· This is the 4345th original debut article with a word count of 9k+ ·
· Jia Ming | Wen Follow Qin Shuo Circle of Friends ID: qspyq2015·
At the end of the year and the beginning of the year, the market is always full of summaries of the year and predictions for the coming year.
Predictions are common, and accurate predictions are not always available. But "prediction" itself is actually a kind of thinking and expectation. So, let's join in the fun.
The primary task of economic work in 2022 is to stabilize the economy.
In the macroeconomic context of insufficient effective demand, the key to stabilizing the economy lies in fiscal policy. There is a consensus on this from top to bottom. But, against the backdrop of rising debt risks, can fiscal spending sustainably increase? What challenges will we face in making fiscal efforts to stimulate the economy?
We always insist on looking at China and will not change in a hundred years. However, in the face of possible risks, it may be more conducive to the stability and long-term development of the economy in the face of possible risks.
Looking for a dad or a mom?
The central bank and the Ministry of Finance are nicknamed central mothers and financial fathers. Except for the quarrel in 2018 (the central mother publicly criticized the financial father by name for "the fiscal policy is not active enough"), the central mother and the financial father have attracted the attention of the market, and the attention of the central mother is much higher than that of the financial father. After all, the central mother is relatively lively, and every smile (loose liquidity) affects the nerves of the market. Relatively speaking, Cai Dad is a chronic child (people don't talk much), either don't move, a move is a big move, the effect of the big move is good, but the effect is slow.
But this time, compared with yangma, Cai Dad has to play the leading role, and Yangma can only sing supporting roles.
Because relatively speaking, in times of economic downturn, the effect of fiscal expansion is better than that of money, and when the economy is overheated, the effect of monetary tightening is better than that of finance.
The reason is very simple, monetary policy mainly through corporate loans into the circulation field, playing a pulling role in the economy. When the economy is sluggish, enterprises can not see the prospects, naturally unwilling to lend, so even if the cost of loans is reduced, there will be no significant increase in currency investment, of course, it will not help to pull the economy. Fiscal expenditure directly acts on the circulation field, and the pulling effect on the economy is more obvious.
Or to put it another way, in a low-interest-rate environment, central banks are constrained by an effective lower bound and cannot anchor neutral interest rates to stabilize output. Fiscal policy works better, with a higher cost-benefit ratio and multiplier.
Therefore, in the economic downturn, fiscal policy should be the main attack, and monetary policy can only do assists. Therefore, the central mother and father have to run the family. Yang Mama also "combined fist" attack (RRR reduction and interest rate reduction, structural, direct special tools, etc.) to accurately release water and raise fish, and assist in place.
Next, I waited for the big move of the rich father.
How heavy is the burden of the rich father?
The Central Economic Work Conference from December 8 to 10, 2021, called for proactive fiscal policy to improve efficiency and pay more attention to precision and sustainability. It is necessary to ensure the intensity of fiscal expenditure and speed up the progress of expenditure. Implement new tax and fee reduction policies, strengthen support for small and medium-sized enterprises, individual industrial and commercial households, manufacturing, risk mitigation, etc., and moderately advance infrastructure investment. Moreover, "counter-cyclical" regulation is revisited.
Looking back at the Central Economic Work Conference in previous years, since 1997, fiscal policy has long been an important means of counter-cyclical adjustment. In the face of rapid changes in the domestic and international economic environment, China has implemented two rounds of "active finance" in 1998-2004 and 2008-2016 respectively, which is directly reflected in the increase in fiscal expenditure and the increase in the deficit rate.
However, since 2010, it has gradually withdrawn from expansionary fiscal policy.
Since 2017, China's economy has shifted from a stage of high-speed growth to a stage of high-quality development.
Since then, although the "active" fiscal policy has been implemented every year, it has no longer simply emphasized "scale" or "strength", but has increased the connotation of pursuing "efficiency". For example, the 2016 formulation is "active fiscal policy should be strengthened", 2017 is "fiscal policy should be more active and effective", and in 2018, 2019 and 2020, respectively, it contains expressions containing efficiency requirements such as "cohesion and efficiency", "efficiency improvement" and "promising".
On December 27, 2021, the national financial work video conference made arrangements for the work in 2022, expressing "maintaining an appropriate expenditure intensity". At the same time, continue the requirements of the Central Economic Work Conference, emphasize that the active fiscal policy in 2022 will improve efficiency, and pay more attention to precision and sustainability.
