Economist Ren Zeping: It's time to start a "new" round of economic stimulus

Zeping macro

2024-05-14 15:02Posted in Beijing Finance and Economics Creators

Wen Ren Zeping's team

1. How to hedge the pressure of economic operation and solve the current problem of local finance and corporate residents' income? The simplest and most effective way is to "new" economic stimulus, "new infrastructure", that is, through fiscal expansion, with monetary easing, expand demand, drive employment, stimulate economic growth, and at the same time increase support for the new economy and new quality of productivity, so as to enhance long-term competitiveness. Immediately, it has been verified to be effective in ancient and modern China and abroad.

Macroeconomic analysis needs to be objective, professional and pragmatic, and some of the society's perceptions are black and white that are inaccurate, such as stigmatizing economic stimulus, talking about stimulus, and opposing macroeconomic policies and supply-side reforms. In fact, the macro policy represented by fiscal and monetary policies is a demand policy with short-term results, and the supply-side reform represented by encouraging innovation, deregulation, tax and fee reductions is a supply-side policy with long-term results.

A really good mix of economic policies is a combination of long and short.

Zhuangzi once told a story about a fish that dried up and died, and only needed a scoop of water to save it, but people passing by said, don't worry, wait for me to dig a ditch to divert water from the Xijiang River to save you!

Far water can't quench the thirst of the near. Some issues can be more costly and affect confidence the longer they drag.

Recently, we have learned some situations that need to be paid attention to: due to the inability to auction off the land, some local governments are under great financial pressure, and even their normal operation is affected, not only defaulting on the project funds of private enterprises, but also borrowing from private enterprises, affecting the local business environment and business confidence.

In the first quarter, the national general public budget revenue fell by 2.3%, of which tax revenue fell by 4.9%, value-added tax fell by 7.1%, personal income tax fell by 4.5%, and non-tax revenue increased by 10.1% year-on-year. The current abnormal growth of non-tax revenue is not a good phenomenon.

Faced with the challenge of supply-demand gap and balance sheet recession, from the perspective of macro policy, there is no other way but to release water. What needs to be emphasized is that macroeconomic policies and supply-side reforms should not be opposed, and a good job can be taken into account, such as increasing support for the new economy and new quality productivity, and grasping the timeliness and efficiency.

2. The key to starting the "new" economic stimulus and new infrastructure is "new", adjusting the investment field, issuing ultra-long-term treasury bonds to focus on supporting new infrastructure projects, and investing more in the new economy and new quality productivity areas, rather than simply re-taking the old road, resulting in excess and waste.

First, new energy. Vigorously build charging piles and battery swap stations to support the rapid growth of new energy vehicles and improve the convenience of charging and swapping for residents. We will launch a major project of "West-to-East Hydrogen Transmission", build a new energy system, reduce the cost of green electricity, and reduce curtailment of wind and electricity.

The second is artificial intelligence. Increase investment in computing power to support the research and development of large AI models and the implementation of application scenarios. Speed up the construction of the "Eastern Data and Western Computing" project.

The third is to provide support for scientific and technological innovation enterprises such as digital economy, biomanufacturing, new materials, commercial aerospace, and low-altitude economy, such as tax and fee reductions, subsidized loans, and green channels for listing. Vigorously develop venture capital PE.

Fourth, the establishment of a housing security bank to purchase developers' inventory for affordable housing, optimize the stock, and destock.

Fifth, subsidies for childbirth should be provided to families to boost the fertility rate and reduce the cost of childbirth. Inclusion of assisted reproduction in social security. Increase the construction of public nursery schools.

The "new" round of economic stimulus can not only play a role in expanding domestic demand, stimulating economic growth, and stimulating employment in the short term, but also play a role in developing the new economy, creating new productive forces, and promoting innovation in the long term.

China's economy has a large space and great potential. The urbanization rate is 66.2%, and there is still room for more than 15 percentage points; The per capita GDP is just 12,000 US dollars, and the industrial chain is complete and strong, and the industrial workers are well-trained, providing a strong foundation for industrial upgrading. We will not repeat the Japanese 90s, as long as we take substantial and forceful measures, China's economic prospects are bright.

3. There is no need to worry about the "new" economic stimulus pushing up inflation, the current demand is insufficient, prices are low, and the economy is below the potential growth rate, and the short-term priority is to boost demand and employment. After the strong economic recovery, it can choose the opportunity to gradually exit.

There is no need to worry about the "new" economic stimulus pushing up housing prices, real estate has entered the stock era, the development stage has changed, residents' expectations have changed, and the relationship between supply and demand has changed.

There is no need to worry about the "new" economic stimulus increasing the local debt burden, and in the long run, solving the problem in development and avoiding deflation, deleveraging and balance sheet recession will naturally improve as long as the economy recovers strongly and employment is full.

