Photo credit/Xinhua News Agency
■Liu Yuanchun, Ren Zeping, Chen Yanbin, and Wu Ge jointly solved the problem
A few days ago, the China Macroeconomic Forum (CMF) of Renmin University of China (RUC) actively organized experts from both inside and outside the organization to carry out a joint study of "economic growth and macro policy in the context of the epidemic".
China's economy has strong resilience
While the epidemic has had a certain short-term impact on China's economy, the Chinese economy has strong resilience, large room for maneuver, and the basic trend of steady improvement in the long term remains unchanged. What are the main aspects of China's economic resilience?
Liu Yuanchun (vice president of Renmin University of China and co-founder of the China Macroeconomic Forum): First, the greatest resilience of China's economy stems from the leadership of China's ****-producing Party and the systemic advantage of socialism that concentrates on doing big things. This advantage determines that China can use national strength to quickly win the epidemic prevention and control blocking war, and quickly make the economic and social order back to normal.
Second, after more than 70 years of development, China has laid a strong material foundation and production capacity, and it is difficult for the epidemic to cause substantial damage to the country's fixed assets of hundreds of billions of yuan, its labor force of close to 900 million people, and its production system, which is the world's largest in scale and the most complete in terms of categories.
Thirdly, China has a large market and huge potential for domestic demand. The impact of the epidemic can't shake the self-perpetuating cycle of the Chinese market. The upgrading of consumption, the advancement of urbanization and industrialization, and the rapid development of the service industry will all provide broad space for development.
Fourth, the booming development of the new economy and new energies will buffer the impact of the epidemic to a greater extent. In particular, the development of the Internet economy and new businesses such as online offices has ensured that China's economy and society have maintained effective operation during the epidemic, buffering the impact of the epidemic on the traditional economy.
Fifth, the Chinese government has a strong economic regulation capability, a sufficient policy toolbox and a broad policy space, which determines that the Chinese economy has a strong self-healing ability. At present, the Chinese government's debt ratio of less than 60%, the budget deficit rate did not exceed 3%, the average weighted interest rate of various types of loans is still maintained at about 5%, which ensures that the Chinese government can continue to carry out the flexible "six stabilizing" policies under the general tone of seeking progress while maintaining stability.
Overall, China's economy has great resilience and toughness, and it has a strong defense and self-healing ability against the current epidemic, which will enable the Chinese economy to overcome the current difficulties and risks and quickly return to the track of good development.
Ren Zeping (chief economist of Evergrande Group and president of Evergrande Research Institute): The epidemic will not change China's economic fundamentals and long-term trend, and if it can promote a new round of reform and opening up, the best investment opportunities are in China.
First, China is the world's second-largest economy, and the U.S. and China dominate the world. According to IMF estimates, the total global GDP in 2019 amounted to 86.6 trillion U.S. dollars, of which China and the U.S. accounted for 16.6 percent and 24.7 percent of global GDP, respectively.
The second is that China's real GDP growth rate of 6.1% in 2019 is at a world-leading level. In contrast, the real GDP growth rate of 2.3% in the United States, 2.0% in South Korea, 1.4% in the United Kingdom, and 0.7% in Japan are all far behind China.
Third, China's per capita GDP still has more room for growth. in 2019, China's per capita GDP was 70,892 yuan, or 10,277 U.S. dollars, which is only about 1/6 of that of the U.S., 1/5 of that of the U.K., and is comparable to that of Japan in 1981 and South Korea in 1994, with huge potential for future development.
Fourth, China's urbanization rate still has 20% room for improvement. 60.6% in 2019, China's urbanization rate is only slightly higher than the world average of 55.3% in 2018, and much lower than the average level of 81% in high-income countries. Meanwhile, the urbanization rate of China's household population is much lower than the urbanization rate of its resident population, and there are still about 230 million children of migrant workers and their families who have not been able to become citizens.
Fifth, China has the world's largest market and the largest middle-income group. China has a unified market covering a population of 1.4 billion, with free movement of goods, people, services and capital, and huge scale effects in product development, production, logistics and sales.
Sixth, China's labor resources are abundant, and the demographic dividend has shifted to a talent dividend.At the end of 2019, China's working-age population will be about 900 million, with more than 700 million employed people, 170 million high-quality talents with higher education and vocational education, and about 8 million college students graduating every year. Although China's total population has crossed the Lewis inflection point, the rising quality of the population has allowed the country to nurture a new and larger talent dividend.
