Economic Observer Ouyang Xiaohong/text
One
Ultra-long-term special government bonds are coming.
On May 13, the State Council held a mobilization video conference to support the deployment of the "two-fold" construction, pointing out that the issuance and use of ultra-long-term special treasury bonds, high-quality support for the implementation of major national strategies and security capacity building in key areas, and provide strong support for the promotion of Chinese-style modernization.
On the same day, the Ministry of Finance announced the notice on the relevant arrangements for the issuance of general treasury bonds and ultra-long-term special treasury bonds in 2024. Among them, the ultra-long-term special treasury bonds have maturities of 20 years, 30 years and 50 years, and will be issued on May 24, May 17 and June 14 respectively.
On the same day, the bond market rose, bond yields fell, and treasury bond futures prices rose across the board.
Undoubtedly, the issuance of special bonds and ultra-long-term special treasury bonds can help local governments meet their capital needs and alleviate the financial pressure of local governments to a certain extent. However, after obtaining the funds of ultra-long-term treasury bonds, local governments may also need to complete the corresponding capital allocation, that is, the projects invested are not completely dependent on the treasury bond funds of the central government.
This year's "Government Work Report" proposes that in order to systematically solve the problem of funding for the construction of some major projects in the process of building a strong country and national rejuvenation, it is planned to issue ultra-long-term special treasury bonds for several consecutive years starting this year, which will be specially used for the implementation of major national strategies and security capacity building in key areas, and 1 trillion yuan will be issued this year.
Earlier, at the press conference of the State Council Information Office, Liu Sushe, deputy director of the National Development and Reform Commission, responded to questions related to the 1 trillion yuan ultra-long-term special treasury bonds. Liu Sushe said that in terms of support areas, the focus will be on accelerating the realization of high-level scientific and technological self-reliance and self-reliance, promoting the integrated development of urban and rural areas, promoting regional coordinated development, improving the security and security capacity of food and energy resources, promoting high-quality population development, and comprehensively promoting the construction of a beautiful China.
The market has noticed that in addition to the established policy measures, in the context of "asset shortage", it seems that the Ministry of Finance and the central bank are also strengthening coordination and cooperation to jointly solve the possible "liquidity trap".
The "liquidity trap" is Keynes's hypothesis that traditional monetary policy tools, such as cutting interest rates and increasing the money supply, fail to effectively stimulate economic growth or raise inflation when interest rates are extremely low or close to zero. At this time, the central bank increases the money supply substantially, and money may only circulate within the banking system and not flow to the real economy, as businesses and individuals lack the will to borrow and invest due to an uncertain economic outlook or debt burden.
On May 11, the financial data for April was announced, with 330.6 billion yuan of new RMB loans in a single month, a year-on-year decrease of about 112.5 billion yuan; The monthly increase in the scale of social financing (hereinafter referred to as "social financing") was -198.7 billion yuan; The stock of social financing increased by 8.3 percent, down by 0.4 percentage points, and the broad money (M2) increased by 7.2 percent year-on-year, down by 1.1 percentage points.
Financial data has attracted market attention: "M1 (narrow money) and M2 fell for the first time", what is going on?
According to the Report on the Implementation of China's Monetary Policy for the First Quarter of 2024 (hereinafter referred to as the "Monetary Policy Implementation Report"), the PBOC believes that the current stock of money and credit is not low, and points out the side effects of excessive supply of money and credit. The central bank believes that credit growth has changed from supply constraints to demand constraints, and there is still a process of understanding and adapting to this change, and there is still a "scale complex" phenomenon. When the loan exceeds the real and effective financing needs of the real economy, it will not only make inefficient enterprises occupy credit resources for a long time, it is difficult to clear and survive the fittest, and low-price vicious competition will drag down high-efficiency enterprises, but also easily cause some enterprises to use low-cost loan funds for purchasing wealth management, saving fixed terms, or relending to other enterprises with their own advantageous position, bringing about the problem of idling arbitrage of enterprise funds.