In fact, China is launching an ultra-long-term special government bond program. The 2024 government work report proposes that starting from this year, it is planned to issue ultra-long-term special treasury bonds for several consecutive years, which will be used for the implementation of major national strategies and security capacity building in key areas, and 1 trillion yuan will be issued this year. The ultra-long-term special treasury bonds of 20-50 years will not be included in the deficit and will not increase the pressure on local debts, and will be mainly used to build a modern industrial system and develop new productive forces. That's a great place to start.

4. We need to learn the lessons of Japan, and recently there has been a heated discussion in China about Japan's "balance sheet recession" that year. What is the reason why Japan has fallen into the "lost 30 years" since the bursting of the stock market bubble in the early 90s of the last century? How to avoid repeating the mistakes of the past? The theory of "balance sheet recession" put forward by Gu Chaoming holds that when the asset price bubble bursts, the liability side of the balance sheet remains unchanged, but the asset side is seriously shrunk, the production and operation goal of the enterprise changes from "profit maximization" to "debt minimization", and the whole society falls into a continuous economic recession and contraction with serious shortage of aggregate demand, forming a vicious circle.

This is the classic "balance sheet recession", which can explain why Japan fell into the lost thirty years, and it can also explain the Great Depression of the 30s in the United States. Keynes called it a "liquidity trap".

What to do? The "balance sheet recession" theory argues that the most effective way is for the government to expand aggregate demand through expansionary fiscal policy to make up for the severe shortfall in demand, thereby promoting the repair of corporate household balance sheets and economic recovery.

At present, the property market is still sluggish after the relaxation of purchase restrictions, consumption is sluggish, bank loans cannot be released, and funds in the financial system are idling, mainly because the balance sheets of enterprises and residents have been damaged over the years, which has affected the ability to pay.

It is imperative to restore the ability and confidence of businesses and households to pay, and to repair the balance sheets of businesses and households through fiscal expansion, based on the lessons learned from Japan in the 90s and the successful experience of China and the United States in 2008.

5. When it comes to economic stimulus and infrastructure now, some people will say that they are going back to the old way, which is an obvious misunderstanding. In the past 40 years, how can there be a strong competitiveness of Made in China without moderately advanced infrastructure? Without the construction of advanced information infrastructure, how can there be a leading position in China's Internet economy?

Ahead of time in infrastructure construction and concentrating forces on major tasks are the advantages of our system. The potential of economic development such as that of India cannot be unleashed, and it is largely constrained by the lack of infrastructure.

In 1998, in the face of the Asian financial crisis and catastrophic floods, the mainland issued long-term treasury bonds for seven consecutive years, strengthened infrastructure construction, built roads and bridges, stimulated domestic demand, and laid a solid foundation for becoming the world's manufacturing center after joining the WTO. To this day, China has maintained a strong industrial chain advantage in the face of the challenges of trade frictions, which is inseparable from the large-scale advanced infrastructure construction at that time.

In 2008, during the international financial crisis, the mainland launched a four-trillion stimulus plan, most of which was invested in infrastructure, high-speed rail, airports, the Internet, etc., which was not small controversy at the time. But now it seems that the advantages outweigh the disadvantages, and the merits outweigh the demerits, which greatly reduces transportation costs, enhances the global competitiveness of Chinese manufacturing, and leads the global economy to overcome the crisis.

In 2008, Bernanke claimed to have found a way to avoid the Great Depression, which was actually a reflation of fiscal and monetary money, so there were three rounds of QE, and the US economy was able to recover quickly.

What are the reasons for the relatively strong U.S. economy in recent years? During the epidemic in 2020, through QE, consumption vouchers, subsidies for technology enterprises, etc., the balance sheets of residents and the corporate sector were preserved, and enterprises and residents were not made to pay for the epidemic and the economic downturn, but through monetary and fiscal policies, so residents have the ability to consume, enterprises have the ability to invest, and investment in new energy and artificial intelligence industries is thriving. It's worth thinking about.

In 2020, China's economy was the first in the world to come out of the trough, in addition to taking the lead in controlling the epidemic, to a large extent, it is related to the launch of a new round of economic stimulus led by new infrastructure.

The experience of successfully coping economic pressures at home and abroad shows that extraordinary economic stimulus has made an important contribution. Regulation and control should be slow, the rescue of the market should be urgent, and confidence is more important than gold.

Large-scale infrastructure construction during the economic downturn will help boost employment, and the cost of infrastructure construction is relatively low, which can greatly reduce costs. At present, there is a large surplus labor force on the mainland, and the prices of steel and other materials are low, so it is a good time to engage in infrastructure construction on a large scale.

China's economic development potential is huge, as long as substantial and effective measures are taken to develop new quality productivity, new infrastructure and new energy, boost confidence in the stock market and property market, protect the vitality of the private economy, and liberalize and encourage childbirth, confidence will be greatly boosted, and confidence is more important than gold. In this way, there is great hope for our economy.

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