you should use consumption coupons to stimulate it. What do you think of this problem? Ju Jiandong: There is a prerequisite for cash discovery suggestions, which is my analysis just now. I think our economy will be fine in the second half of the year. The key is to ensure that everyone can survive in the next two or three months. Whether it is a low-income family or a bankrupt company, the best and easiest way to survive these two or three months is to pay money or postpone repayment for one year. The amount of money you send doesn’t need to be too much, we expect it to be about 1 trillion yuan. After
was sent, some people saved it. What should I do? Southwest Finance and Economics University Ganli team made some estimates, and a considerable part of them will be spent. This multiplier effect is still good, and it will have a good boost to the economy from the demand side.
(Observer Network Note: Ganli team research shows that a one-time subsidy of 750 billion yuan is issued to groups with an annual income of less than 60,000 yuan, with an average subsidy of 2,300 yuan, which can drive 1 trillion yuan of economic growth, equivalent to 1% of GDP. Consumer coupons have thresholds and limited scopes, and it is difficult to ensure that low-income groups benefit.) I think there can be also a consumption coupon, but our judgment is that you need to give a strong stimulus and strong signal in the past two months, which is the benefit of cash discovery. Let everyone make it clear that life in the second half of the year is easy, but we have a strong stimulation in the past two months and rushed over together.
So I don’t have to put a lot of money into it, and I don’t have to hype up the real estate market. New infrastructure and other things are also relatively long-term. We believe that in addition to long-term regulation, there is also a short-term bottom-up problem. The short-term bottom-up is actually quite serious now. A considerable number of people who are working in the city have no income after returning to their hometown. How can he get through these two months? I just need to protect people's livelihood and allow low-income families and companies facing bankruptcy to transition. These things may be more effective through fiscal means, rather than monetary policy.
Source | Observer.com