So how do you measure the "intensity of fiscal spending"?
Generally speaking, there are two main indicators of fiscal expenditure intensity, namely, the deficit and the new special debt limit of local governments. For the sake of understanding, we put the deficit ratio, the debt ratio and the special debt together.
1. Deficit ratio
The deficit rate, which is the amount of deficit (the difference between fiscal revenue and expenditure) as a percentage of gross national product (GDP). Due to budgetary discipline and risk prevention and control constraints, China usually limits the deficit rate to less than 3%. Some experts have suggested that the government does not need to be too attached to the dogma that the fiscal deficit rate should not exceed 3%, and the 3% setting does not have any solid theoretical basis.
We fully agree that the deficit rate indicator should be more rigorously demonstrated, and perhaps dynamically evaluated. However, regardless of whether the red line limit of 3% and 60% is reasonable, at least in years of fiscal practice, it has become an important consideration for controlling fiscal risks and financial risks.
Moreover, it is more critical to note that the nominal 3% deficit rate level is actually often breached. In the actual budget implementation, the "actual deficit" is not simply equivalent to the "budget deficit", and it is necessary to consider the use of the budget stabilization and adjustment fund, the transfer of funds from the government fund budget and the state-owned capital operation budget, and the use of carry-over balance funds.
For example, according to statistics, during the period 2010-2020, the mainland's public finance deficit rate averaged 3.2%, far lower than the deficit rate of developed countries in the same period. However, if we consider the above factors, in 2019 as an example, although the budget deficit rate is set at 2.8%, the actual deficit rate is estimated to be 4.9%. If the general public budget, the government fund budget, and the state-owned capital operation budget are added together, and then the double calculation part generated by the transfer of funds is deducted, the general budget deficit rate is 5.5%.
And if you look at the use of funds and the assumption of rights and responsibilities, some national debt should also be included in the deficit. For example, Lou Jiwei, former minister of the Ministry of Finance, mentioned that the newly issued special treasury bonds (1 trillion yuan) in 2020 are used by the local government and the central government pays interest, and the local government special bonds (an increase of 1.5 trillion yuan over last year) If there is a repayment problem, the local government also needs to use the general public budget revenue to cover the bottom, so it should be included in the fiscal deficit, if calculated according to this caliber, the total actual deficit rate in 2020 should be 6.1%. Bian Quanshui, chief macro analyst of Guojin Securities, had predicted that the actual deficit rate would reach 6.5% in 2020 in mid-2020.
In summary, the nominal 3% deficit rate constraint is often broken, and the actual deficit rate is usually significantly higher than the budget deficit rate.
Of course, this does not negate that the fiscal policy in 2021 seems to have a premature exit or a phased exit too quickly. For example, in 2021, the country's general public budget revenue was 19,765 billion yuan, an increase of 8.1% year-on-year, and the total income was 21,442 billion yuan, plus the transferred funds and the actual use of carry-over balances. The national general public budget expenditure was 25,012 billion yuan, an increase of 1.8% year-on-year, and the deficit was 3,570 billion yuan, 190 billion yuan less than in 2020.
Compared with 2020, the actual stimulation has decreased. Taking into account the increase in general public revenue by 21.8% and expenditure by 4.8% in the first half of 2021. Revenue growth exceeded budget by 13.7 percentage points, but spending only exceeded budget by 3 percentage points, and fiscal policy appears to be contracting.
However, it should be noted that the rapid growth rate of fiscal revenue is related to the rapid growth rate of industrial taxes brought about by the rise in commodity prices and the one-time increase in key industries and enterprises, which is a special situation. This does not mean that the fiscal situation of the provinces and cities that have exceeded the revenue is steadily improving, nor does it mean that the fiscal policy is deliberately tightening.
The Ministry of Finance is well aware of the phenomenon of fiscal revenue over-collection brought about by this price factor, so unlike in previous years, the over-collected part of the debt repayment to reduce the deficit or transfer it to the budget stabilization and adjustment fund, in 2021, the Ministry of Finance specially issued the "Notice on Reasonable Arrangements for This Year's Fiscal Over-collection Revenue", which stipulates that "if the total amount of general public budget expenditure is indeed insufficient, the general public budget expenditure can be appropriately increased through over-collection revenue in strict accordance with legal procedures", allowing all localities to use the over-collection part to increase the current year's expenditure.