Sevenly, China is very active in innovation and entrepreneurship, and the number of new economy unicorn companies is second only to the U.S. The new unicorns in China and the U.S. will account for 12.6% and 55.9% of the global share, respectively, in 2019. In the future, the combination of China's information service industry with artificial intelligence, AR and VR technologies will still release huge growth potential and provide important kinetic energy for economic development.
Epidemic won't change China's medium- to long-term positive trend
Will the epidemic affect China's potential growth rate? Should economic growth be restored mainly from the demand side or the supply side?
Liu Yuanchun: Any economic shock triggered by an epidemic is essentially exogenous, short-term and localized, and will not cause a deviation from the economic development trend of a large economy. This is because the medium- and long-term development trend and production capacity of a country depends mainly on three major factors: first, the capital stock and its growth rate. The second is the state of the labor force and its human capital accumulation. The third is technological progress and improvements in the efficiency of resource allocation. None of these three factors will be fundamentally changed by the impact of the epidemic.
Looking back over the last hundred years, no pandemic has ever led to a prolonged period of stagnation in a large economy, with the economy generally returning to its normal path of development within a quarter or so after the pandemic subsided. Therefore, the current pandemic will only bring about minor economic fluctuations for 1 to 2 quarters at most, which will not change China's medium- to long-term positive trend, and China's potential growth rate will not deviate systematically. Therefore, the focus of the current economic work should be on the orderly resumption of work and production, so that the economic cycle can be normalized as soon as possible, and it is not appropriate to launch a large-scale economic expansion plan before the economic and social order is normalized. Economic policy should focus on relief of the epidemic and promotion of the recovery of the economic cycle system, and adhere to the basic principle of bottom-line management.
Ren Zeping: The impact of the epidemic on the economy will be greater than that of SARS in 2003, but the time may be shorter, depending on the duration of the epidemic and the strength of the policy hedge. Currently should take into account the response to the epidemic and long-term reform, supply and demand side of the force, the launch of several ice-breaking effect, the release of significant signals, can boost the confidence of all parties in the key initiatives. First, reserve projects in advance, the epidemic after the implementation of large-scale infrastructure, the impact of the epidemic by the economy to fill the pit. Especially for the population inflow of urban agglomerations and regional centers of the city to carry out appropriate ahead of large-scale infrastructure construction, in order to stimulate demand, stabilize employment, hedge against economic downward pressure. Second, implement large-scale tax and fee cuts and optimize the way to change from VAT cuts to cuts in corporate income tax and social security contribution rates, so as to improve enterprises' sense of gain. On the one hand, the social security contribution rate will continue to be lowered by 3 percentage points, of which the pension and medical insurance contribution rates will be lowered by 1 percentage point and 2 percentage points respectively. On the other hand, the corporate income tax rate was cut to 21 percent, which is comparable to the U.S. federal corporate income tax rate.
Six Risk Points to Watch Out for in the Epidemic
What are the key risk points to watch out for in the epidemic?
Liu Yuanchun: First, the employment risk is the biggest gray rhino under the economic growth downturn.The manufacturing employees index was only 37.9% in February, down 15.7 percentage points from the same period in 2019, indicating a contraction in the job market. Although it will not cause widespread unemployment problems, the employment situation is obviously tight.
Second, the current structural rise in prices will be further revealed, and we should guard against the risk of "stagflation". It can be predicted that prices will be released quickly after the relaxation of epidemic control. At the same time, different industries and different regions of the resumption of production process is inconsistent, will also lead to bottlenecks in the supply chain, part of the rapid rise in raw material prices.
Third, we must be vigilant about the epidemic in the global spread of the global economy brought about by the rapid downturn, the risk of significant volatility in financial markets. At present, the momentum of the spread of the epidemic in the world significantly intensified. Therefore, China will face great uncertainty in the global economy and international financial markets in the coming period, and should make corresponding plans to prevent the potential impact of external shocks on China's economy.
Fourth, we should attach great importance to the uncertainty of the real estate market and prevent a rapid decline in housing prices. After the epidemic, real estate enterprises will increase through the sharp price cuts to quickly recoup funds, once the formation of price reduction expectations, it will be easy to form a "willingness to buy homes - reduced demand leading to a decline in housing prices - price cuts expected to increase "
Fifthly, the real estate market will have a greater impact on the stability.
Fifth, we should be highly alert to the risk of asset bubbles brought about by the relaxation of monetary policy. At present, the economic cycle is not basically restored, the liquidity released by monetary policy is difficult to flow into the real economy, the funds into the financial market on a large scale will bring the risk of asset bubbles. And asset bubbles will trigger a sharp pullback in the financial markets, hindering the recovery of the Chinese economy after the epidemic.
