Yang Yudong: The meaning of return

The COVID-19 pandemic led to the largest global recession since World War II, forcing governments to pursue oversized monetary and fiscal policies to maintain economic stability and avert the outbreak of a social crisis. From the 2008 financial crisis to the 2019 COVID-19 outbreak, with the exception of China, the world's major economies may have been less liquid than last two quarters of liquidity release in 11 years, while global debt is rushing to the peak of history. Therefore, in addition to the trend of the epidemic, after the super-strong stimulus policy returned to normal, the impact on economic growth and financial markets has become a topic of great concern to all parties.

According to Morgan Stanley, in the seven quarters following the onset of the subprime mortgage crisis in 2008, global debt/GDP jumped 19 percentage points from 180% to 199%, while in just four quarters after the outbreak, global debt/GDP jumped 27 percentage points from 222% to 249%, with the problems in advanced economies being more serious. Global debt risk has reached the brink of a cliff.

In the United States, for example, since March 2020, it has adopted a super-strong fiscal stimulus program and loose monetary policy, the Fed has continued to buy bonds on a large scale, and the balance sheet has expanded sharply: as of the end of October this year, the Fed's assets have expanded by 105.0% from the beginning of 2020, an increase of $4.4 trillion. The U.S. money supply is growing rapidly, with U.S. M2 increasing by $5.6 trillion, or 36.4 percent, from the beginning of October to early 2020.

Last year, many experts shouted the proposal of "fiscal deficit monetization" and claimed that the effectiveness of MMT (modern monetary theory) has been demonstrated by the practice of many countries after the epidemic, and even found a successful precedent: after the subprime mortgage crisis in 2008, the US government adopted low interest rates and a series of quantitative easing policies to stimulate the economy, and did not bring inflation risks to the real economy. However, more views believe that this does not explain the problem, after all, the major developed countries still rely on large-scale bond issuance to finance fiscal deficits, and the economic and financial market risks brought about by the large-scale "water release" of currencies have always been of great concern to central banks and will eventually return to normalcy.

The return is already on the way. Record debt burdens, inflation data that has been taken off the reins even if they are unwilling to admit it, and a fragile financial system are the fundamental logics that stimulus policies are bound to contract. The "dovish" Fed has also shifted from writhing to a clear one, with the Fed's November interest rate meeting announcing taper cuts as scheduled, meaning that the Normalization of the Fed's monetary policy has entered the implementation phase. Therefore, there is a limit to the stimulus, and 2022 will be the year when the global economy gradually returns from the unprecedented epidemic shock and the super economic stimulus policy.

However, there is a risk of regression, and the side effects of "Taper" to the United States are slowing economic growth and financial market "de-bubble", asset price diving has become a high probability event, for emerging countries, it is capital outflows and local currency depreciation, and exacerbating existing inflation risks. So, is the global economy rescued by a cardiotonic needle and a ventilator out of the crisis or towards a heavier crisis? Worrying.

At such a crossroads, looking back at China, macroeconomic policy seems to be walking in another logic, and they are also singing the "anti-epidemic song", the melody of China and the world is the same, but the harmony is different.

In the recently released third quarter monetary policy implementation report, the central bank believes that the current internal and external environment facing China is significantly different from the previous round, and the policy adjustment of developed economies has limited impact on China. First, China's current macroeconomic volume is expanding and its resilience is stronger; second, China adheres to the implementation of normal monetary policy; third, China's exchange rate market-oriented reform has made progress and its absorption capacity for external shocks has been enhanced; fourth, China's financial system has become more autonomous and stable, and the attractiveness of RMB assets has been enhanced. The central bank pointed out that China's monetary policy can more effectively cope with the external shocks brought about by the adjustment of monetary policy in developed economies.

Behind the normalization of monetary policy is the support of the real economy, after the huge impact of the new crown epidemic in 2020, China's economy can take the lead in recovering in major economies around the world, achieving the only positive growth, which is very difficult and inseparable from multiple factors, such as a strict epidemic prevention and control policy of "dynamic zeroing", which has maintained the basic stability of production and consumption, coupled with huge domestic demand, relatively complete industrial chain and huge production capacity, and the long-term shutdown of most manufacturing countries.

At the same time, the central bank's regulatory ability in recent years is also becoming more and more sophisticated, always able to maintain concentration, in the calm analysis of the situation, under the premise of prejudgment, do not engage in "flood irrigation", the current effect of the policy and forward-looking balance, to achieve accurate policy.

Therefore, the fundamentals provided by the real economy make our macro policies take a more relaxed and long-term "cross-cycle design" while doing a good job of "counter-cyclical adjustment", so as to better maintain macroeconomic stability.

In addition, the macroeconomic policy "Chinese-style return" has another voice: it is not only to respond to the epidemic, but also to serve China's new reform cycle, with high-quality development and common prosperity as the core goals, and the policy priority shifts to the economic security of important industrial chains that are independent and controllable, green and sustainable environmental security, and social equity that seeks more equal development opportunities for individuals.

This year, we have therefore seen a series of new policies and orderly announcements such as the opening of the Beijing Stock Exchange, the establishment of the carbon market, the expansion of financial opening up in Pudong and the Greater Bay Area, as well as the increase in anti-monopoly law enforcement, the governance of Internet financial platforms, the deepening of the reform of the registration system, the formal landing of the securities class action system, the resolute crackdown on virtual currencies, etc., all of which have a clear policy background and governance logic.

Therefore, behind the return of policies to normalcy, it is not only the epidemic factors, but also how the financial industry has returned to its original intention, and more importantly, China's national strategy and new concept of governance in the economic and social fields to further deepen reform and open up to the outside world. Only by predicting and understanding the future direction of economic policy from these perspectives can we understand the true meaning of "regression". (The author is the editor-in-chief of CBN)