2. Debt ratio
Even if there is room for theoretical deficit rates, the problem of local government debt remains to be solved.
The debt ratio, also known as the debt burden, is usually expressed as the ratio of the balance of local government debt (i.e. the balance of local government bonds) to local GDP. Due to budget discipline and risk prevention and control constraints, the warning line of this indicator is 60%.
According to public data disclosed by the Ministry of Finance, from the end of 2018 to the end of 2020, the balance of local government debt increased from 18.39 trillion yuan to 25.66 trillion yuan (controlled within the limit approved by the National People's Congress of 28.81 trillion yuan), while the local government debt ratio rose from 76.6% to 93.6%, approaching the 100% warning line (the international standard is between 100% and 120%). We fully agree that the debt rate warning line is only a risk warning indicator, and that a dynamic focus on debt sustainability, i.e., solvency, is more important than mechanical debt ratios.
If we focus on solvency, we must take into account the hidden debts of local governments. However, the scale of local government hidden debt has always been controversial, the caliber is different, the measurement results are not the same, we simply choose a few, as a reference.
1. The research group of the Institute of Finance of the Chinese Academy of Social Sciences estimates that by the end of 2020, local government debt, including local government bonds, urban investment bonds and a small amount of shadow banking, will reach nearly 40 trillion yuan;
2. According to the "Analysis and Forecast of China's Macroeconomic Situation" research group of the Institute of Advanced Study of Shanghai University of Finance and Economics, the balance of local government bonds and the balance of urban investment bonds totaled 41.42 trillion yuan as of October 20, 2020;
3. Zhao Wei research group of Kaiyuan Securities estimates that as of mid-2020, the scale of local hidden debt expressed by the interest-bearing debt of the urban investment platform will reach 43.8 trillion yuan, higher than the 23.9 trillion yuan of explicit debt, and the total corresponding local leverage ratio of the two will exceed 67%, and the debt ratio will be close to 250%, far exceeding the level of the traffic warning line;
4. According to IMF data and their own estimates, the scale of local hidden debt may be about 2 times that of explicit debt, and it is conservatively estimated that the scale will be nearly 50 trillion yuan in 2020, and the overall leverage ratio of the government will reach 92%.
Let's take the more conservative data here, assuming that at the end of 2020, the size of local government hidden debt will be 40 trillion yuan.
In the same period, the country's fiscal revenue slightly exceeded 18 trillion yuan. If roughly estimated according to the proportion of "four or six open" between the central government and the local government, the fiscal revenue of local governments is 10 trillion yuan. According to this calculation, the stock of local debt is 4 times that of its annual fiscal revenue.
Assuming that the average debt cost of local debt is 5% - 5% of the debt cost does not overestimate the local financing cost - the financing cost of provincial governments may be low, but the financing cost of county and municipal governments and urban investment platforms is not uncommon in a specific period or in some regions. Then, the interest expenditure of local government debt is 2 trillion yuan, equivalent to 20% of local annual fiscal revenue, which is more than 2 times the nominal GDP increment.
Note that tax revenue in 2020 is negative (-2.33%), but non-tax revenue, including state-owned land transfer fees closely related to the real estate market, is positive (7.39%), and the overall fiscal revenue is still negative (-3.93%).
Considering that the intensity of the pressure drop implicit debt increment will be tightened again in 2021, we have chosen a more conservative estimate and estimated that the local government debt stock in 2021 will be 46.8 trillion yuan. But at the same time, considering the tax reduction and fee reduction in 2021, the central economic work conference at the end of the year requires that the tax reduction and fee reduction be continued in 2022, and the regulation and control of real estate will not be substantially relaxed, so the income from land transfer will not rebound sharply (although the land market has cooled significantly, the income from state-owned land transfer in December 2021 is still positive year-on-year in the same month, which may be related to the "trust city" in some areas through local state-owned enterprises and urban investment platforms). If we deduct the part of the fiscal revenue growth caused by the rise in commodity prices, it is estimated that the fiscal revenue in 2021 and 2022 is unlikely to rise sharply, and even the possibility of negative growth is not ruled out. As a result, the size of local government debt will exceed 4 times their annual revenue.