The optimization of the credit structure by the central bank may be one of the important factors for the negative growth of social financing in April. In the current economic environment, central banks are more inclined to support economic growth by improving the effectiveness of credit, rather than simply increasing the total amount of credit.
The negative growth of social finance may be the chain reaction of regulatory measures such as the implementation of "manual interest supplement", or in other words, the decision-making level will take the initiative to "squeeze the water" to alleviate the dilemma of "asset shortage".
Song Xuetao, chief macro analyst of Tianfeng Securities, believes that it can be clearly seen from the first quarter of the goods administration implementation report that the central bank's willingness to further increase the supply of money and credit is not strong, and the growth rate of credit is still premised on the expansion of real demand. Monetary policy usually has the problem of "pushing the rope", that is, monetary tightening can effectively curb real demand, but monetary easing has a relatively limited boost to real demand. In addition, the central bank has become more resolute in its demand for stabilizing the exchange rate. Including the requirements for a moderate rebound in inflation, the requirements are clearer, but the room for monetary policy maneuver is limited, mainly relying on "policy coordination".
Two
Behind the "policy coordination" is the logical relationship between stock and increment, as well as economic variables and other factors.
Taking "the overall study of policy measures to digest the stock of real estate and optimize the incremental housing" as an example, Wu Ge, chief economist of Changjiang Securities, believes that this shows that the follow-up supply-side thinking has shifted from incremental construction to stock digestion, but the support of demand-side policies is urgently needed.
In the report on the implementation of the monetary policy, the central bank mentioned that in the first quarter of 2024, the yield on 30-year government bonds fell to 2.46% from 2.84% at the beginning of the year, a decline of 38 basis points. Long-term Treasury yields mainly reflect expectations for long-term economic growth and inflation, but are also disturbed by factors such as the lack of safe assets.
Since late April, the yield on 30-year Treasury bonds has risen back to more than 2.5% as the marginal relationship between supply and demand in the market has improved. On 13 May, the yield on the 30-year Treasury note was at 2.563%.
The report stressed that in the future, the central bank will continue to adhere to a prudent monetary policy, enhance the consistency of macro policies, increase support for the real economy, and promote high-quality economic development. The PBOC will maintain the flexibility and precision of monetary policy to ensure that the economy continues to pick up.
The reality is that there is a large temperature difference between the macro data and the micro feeling.
As far as the financial data in April is concerned, Tianfeng Securities believes that, first of all, the financial data "squeeze the water", and the adjustment of statistical caliber and stricter supervision in April may cause disturbance to the growth rate of credit. Second, the economy is "definancialized", and there is a divergence between economic and financial data. Finally, when the financial data in April was weak, the market's expectations for the follow-up fiscal and central bank efforts increased.
In the view of Zhao Jian, president of the Xijing Research Institute, the year-on-year growth rate of M1 in April was rarely negative, and the year-on-year growth rate of M2 exceeded 8%, and social finance shrank. This suggests that China's financial capacity is collapsing, and if it is not dealt with in a timely manner, it could trigger a financial crisis.
Zhao Jian proposed the concept of "the curse of debt", pointing out that the externalities of the financial industry have the characteristics of negative effects outweigh positive effects, especially in crisis states, negative externalities will increase greatly. He argues that China is well positioned to avoid the debt curse for the following reasons: the ability of a large economy to carry current debt levels, and there is still room for monetization in the real economy; The government has strong financial control capabilities; Sufficient foreign exchange reserves, stable currency value, and a sound financial regulatory system, especially since the government is already taking action, such as the ultra-long-term special treasury bond issuance program.
By extending the maturity of debt, stabilizing market expectations, locking in low interest rates, and providing long-term investment targets, the issuance of ultra-long-term special treasury bonds is also an important means to deal with the debt problem, which will help alleviate local short-term debt pressure, reduce long-term financing costs, optimize asset and liability management, enhance fiscal policy space, support high-quality economic development, and ultimately help the country better cope with the debt problem.
China has issued three special treasury bonds in 1998, 2007 and 2020, and two more in 2017 and 2022 for the renewal of special treasury bonds at maturity, with a total stock of 2.82 trillion yuan. Among them, the scale of ultra-long-term special treasury bonds (i.e., special treasury bonds with a maturity of more than 10 years) was 1.12 trillion yuan, accounting for 39.8%.
