Liu Qiao
is written in the previous article:
In the first half of this year, China's economy was running smoothly, with GDP (gross domestic product) growth rate of 6.8%. By quarter, GDP grew by 6.8% in the first quarter and GDP grew by 6.7% in the second quarter, and remained in the range of 6.7%-6.9% for 12 consecutive quarters.
Regarding the macroeconomic situation, Professor Liu Qiao, dean of Peking University Guanghua School of Management, wrote an article to analyze that the downward trend of the real economy is to a certain extent related to the rapid leverage of the financial department and strict supervision. Liu Qiao suggested that the starting point of policy formulation should be to enhance confidence and promote consumption, enhance investment capital returns of enterprises and local governments, and reshape the micro-foundation of high-quality economic development. To this end, a policy combination that is properly matched with short-term, medium-term and long-term measures is needed.
Brief description of the current macroeconomic situation
First look at several sets of numbers.
GDP grew by 6.8% in the first half of 2018, slightly lower than the same period last year, and the actual growth was stable. However, the GDP deflating index fell significantly, and the growth rate of 's nominal GDP fell to 9.8%, the first time in the past six quarters that it has been below 10%.
Affected by the anti-wealth effect brought about by the shrinking asset prices, the growth rate of consumption in July fell compared with June. Consumption increased by 9.3% from January to July, and the growth rate of fell to single digits, lower than the same period last year, with the monthly growth rate in May 8.5%, the lowest in fifteen years.
investment growth rate continued to decline. From January to July, fixed asset investment increased by 5.5%, 0.5 percentage points lower than 6% in January to June, setting a new lowest value since this data was found. Among them, fixed asset investment only increased by 0.43% in July. The decline in investment is mainly due to financial deleveraging that has led to tight funds from local governments and state-owned enterprises, dragging down infrastructure construction and investment growth of state-owned enterprises. From January to July, infrastructure investment in increased by 5.7% year-on-year, down 1.6 percentage points compared with the growth rate in the first half of the year. From January to July, state-owned enterprise investment increased by 1.5% year-on-year, a significant decline. But it is worth noting that from January to July, national real estate development investment increased by 10.2% year-on-year, and national commercial housing sales increased by 14.4%.
Industry, industrial production was relatively stable from January to July, with industrial added value increasing by 6.6%. After the growth rate of industrial output declined to 6% in June, the growth rate of industrial added value did not increase in July, and was still 6%, lower than market expectations.
Another worrying change is the significant increase in urban surveyed unemployment in July, from 4.8% in June to 5.1%. The rise in the unemployment rate reflects the lack of vitality of the real economy.
The downward trend of the real economy is to a certain extent related to the rapid deleveraging of the financial sector and strict supervision. 7 The increase in total social financing in July was 1.04 trillion yuan, 124.2 billion yuan less than the same period last year. From January to July, the growth rate of social financing stock has fallen to 10.3%. The increase in social financing scale is significantly lower than expected. In July, the broad currency M2 increased by 8.5% year-on-year, 0.5 percentage points more than in June, but still 0.4 percentage points lower than the same period last year. The balance of narrow currency (M1) was 53.66 trillion yuan, an increase of 5.1% year-on-year, with growth rates of 1.5 and 10.2 percentage points lower than the end of last month and the same period last year, respectively. RMB loans increased by 1.45 trillion yuan in July, an increase of 627.8 billion yuan year-on-year, lower than 1.84 trillion yuan in June. Interbank lending rates remained at low levels in July, reflecting the easing of interbank liquidity. In general, from January to July, the base currency maintained stable growth, with interbank liquidity relatively abundant, but the liquidity of the real economy was significantly tight, especially for small and medium-sized enterprises.
The financial system deleveraging combined with Sino-US trade frictions, coupled with expectations of downward trends in the real economy, has led to investors' general concerns about the market and the financial market has intensified volatility. In the first half of this year, the total market value of Shanghai Stock Exchange fell by more than 3 trillion yuan, and the A-share index fell by 14.4%. As the trade war continues to escalate, the decline in the RMB has significantly expanded, and the RMB exchange rate against the US dollar showed the largest historical decline in June. In July, due to concerns about uncertainty about trade frictions, imports and exports moved forward, and the total value of imports and exports increased by 12.5%. At the end of July, the balance of foreign exchange reserves was US$3117.9 billion. The intensification of price fluctuations in the financial market is largely a reflection of insufficient market confidence.
from January to July this year to 7,077.09 billion yuan, a year-on-year increase of 14%; among which, personal income tax was 922.5 billion yuan, a year-on-year increase of 20.6%; in the first half of the year, the revenue for state-owned land sales was 3.15 trillion yuan, an increase of 35% over the same period last year. Fiscal revenue growth is good, but there is still room for fiscal expenditure. Improving the efficiency of fiscal expenditure, improving investment rates and regulating consumption inequality through more effective public services (medical, education, urban public facilities service systems, etc.), the policy is more meaningful.