According to statistics, in 2020, the proportion of urban investment bond fundraising indicated for "borrowing new to repay the old" exceeded 85%, and among the existing bonds, the proportion of debt with an issuance period of less than 3 years was close to 55%, of which the proportion of debt with a maturity of less than 1 year has exceeded 30%.
This means that if local government debt increases again, 2023 will enter a heavier debt repayment period. Side evidence shows that in 2021, a total of 159 bonds changed the purpose of the raised funds, of which 138 bonds were used to repay interest-bearing debts after changing the use of the raised funds.
In addition, Lou Jiwei, former minister of the Ministry of Finance, once pointed out that during the "14th Five-Year Plan" period, about a quarter of the fiscal revenue of the provincial finance department will be used for debt repayment.
Therefore, under the requirement of "ensuring the intensity of fiscal expenditure", the certainty of fiscal maintenance of sustained expenditure increase is relatively large, but in the context of rising debt risks, there is still uncertainty about whether it can maintain a sustained intensity of expenditure increase. The burden of curbing the further decline in economic growth is very heavy.
3. Special debt
On January 17, 2022, the National Bureau of Statistics released data showing that the year-on-year growth rate of fixed asset investment in 2021 was 4.9%. According to the three major investments of manufacturing, real estate and infrastructure, affected by the base effect of the same period last year, the cumulative year-on-year growth rate of the three in 2021 continued to slow down, with a growth rate of 13.5%, 4.4% and 0.4% respectively. From the perspective of the two-year average growth rate that more reflects the actual situation, the two-year average growth rate of real estate investment in 2021 is 5.7%, and the growth rate of manufacturing investment is 4.8%. Although the Statistics Bureau has not yet announced the two-year average growth rate of infrastructure investment, considering that the average growth rate of real estate and manufacturing investment in the whole year of 2021 is higher than that of investment in general, manufacturing investment is still the main factor driving investment, and infrastructure investment is still a drag.
Some people believe that the progress of local government special bond issuance in 2021 is slow, which has dragged down infrastructure investment to a certain extent. Therefore, great expectations are placed on the special debt in 2022.
But in fact, the early efforts of the financial father may have a limited effect on pulling up the infrastructure. There are seven main reasons for this.
First, the amount of new special debt is relatively restrained. At the State Council's regular policy briefing on December 16, 2021, the Ministry of Finance said that it had issued a new special debt limit of 1.46 trillion yuan in 2022 to all localities in advance – which is in line with the requirements of the Central Economic Work Conference to "moderately advance policy force". However, the amount of new special debt approved in advance in 2022 (1.46 trillion yuan) is lower than the 1.77 trillion yuan approved in advance in 2021, and it is far below the upper limit authorized by the Standing Committee of the National People's Congress, that is, 60% of the new special debt limit in 2021 - that is, 2.19 trillion yuan.
Second, the "fiscal balance" of the previous year was limited. The so-called "fiscal balance" comes from two sources.
First, fiscal over-collection. In mid-January 2022, many provinces and cities disclosed the fiscal revenue and expenditure status in 2021, and Beijing, Inner Mongolia, Fujian, Jiangxi, Shandong, Hainan, Gansu, Ningxia and other provinces and cities exceeded fiscal revenues. However, it should be noted that the Ministry of Finance issued a special document in 2021 ("Notice on Reasonable Arrangements for This Year's Fiscal Over-Collection Revenue"), allowing all localities to use part of the over-collection to increase the current year's expenditure according to the actual situation.
In addition, considering that the net financing scale of treasury bonds in 2021 is likely to be significantly lower than the size of the central budget deficit, after the general public budget and the government fund budget are combined, after deducting the transfer into the general public budget funds, the scale of funds that can be carried forward to the next period may only be a few hundred billion yuan (Zhongtai Securities expects that the scale of carry-over balance funds in 2021 will be about 650 billion yuan).
Second, special debt is idle. Some people believe that the funds of special bonds are idle and can become "fiscal surpluses". According to experience, after the special debt is allocated to the platform or the project unit, there may indeed be a situation where the use of funds is not timely and idle, but the idle special debt funds can no longer be counted as "fiscal balance".
According to the management requirements for the issuance and use of special bonds, after the completion of the fundraising of new special bonds, it is necessary to reach the project unit within the specified period of time, in this process, the funds are completed out of the (national) treasury, in fact, they have flowed out of the budget system, and the financial balance refers to the funds that are still retained in the budget system. Therefore, whether there are special debt funds idle or not, it has nothing to do with the fiscal balance.