Sixth, we must be highly vigilant against the risk of government debt exacerbation brought about by overly aggressive fiscal policy. Unlike the international financial crisis of 2008, the epidemic impact is short-lived, and economic operations will return to normalization after the epidemic, thus there is no good reason to adopt large-scale stimulus policies similar to those of 2009. Moreover, overly aggressive fiscal policy will lead to a sharp rise in government debt and macro leverage, which will become a core source of financial risk and hinder social productivity.
Ren Zeping: At present, we must take into account the prevention and control of the epidemic and the resumption of production, and be wary of the prevention and control of the epidemic in various places, "one size fits all, and layer upon layer" phenomenon. Some of the less serious epidemic city, blindly copy the serious epidemic area measures, to take a variety of excessive restrictions, can not be pragmatic, according to local conditions, in the absence of a bottom-up plan, the enterprise to buy the bill, the epidemic prevention and control measures unlimited expansion, economic development basically stagnant, is essentially lazy and negligent, do not take the responsibility of the performance.
"One-size-fits-all, layer upon layer" type of prevention and control, disrupting the order of economic operation, to enterprises, industries, industrial chain, social stability and bring severe pressure. Therefore, we should adhere to the epidemic prevention and control and business resumption of work "two hands", to take regional and hierarchical prevention and control measures to eliminate the epidemic prevention and control in the name of lazy and negligent in fact, in a simple and brutal way to limit the business resumption of work.
How big an impact will the epidemic have on the global supply chain? What measures should China take to consolidate and improve our position in the global supply chain to enhance international competitiveness?
Ren Zeping: With the epidemic hitting the global supply chain, China has to stabilize growth by means of reforms. First, liberalize market access in basic areas such as automobiles, finance, energy, telecommunications, electricity and other services such as healthcare and education to cultivate new economic growth points. Deepen the reform of state-owned enterprises, implement competition-neutrality and ownership-neutrality, eliminate discrimination against ownership, and enhance market competition and the efficiency of resource allocation. Secondly, we will take the reform of the registration system as a means to improve the supporting system of the multi-level capital market. Thirdly, we will promote the reform of the housing system with the core of "linking people and land to financial stability", strengthening the attributes of housing and the real economy, and weakening the financial attributes. On the one hand, the "link between land and people" should be reformed with the increment of the resident population as the core. On the other hand, to maintain the stability of real estate financial policy, return to market-oriented, support the demand for new and improved housing demand, support for inter-industry mergers and acquisitions and restructuring. The fourth is to mobilize local governments and entrepreneurs, give local officials new incentives, give private entrepreneurs to eat pills.
Monetary policy should focus on targeted regulation and control, precision regulation and control
The current CPI is located in a few years at a high level, which makes the monetary policy force when the constraints, but the epidemic on the catering, tourism and other industries have a more pronounced impact, which small and micro-enterprises, in particular, must increase the counter-cyclical adjustment efforts. Under the dilemma, how should monetary policy be positioned?
Chen Yanbin (executive director of the National Key Research Base of Economics Teaching Material Construction under the Ministry of Education of Renmin University of China, professor at the School of Economics, and a key member of the China Macroeconomic Forum): The year-on-year rate of increase in the CPI rose to 5.4 percent in January 2020, touching its highest level since 2012, and excluding food and energy prices, the rate of increase in the CPI rose to 5.4 percent. While the core CPI excluding food and energy prices rose only 1.5%, which is at a lower level below 2% for 16 consecutive months. The divergence between the trend of overall CPI and core CPI has caused some trouble for the formulation of monetary policy.
Theoretically, monetary policy should focus on the core CPI rather than the overall CPI, mainly because the CPI, which includes food and energy prices, is prone to unanticipated large fluctuations, which can disrupt public expectations and constrain monetary policy space. The current round of CPI rise is mainly due to the impact of rising pork prices overlaid with the epidemic, and is not strongly correlated with economic fundamentals. Therefore, sound monetary policy should not be constrained by the overall CPI rise, but should adhere to the goal of stabilizing the economy to increase counter-cyclical regulation.
Of course, the problem of widening CPI increase caused by rising pork prices should not be ignored. Effective solution to the structural problem of rising pork prices need financial subsidy policy and other economic policies to stimulate production to cope with more targeted and to achieve price stability, can not rely on the total adjustment of the main monetary policy.