In short, economic data from January to July show that the downward pressure on the real economy is very high. In addition, the contraction of off-balance sheet financing poses a challenge to the debt accumulation of the real economy. If the situation of insufficient total social financing cannot be improved, credit risks are expected to rise further. All of this, coupled with the weak growth of Sino-US trade frictions and fixed asset investment, the downward pressure on the economy is expected to increase this year.
Structural issues and macroeconomic policies in the implementation of China's economy
In addition to the new uncertainty factor of Sino-US trade friction, the macroeconomic situation reflects the structural issues and macroeconomic policies in the implementation of China's economy.
During the period of rapid economic growth, our economic growth mainly relies on investment drive and factor drive. With the close completion of my country's industrialization process and the end of the stage of rapid growth, the return on investment capital began to decline. Taking the total factor productivity (TFP), which is closely related to the return on investment capital, as an example, the average annual growth rate of TFP in the past six years has dropped from 4% in the first thirty years of reform and opening up to about 2%. A listed company is another example. In the past 20 years from 1998 to 2017, the average investment capital return rate of Chinese listed companies was only 3%, far lower than the 11% in the United States during the same period. When the return on investment capital is insufficient, in order to achieve higher growth goals, we can only rely on increasing the investment rate. In recent years, real estate investment and infrastructure investment have become important means to stabilize growth. Under this logic of economic growth, China's economy's dependence on financing has been continuously strengthened. However, when the marginal effect of macroeconomic policies on economic growth becomes weak and a large amount of funds flows to industries, enterprises or projects with low returns on investment, loose monetary or fiscal policies will eventually be reflected in an increase in leverage rather than an increase in support for the real economy.
At present, the macro policy goal is to stabilize growth and employment while preventing systemic financial risks and deleveraging. When the investment capital return rate is not high, it is difficult to take into account multiple policy goals. specifically reflects that stable growth is mainly driven by debt, which objectively causes leverage to remain high. The core essence of achieving the transformation of China's economy from high-speed growth to high-quality development is to reshape the micro foundation of China's economy, improve the return on investment capital at the enterprise level, and thus improve the capital use efficiency of the entire China's economic development, and ultimately reduce the dependence on leverage during the development process.
Policy recommendations
htmlThe macroeconomic situation from November to July reflects the lack of confidence in the market, investors and consumers. At the same time, the chronic disease of low capital returns in China's economic investment still exists. In the case of low investment efficiency and insufficient new momentum for economic growth, stabilizing growth is likely to return to the traditional economic growth logic - to improve investment rate. This is also the reason why the market generally expects loose fiscal and monetary policies. Although in the next stage, targeted, structural credit policies and actively cooperated fiscal policies may play a role in promoting growth in the short term, as mentioned above, the marginal role of macroeconomic policies at this stage is weakening. Returning to the traditional policy-making logic is helpful for stabilizing growth, but it may worsen structural problems. Therefore, the starting point of policy formulation should be to enhance confidence and promote consumption, enhance investment capital returns of enterprises and local governments, and reshape the micro foundation for high-quality economic development. To this end, we need a policy combination that properly matches short-term, medium-term and long-term measures, as follows:1. Tax and fee reductions. Although the credit period of 6-July is wide, the credit is still tight, indicating that the space for monetary policy is extremely limited. There is more room for fiscal policy than in comparison. fee reduction and tax reduction can increase consumption and investment willingness, improve corporate profit performance (return on investment capital), and enhance consumer and corporate confidence. htmlFrom 41-July, personal income tax accounted for less than 8% of the total general public budget revenue. The significant simplification and reduction of income tax rates have actually limited impact on fiscal revenue, but this will have a significant effect on increasing confidence. In terms of corporate taxation, it is recommended to significantly reduce corporate value-added tax, truly reduce corporate tax burden, improve corporate efficiency, promote entrepreneurship and innovation, and comprehensively improve the micro-foundation of the economy. The vitality of micro-units of economic life is the key to stabilizing growth and employment.