In particular, it is important to note that:
First, the fiscal balance is a stock concept that is not directly related to the budget expenditure for the next period. Only if it is actually put into use in the following year can it be counted as an increase in generalized fiscal expenditure. Combing through the fiscal balance data of the previous year that has been put into actual use in the past 10 years, it is found that the maximum use scale of carry-over balances in previous years is less than 600 billion yuan (2015), and the balance input in 2020 is only 1.35 billion yuan.
Second, the broad fiscal expenditure mainly comes from the national debt, general debt, special debt and the fiscal balance of previous years. The fiscal balance as a share of budget expenditures was already small and has shown a trend of smaller and smaller in recent years. Although the growth rate of expenditure in many provinces and cities in 2021 is significantly lower than the growth rate of income due to various reasons, so the fixed deposit scale of the local treasury has increased in stages, but from the perspective of the change in the fixed deposit scale of the local treasury, it is still lower than the same period in previous years. For example, at the end of October, the local treasury fixed deposits increased by 373.3 billion yuan year-on-year at the end of October, but it was still lower than the same period in 2016-2019.
Third, there are insufficient reserve projects that meet the conditions. Specific to the aspect of infrastructure construction, the main direction of special debt is two, one is to make up for shortcomings, and the other is to promote the construction of major projects. Then, in addition to bond financial support, it is also necessary to have sufficient project reserves that meet the requirements.
When some experts suggested that a more expansive fiscal policy should be implemented in 2022, they also stressed the need for sufficient project reserves, and stressed that local governments should be ideologically and organizationally prepared and not rushed. In July 2017, in order to standardize the local government debt financing mechanism, the Ministry of Finance required special debt projects to balance their own income and financing, and in the following two years, there has been a shortage of eligible reserve projects.
In 2021, in order to promote the reserve of special debt projects, the Ministry of Finance, together with the National Development and Reform Commission, will guide local governments to establish departmental coordination mechanisms, arrange project reserves in advance, strengthen project review and control, etc., and require local governments to report the first batch of special debt projects in 2022 before the end of October, nearly two months earlier than in previous years. This problem has been alleviated to a certain extent, but it may still be an important problem restricting the efficiency of the use of special debt funds.
Fourth, the pull of special bonds on infrastructure construction is limited. Generally speaking, the sources of infrastructure funds are mainly self-financing (60%), budgetary funds (15%), and domestic loans (15%) (the proportion of foreign capital + other funds is very small, totaling about 10%). Special bonds are within the budget. By combing through the information disclosure of some new special debt projects, two characteristics can be found:
First, many new special bonds correspond to projects under construction. Because from the perspective of time, the project start time is significantly earlier than the time of special bond issuance. This means that after some special debt funds are in place, it may be necessary to solve the problems of "advance funds" and "arrears of project funds" left over from the project, and the new physical workload that can be formed is greatly reduced.
Second, the new special bonds are gradually used to supplement supporting funds. Under the background of stricter performance management of special debt, it is difficult for low-yield projects to raise corresponding supporting funds. Therefore, local governments can only use the special debt funds originally used for "incremental" as project supporting funds to supplement the problem of insufficient funds.
In fact, since the implementation of the new budget law in 2015 to regulate local government debt financing, the number of "various accounts payable" in the fixed asset investment statistical statements issued by the Statistics Bureau has been increasing (in 2019, an increase of 19.2% year-on-year). This actually reflects the divergence between the growth rate of infrastructure investment and the growth rate of funding sources. The reason is that in the context of strengthening the control of illegal borrowing by local governments, the amount of funds occupied by the project party to the construction party of the project is increasing (in essence, the construction party advances funds to the government project). If the construction party is allowed to advance funds for the project side, the so-called control of local government illegal borrowing has become an empty phrase.
Therefore, in April 2019, the State Council issued the Government Investment Regulations, which prohibit construction units from advancing funds for government investment projects. In December 2019, the National Standing Committee passed the Regulations on Guaranteeing the Payment of Wages to Migrant Workers, which regulates the problem of wage arrears in construction projects, which further tightens the issue of payables for government projects.
