Li Yang: China remains the leading force supporting the global economic recovery
economic development
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On March 25, at the symposium on "Global Economic Growth Trends" at the 2024 Annual Conference of the China Development Forum, Li Yang, former vice president of the Chinese Academy of Social Sciences and chairman of the National Finance and Development Laboratory, said that China is still the leading force supporting the global economic recovery.
Professor Li Yang believes that the global economy has bottomed out. The global economy has been teetering on the brink of recession since the 2008 international financial crisis triggered by the subprime mortgage crisis in the United States. The pandemic that began in 2020 exacerbated this trend. In 2023, the global economy seems to have found a bottom. According to the latest forecast of the International Monetary Fund, global growth is expected to reach 3.1% in 2024 and 3.2% in 2025. This forecast is 0.2 percentage points higher than the October 2023 forecast – we are finally out of the trap of constantly lowering our forecasts. According to the analysis, there are two main reasons for global economic growth: first, the United States and some large emerging market and developing economies have shown greater resilience than expected, and second, China has clarified its policy orientation of increasing fiscal stimulus. It can be seen that China's steady economic growth is an important force supporting the recovery of the global economy. However, while the global economy is no longer in a downturn, the recovery in growth is still slow and will take time to return to normal. It should be pointed out that although the global economy has begun to recover, except for China, which has performed better, the overall growth of emerging economies has not improved significantly, which may become a drag on global economic growth in the future.
From a global point of view, at the end of 2020, inflation, which had been dormant since the 90s of the last century, suddenly came, and now looking back, this round of inflation should be attributed to both demand factors and supply-side factors such as low growth in global trade and soaring oil prices caused by the regression of globalization and geopolitical tensions. In the years that followed, central banks around the world were caught off guard by the persistence of high inflation, and it was not until the end of 2023 that a downward trend in inflation began to emerge. Global headline inflation is expected to fall to 5.8% in 2024 and 4.4% in 2025, with a downward revision to 2025 projections. Inflation has fallen faster than expected in most regions, driven by supply-side issues and contractionary monetary policy. The monetary tightening measures taken by monetary authorities to combat inflation have further triggered global financial risk exposure and led to a dilemma for macroeconomic policy. Inflation is now largely under control, but new risks have arisen as measures to control it have been too drastic. Interest rate hikes by central banks to fight inflation, the withdrawal of fiscal support in a high-debt environment, and sluggish underlying productivity growth are all uncertainties to the economic recovery. The widespread rise in costs caused by high inflation and high interest rates has continued to cool already weak demand.
Stabilisation in inflation will lead to a slower rise in interest rates. Looking at the trend of interest rates in the 80 years since World War II, it can be seen that only in the 70s and 80s of the last century and the 20s of this century, global interest rates have reached high levels, mainly because of the menacing inflation at that time. That is, high inflation and high interest rates go hand in hand. It is worth noting that the high inflation and high interest rates around the 80s of the last century gave birth to the emergence and proliferation of neoliberalism in the Western world. Recently, the Bank of Japan announced the end of negative interest rates, which officially announced the end of the global pattern of ultra-low and negative interest rates that began at the end of the last century.
To speed up economic recovery, China has stepped up fiscal policy stimulus. The deficit ratio for 2024 is set at 3%, and at the same time, long-term government bonds and ultra-long-term government bonds are also being issued. These arrangements not only send a positive signal to the outside world, but also help control the government's debt ratio, enhance fiscal sustainability, and reserve policy space for coping with risks and challenges that may arise in the future. At the same time, the government will provide loan interest discounts to eligible key groups and small and micro enterprises that absorb their employment. Guide government financing guarantee institutions to increase the tilt towards labor-intensive enterprises this year. It is estimated that 1.3 trillion yuan of new loans can be leveraged, more than 12 million jobs will be stabilized, and more than 600,000 new jobs will be created. These measures will greatly increase the level of employment, increase residents' income, and increase domestic demand.
China has also stepped up monetary policy stimulus. Since 2024, China's broad money supply has grown rapidly. As of the end of February 2024, the balance of M2 in mainland China has reached 299.56 trillion yuan. This shows that the stimulus of the mainland's monetary policy has reached a relatively strong level. The problem here is that while the level of money supply has reached a significant level, the real sector of the economy is still feeling tight on liquidity. The problem here lies in the structural aspect -- in our M2, the proportion of time deposits is rising, and correspondingly, the proportion of demand deposits is declining; the increase in the "inert" currency of time deposits in M2 is the reason for the "easy money and tight credit", and the deep-seated problems behind it still need to be found in the real economy. Of course, for the stimulus fiscal policy, the monetary policy will also give stable policy support, strengthen the overall coordination of macro policies, and enhance the consistency of macro policy orientation.
It is precisely because fiscal and monetary policies are working in the same direction that China's economy will certainly be able to achieve the predetermined growth, price and employment targets this year.
[Li Yang: Speaker of Chang'an Street Reading Club, Chairman of the National Finance and Development Laboratory]
Note: Authorized to publish, this article has been selected and included in the "Chang'an Street Reading Club" theoretical learning platform (People's Daily, People's Political Consultative Conference Daily, Beijing Daily, Xinhuanet, CCTV, National Party Media Information Public Platform, Vision, Beijing Time, Surging Government Affairs, Phoenix News Client "Chang'an Street Reading Club" column synchronization), reprinting must be uniformly marked "Chang'an Street Reading Club" theoretical learning platform source and author.
Editor-in-charge: Qiu Shiyi, preliminary review: Cheng Ziqian, Chen Jiani, re-examination: Li Yufan
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