Wu Ge (chief economist of Changjiang Securities, assistant to the president): First, in order to cope with the serious impact of the epidemic, monetary policy should adhere to a stable and slightly loose orientation. In the first quarter of the industry generally suffered a heavy blow in the case, the need for loose monetary policy for stable growth and stable employment "escort". Second, the need to grasp the strength and rhythm of monetary policy easing, adhere to moderate easing but avoid "flooding". Currently, the CPI rate is at a high level, the extent of monetary easing need to consider the impact on prices. At the same time, excessive monetary easing can easily lead to a sharp rise in housing prices. The future still need to adhere to the "housing without speculation" positioning, to prevent excessive liquidity to promote the rise in housing prices. Third, the monetary policy should adhere to the targeted regulation and control, accurate regulation and control, and rational use of policy tools. The epidemic on the secondary and tertiary industries as well as small and medium-sized impact, so the monetary policy operation should focus on directional regulation and control, precision regulation and control, and the rational use of structured monetary policy tools, to achieve precise help.
How can monetary policy under the epidemic improve the efficiency of regulation and control, and more effectively enhance the support for the real economy?
Chen Yanbin: In the face of this epidemic, monetary policy has taken a variety of timely means to release a relatively abundant liquidity, and through the policy rate to actively guide market interest rates downward. But we should also see that the effect of monetary policy is more reflected in the rapid rise of the stock market, capital "out of the real to the virtual" problem has emerged. Therefore, to improve the efficiency of monetary policy regulation, so that monetary policy more effectively support the real economy, is the key issue that needs to be resolved.
In fact, China's monetary policy conduction problem has always existed, the root cause is the distortion of the economic and financial institutional mechanism. On the one hand, there are some budgetary soft constraints in the real economy, there is a large demand for credit funds, crowding out the credit resources of other sectors. On the other hand, in the context of interest rates still exist some control, commercial banks can get a stable net interest margin, and therefore do not want to take too much risk, more willing to credit resources to the soft budget constraints sector.
The need to focus on improving the efficiency of monetary policy regulation. First, to strengthen the coordination of monetary policy, macroprudential policy and micro-financial regulation, to promote a better flow of funds into the real economy. The second is to moderate through the structural monetary policy, guiding financial institutions to increase support for specific regions, specific industries, specific groups. However, this can only be used as a stopgap measure during special periods, and cannot be used on a long-term, regular basis. Third, it is necessary to strengthen the expectation management and forward guidance of monetary policy to give the public confidence and stable expectations. Fourth, we should actively promote the supply-side structural reform to break the distortion of the economic and financial system, and accelerate the pace of reform of interest rate marketization.
Wu Ge: In order to ensure the realization of the annual development goals, the monetary policy should be more active, flexible and moderate on the basis of prudence. Good use of existing financial support policies, the timely introduction of new policies, in multiple objectives to seek a dynamic balance, a proper response to the short-term impact of the epidemic on the economy, do not engage in "flooding". First, continue to maintain a reasonable abundance of liquidity, and guide the cost of financing the real economy downward. Comprehensive use of open market operations and standing lending facilities, medium-term lending facilities and other medium- and long-term liquidity investment tools to maintain a reasonable total. The benchmark interest rate for deposits will be adjusted appropriately at the right time to reasonably reduce the cost of banks' liabilities. Second, continue to use structural monetary policy tools. Policies that have been introduced should be accurately implemented, and the responsibility of the lending banks should be realized to strictly screen enterprises and ensure that loans are used in the field of epidemic prevention and control. At the same time, it is necessary to improve the efficiency of approval and lending, and effectively reduce the actual financing costs of enterprises. Thirdly, targeted support measures should be taken according to the time and place. We should pay close attention to the development of the epidemic, rationalize the pace of policy adjustment, and take targeted measures according to local conditions. According to the progress of the evolution of the epidemic in different regions, the progress of the resumption of work and production in different industries and plans to design targeted support programs. Fourth, more attention should be paid to the financing support for small and medium-sized enterprises and private enterprises. Consideration can be given to different regions according to the situation of the epidemic, to give enterprises in a special period of debt repayment deferred support, due to the impact of the epidemic failed to repay the enterprise in a timely manner will not be reported as overdue credit record.
Maximizing the utility value of fiscal policy from various aspects
Finance is currently in a tight balance, especially some local government debt pressure. In the process of responding to the epidemic, how to implement the policy positioning of "positive fiscal policy"?