2. Significantly increase the salaries of civil servants, scientific and technological personnel and medical staff. Currently, real estate prices remain high, and household leverage continues to rise, which is not conducive to consumption upgrading (in June, the new medium- and long-term loans of residents increased by about 460 billion yuan, which was significantly increased compared with the previous few months, the second highest this year, indicating that real estate mortgage loans have increased, and real estate has formed a crowding-out effect on residents' consumption). The best way to increase consumption is to increase the income of consumer entities.
3. Increase the GDP share of R&D . Reshaping the micro-foundation of China's economy depends on innovation and entrepreneurship. R&D is the top priority. At present, my country's GDP accounts for 2%, which has reached the average level of developed countries and ranks second in the world in absolute terms. However, the 2% R&D accounted for still less than 3% in the United States and Japan, and 4% in Israel and South Korea. Moreover, my country's R&D "research" is obviously weaker than "development". Can be used as a policy goal to clarify that the GDP of R&D during the 14th Five-Year Plan period will reach 3%, and this target will reach 4% by 2035?
4. Standardized REITs are launched in a timely manner. High housing prices are also a largely important reason for the accumulation of systemic financial risks. Nearly half of my country's current total debt is related to the real estate market. Real estate has largely kidnapped the Chinese economy and limited the space for implementable economic policies. The biggest problem in China's real estate market is that there is no "anchor" in pricing. Develop the rental housing market , form market-oriented rental prices that reflect supply and demand relationships, and can find a rational pricing level for the real estate market. This is also in line with the spirit of proposed by the Central Economic Work Conference last year, “accelerating the establishment of a housing system with multiple subject supply, multi-channel guarantee, and rental and purchase”. At present, the conditions for launching real estate trust investment funds (REITs) with rental housing, commercial real estate and infrastructure assets as their underlying assets are ripe. 's financial products and financial innovations related to it not only directly serve the real economy and help solve the structural chronic problems of the real estate market, but are also part of a long-term mechanism for the healthy development of real estate; launches REITs, especially public REITs, can also revitalize various types of existing operating real estate, reduce the financial leverage of the government and enterprises, and resolve the maturity mismatch and high leverage risks in the credit market; build a REITs market, which can provide feasible financial strategies for PPP and infrastructure investment, and provide new financial ideas for regional economic development; in addition, REITs can enrich capital market tools, slow down the problem of low direct financing ratio in China's financial system, and improve the risk diversification ability of the financial system.
5. Launch the IPO registration system and resolutely implement the market-oriented delisting system. The biggest problem with China's capital market is the lack of high-quality listed companies. Our analysis shows that from 1998 to 2017, the average investment capital return on listed companies in China's A-share market was only between 3-4%, far lower than the average level of 10% for US listed companies in the past 100 years. There is still a lot of room for improvement in the capital use efficiency of China's micro-foundation (enterprise) of capital. We need a capital market that can identify and cultivate high-quality listed companies. Reforming the enterprise listing system and delisting system, introducing the IPO registration system and resolutely implementing the market-oriented delisting system will help create a good market and regulatory atmosphere and improve the quality of listed companies.
6. Establish a local government financial system. A very important feature of China's development model is that local governments play an important role in economic growth, but the growthist tendency of local governments also brings huge local debt, a large amount of inefficient investment, and environmental deterioration.Local government debt has become a major risk point in China's financial system. Implementing a proactive fiscal policy to improve infrastructure investment in the short term can be achieved by accelerating the issuance and use of 1.35 trillion local government special bonds. However, if there is a lack of supporting mechanisms, the issuance and use of local debt may return to the old path of traditional growth logic. Our research shows that places with low investment efficiency often face relatively high local government debt ratios. The debt problem of China's local government is not a matter of scale, but a matter of efficiency of capital use. In order to resolve local government debt risks, we need to establish a market-based local government financial system to improve the investment efficiency of local governments. In the future, a complete balance sheet and fiscal revenue and expenditure sheet will be prepared for local governments, market mechanisms will be introduced, and a government credit rating system will be established, and a pricing basis for local government bonds will be formed and the political achievements of local government officials will be assessed, so as to change the investment and financing model and performance assessment model of local governments.