Subsequently, in 2020, the scale of the "various payables" account declined (according to Zhongtai Securities, it dragged down infrastructure investment by 1.2 percentage points that year). It is expected that in 2021 and 2022, the account will further decline, and a large part of the actual expenditure funds will come from special debt. Therefore, relying on the budgetary fiscal force, including special bonds, has a limited pulling effect on infrastructure.
Fifth, the return on infrastructure investment is lower than the cost of financing. Zhongtai Securities Research Institute estimates that the median return on capital invested (ROIC) of urban investment platforms has dropped from 3.1% in 2011 to 1.3% in 2020, which is significantly lower than the average interest rate of special bonds.
By adding up the micro-financial data of thousands of urban investment companies, the BOCI securities team also found that its average return on total assets (ROA) was significantly lower than its financing cost (the coupon rate of urban investment bonds). This also explains the decline in the efficiency of the use of special debt funds from the side.
In fact, it is not only the decline in the return on infrastructure investment, but the overall investment efficiency of the mainland is declining. For example, the World Bank estimates that the mainland's incremental capital output (ICOR) rate was 3.6 in 1991-2011 and 4.7 in 2009-2011, and has recently risen above 6.
The "incremental capital output ratio" is the ratio of annual investment to the incremental output of the current year, which is often used to measure the level of return on investment or the efficiency of investment.
Sixth, the local debt burden is the most important reason for the decline in infrastructure investment growth. At the end of 2020, the local government debt ratio is close to 100%, if you consider hidden debt, many local governments with tight financial resources may even have difficulties in paying interest, of course, there is not enough financial resources for infrastructure investment. At present, the top leaders of local party and government are directly responsible for preventing and resolving regional financial risks, which has reduced the enthusiasm of local governments to borrow. The cumulative issuance of local refinancing bonds is close to 500 billion yuan, but the scale of real replacement of hidden debts may be limited, and most of them still belong to government bonds to borrow new and repay the old.
Recently, the Ministry of Finance has stated that the hidden debts of local governments should be resolved by local governments themselves. This means that unless the central fiscal expansion intensifies, local governments do not have enough capacity to promote a new round of infrastructure construction.
Seventh, the decline in land transfer income may have a lagging impact on local financial resources in 2022. The Land Administration Law stipulates that 30% of the land transfer fee shall be handed over to the central government and 70% shall be left to the local government. According to the macro analysts of GF Securities, land transfer funds account for 30% to 40% of local generalized fiscal revenue, accounting for more than 80% of local government fund revenue, of which more than 40% of land transfer funds will be used for local infrastructure projects.
The large-scale "shrinkage" of land transfer funds is not within the expectations of local governments at the beginning of the year. On January 11, 2021, Tianfeng Securities released a research report showing that in 2021, only six provinces in the country, Beijing, Shanghai, Tianjin, Guizhou, Jiangsu and Zhejiang, had positive year-on-year growth, and the rest of the provinces showed a decline. Land transfer fees in 13 provinces, including Yunnan, Xinjiang, Heilongjiang, Inner Mongolia, Guangxi, Shanxi, Gansu, Hebei, Ningxia, Jiangxi, Jilin, Henan and Liaoning, fell by more than 20% year-on-year.
The budget made by many places in early 2021 is much higher than the actual situation of the land market since then. Yunnan, Heilongjiang, Inner Mongolia, Guangxi, Gansu, Hebei, Ningxia and other seven provinces in the annual land transfer fee, the proportion of completed budgets is less than 60%, and the completion rate of Yunnan Province is only 19%.
According to the statistics of the Middle Finger Research Institute, in 2021, the total amount of land transfer in 300 cities across the country will be 5.62 trillion yuan, down 9% year-on-year. The land market in 2022 may not be optimistic. A october 2021 study by moody's, an international rating agency, found that if the government does not adjust its policies, The overall decline in China's land transfer fees in 2022 may exceed 20%. If the income from land transfer fees in 2021 and 2022 declines significantly, the financial pressure on local governments will be very large, which will inevitably drag down the infrastructure investment of local governments.
Overall, fiscal policy in 2022 may still have to weigh between the intensity of safeguard spending and sustainability.
summary
The difficult year of 2021 is over and 2022 has arrived.
In the past year, China's economy has maintained overall stability, with GDP growth of 8.1% in 2021 and an average growth rate of 5.1% in two years. At present, the downward pressure on the economy has not been alleviated, and the repeated epidemics have also continuously impacted the recovery of the service industry and consumption.