Chen Yanbin: At present, the overall financial situation is facing the pressure of reducing revenue and increasing expenditure, and the financial operation will still be in a state of "tight balance". As a counter-cyclical adjustment tool, fiscal policy should be strengthened to improve efficiency, so that the "tight balance" under the limited financial resources to play a greater role. Specifically, we must start from the following aspects: First, appropriately increase the target deficit rate in 2020. Appropriately increase the target deficit rate reflects the positive positioning of fiscal policy, can to a certain extent alleviate the current pressure on fiscal revenue and expenditure. Second, fiscal policy should be precise. For industries and enterprises more seriously affected by the epidemic, we should further target more tax and fee reduction policies to further reduce the tax burden on enterprises and help them, especially small and medium-sized enterprises, to tide over the difficulties. Third, fiscal policy should improve quality and efficiency. While reducing tax revenues, avoid elevated non-tax revenues, effectively reduce the macro tax burden, and stabilize economic growth at the least cost.
Wu Ge: In the context of increasing economic downside risks and fiscal balance pressure, in order to actively hedge against the impact of the epidemic, we should continue to implement targeted fiscal policy, and further optimize the expenditure structure. Make full use of special bonds and other policy tools to put policies into practice and maximize the utility value of fiscal policy. First, more precise implementation of tax cuts and fee reductions. Consideration can be given to the study and introduction of phased, targeted tax and fee policies, policy orientation from "larger scale" to "precise landing", pay close attention to changes in the tax burden of different industries, with a focus on supporting the resumption of work and production in severely damaged industries. Second, optimize the adjustment of financial expenditure structure. To implement the concept of zero-based budgeting, pay attention to the assessment of the financial viability of major projects, cut non-essential, non-focused project expenditures, compression of general expenditures. Fiscal funds should be invested in key areas with greater prying power, and the market-oriented principle should be applied to undertake needs that the market is unable to meet. Third, expand the issuance and use of special bonds. In view of the fact that the special debt is a dedicated debt, not counted in the fiscal deficit, has the advantage of low cost and flexible use, it is recommended to further expand the issuance and use of the special debt in the future.
Helping the market restore confidence with a package of policies
Besides monetary and fiscal policies, what other important initiatives should be taken to help the market and the public restore confidence faster and better?
Chen Yanbin: should also be from a more comprehensive vision layout, to adopt "micro policy to live + industrial policy to accurate + reform policy to real + social policy to support the bottom" package of policies to help the market and the public to restore confidence. First, we should focus on the implementation of the "reform policy to be practical + social policy to support the bottom" policy mix, to better enhance consumer confidence. As far as reform policies are concerned, the core is to increase the disposable income of residents and reverse the rapid decline in the growth rate of disposable income of the middle-income group. At the same time, it is necessary to accelerate the establishment of a long-term mechanism for the stable and healthy development of the real estate market, and to reduce the crowding-out effect of housing on residents' consumption. As far as social policy is concerned, the core is to improve the social security system and the rescue system, so that residents can reduce preventive savings and better release consumption demand. Secondly, we should focus on the implementation of the policy combination of "micro-policy to be active + industrial policy to be accurate" to better enhance the confidence of entrepreneurs. In terms of micro-policies, we should further simplify administrative approvals and optimize the business environment. As far as industrial policy is concerned, it is necessary to make greater efforts to implement functional industrial policy with deregulation and promotion of competition as its core features, so as to provide entrepreneurs with more space for development and more opportunities for development.
Wu Ge: First, strengthen the epidemic prevention and control, and do a good job of communicating with the community. The first task during the epidemic is epidemic prevention and control, only when the epidemic is properly controlled, the economy can develop normally. The second is to stabilize employment and the supply of agricultural products to protect basic livelihoods. Offline recruitment is currently difficult to carry out, you can create online employment training programs, online recruitment, etc., using the Internet to solve the employment problem. At the same time, when it is the season of spring planting, it is necessary to resume farming and animal husbandry planting in an orderly manner, reduce the impact of the epidemic on the production of agricultural products, and stabilize the supply and price of agricultural products. Third, we should promote the orderly resumption of work, resume social production as soon as possible, and implement the policy of dividing the infected areas. The epidemic situation in most of the infected areas in China has moved towards easing, and all regions should promote the progress of resumption of work in an orderly manner according to the local epidemic situation. High-risk areas pay attention to epidemic prevention and control, medium-risk areas arrange the resumption of work in due course, and low-risk areas resume industrial production capacity as soon as possible. Fourth, enhance the public **** health service system, make up the short board of the system. On the one hand, a disease prevention and supervision system must be established to detect the possibility of potential special disease outbreaks at the first time. On the other hand, attention should be paid to the cultivation of advanced talents for the prevention and control of major diseases. At the same time, to strengthen the disclosure of information at all levels of the sector, to play the role of the media public opinion supervision, to create an atmosphere of seeking truth from facts and encouraging truth-telling.
Editor-in-chief, Mao Jinghui Editor, Cao Yang