In 2021, The central mother lowered the standard twice. One month after the second (December 15) RRR cut, on January 17, 2022, The Central Mother issued an announcement that the winning interest rates of both the medium-term lending facility (MLF) operation and the open market reverse repurchase operation fell by 10 basis points (BP). Both RRR cuts and interest rate cuts are completely correct policy choices. The 10 basis points of the rate cut exceeded the market expectations by 5 basis points, which can better play a role in effectively guiding expectations and stimulating demand.
Following a 10 basis point cut in the 1-year Medium-Term Lending Facility (MLF) and 7-day Reverse Repurchase (OMO) rate on Jan. 17, the Loan Market Quoted Rate (LPR) fell as expected. On January 20, the National Interbank Lending Center authorized by Chinese Min Bank to publish the latest quotation showing that the 1-year LPR was reported at 3.7%, down 10 basis points from the previous month, the second consecutive month of downward revision; the 5-year LPR was 4.6%, down 5 basis points from the previous month, the first downward revision since May 2020.
The 5-year LPR was only cut by 5 basis points, which not only reflected the policy determination, but also brought practical benefits to the medium- and long-term loans of home buyers and enterprises. Of course, we believe that the logic of relying on real estate-driven investment has changed. The current policy is mainly to alleviate the tight liquidity situation in the industry, rather than to start a new round of real estate cycles.
In general, in the internal and external complex situation of increasing downward pressure on the economy, inflation expectations on the whole, and the expectation of interest rate hikes in major developed countries continuing to increase, there is a certain space for monetary policy in 2022, and the pace and intensity of easing still need to be increased, but the central mother cannot, should not, and will not flood, will still maintain flexibility and moderation, maintain loose operations, and increase the combination of cross-cycle adjustment and counter-cyclical adjustment to help stabilize the growth target.
Compared with monetary policy, the market has higher expectations for fiscal power. In the current situation of insufficient effective demand, it is necessary to increase fiscal expenditure to stimulate the economy.
In this case, if fiscal spending is compressed, it is likely to lead to a further decline in economic growth, and the decline in economic growth will lead to a further deterioration of the fiscal situation. However, the current fiscal situation is worrying, and the actual pull effect of fiscal front-loading on infrastructure may also be lower than expected. The fiscal revenue of local governments is facing shrinkage, the debt burden is too high, especially the debt structure is unreasonable, the proportion of short-term debt is high, the financing cost is high, and the investment efficiency is declining, which together lead to a significant increase in the pressure of local governments to repay principal and interest in the next 3 years, and the fiscal risk is increased.
From the indiscriminate apportionment of more than 60 million yuan in Hebei Bazhou for the generation of income and arbitrary fines, to the salary reduction of personnel in the system of many places, to the announcement of the financial reorganization in Hegang, Heilongjiang, to the suspension of the recruitment of civil servants, the degree of financial difficulties of local governments can be seen.
Risk prevention is the eternal theme of fiscal work, and it cannot be relaxed at any time. Then again, a further decline in economic growth is more worrying than the fiscal position, and no country can improve its fiscal position in the face of a continuous decline in economic growth. Therefore, this requires fiscal policy to maximize policy efficiency in a limited space.
As a respected scholar of our predecessors said, "The success or failure of macroeconomic policies lies not only in the design, but also in the institutional environment and political ecology for the implementation of macroeconomic policies." ”
Therefore, in addition to formulating reasonable economic policies and stimulating the inherent vitality of economic growth, more importantly, the government should accelerate its own reform with the spirit of a hero and a broken wrist, correct the position of the government, enterprises and residents, further transform functions, simplify administration and delegate powers, and slim down and improve efficiency.
Only by comprehensively deepening reform can we build institutional guarantees to resist risks.
Spring river plumbing, steep spring cold.
Although the road ahead is far away, the road is coming.
The central government has put forward the general policy of "steady growth", the central mother has made a series of forward-looking deployments, and the financial father has always been brave to take responsibility and face difficulties. So, we have reason to be optimistic about China's economic growth prospects in 2022.
- Author: Jia Ming, young economist and freelance writer. His research interests include behavioral and experimental economics, with a focus on political economy, international relations, political-business relations, and game theory.
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