Wen Bin, chief economist of Minsheng Bank, analyzed that compared with the previous three rounds, there are three changes in the ultra-long-term special treasury bonds issued this time. First of all, it has changed from emergency to normal. The mainland's first three issuance of special treasury bonds were all out of the need to meet specific urgent risks and challenges. However, there is no special emergency background for this issuance, focusing on expanding domestic demand, promoting transformation, increasing stamina, and serving the country's medium and long-term strategy. Second, there is an emphasis on continuity and a large scale. Finally, the issuance period was significantly extended. The maturities of this round of ultra-long-term special treasury bonds are 20 years, 30 years and 50 years, and most of them are concentrated in 30 years, which is much longer than in the past, which will help enhance the guarantee capacity of long-term projects, alleviate the pressure of short- and medium-term debt repayment, and also meet the needs of the construction of the treasury yield curve, and further improve the effectiveness of key points on the treasury yield curve.
In addition, Wen Bin believes that from the perspective of the impact on the capital side, the short-term impact of the decentralized issuance of ultra-long-term special treasury bonds on liquidity will be significantly lower than expected, and the probability of the central bank implementing RRR cuts will also be reduced. From the perspective of the impact on the equity market, the A-share market is expected to continue to recover. From the perspective of the impact on the fixed income market, the "asset shortage" may gradually ease, and the interest rate of the bond market has risen slightly.
Three
Combined with the successive statements of the Ministry of Finance and the Central Bank, it is not difficult to understand the recent series of actions of major ministries and commissions to deal with the challenges.
Economist Liu Yuhui pointed out that the central bank's statement emphasized that government bond yields will match long-term economic growth expectations, which reflects the government's intention to adjust macroeconomic policies. A reasonable range of long-term treasury bond yields will support market stability, help guide capital flows to the real economy, and reduce the idling of funds. This policy adjustment is aimed at promoting the healthy development of the economy through rational capital allocation.
Liu Yuhui said that the key is that the money distribution mechanism can distribute money in place (the private sector) to restart the economic cycle and untie the spiral of credit contraction. Obviously, the normative central bank-commercial bank framework cannot achieve this function. Distributions can only be made fiscally. As for how it is technically designed, it does not matter, it is essentially a fiscalization of the distribution of money.
The current low prices and lack of demand may cause businesses and consumers to postpone spending. When an economy is likely to fall into a "liquidity trap", fiscal policy is often more effective than monetary policy. Although the direct role of monetary policy is limited in the liquidity trap, it can still cooperate with fiscal policy to continue to maintain low interest rates, reduce the financing cost of governments and enterprises, and support the implementation of fiscal policy. For example, by purchasing long-term treasury bonds and other assets, we can increase market liquidity, prevent liquidity shortages in the financial market, and cooperate with fiscal expansion policies; Through targeted RRR cuts and re-lending policies, financial institutions will be guided to provide more credit support to small and medium-sized enterprises, scientific and technological innovation, and green industries.
At this time, looking back at the logical relationship between stock and increment, according to Wu Ge's words, the economy is more than stock.
"The risk is resolved in the stock, but the economic momentum is increasing." Wu Ge pointed out that the key to digesting the stock of real estate is to stimulate incremental demand. At present, the housing purchase policy continues to be relaxed in various places, and the inventory of new homes has climbed to a record high.
The launch of trillions of special treasury bonds will also stimulate market vitality and boost economic momentum in increments.
According to the deployment of the Ministry of Finance, the ultra-long-term special treasury bonds will be issued in a decentralized manner for a long time, which is quite different from the market expectation of concentrated issuance in May and June. In this regard, Wen Bin expects that the supply pressure of ultra-long-term special treasury bonds will be mainly concentrated from June to October, and the pace of local bond issuance may be further delayed.
Looking at the increment, the "Action Plan for the Digital Transformation of Manufacturing Industry" recently reviewed and approved by the executive meeting of the State Council is undoubtedly a major positive for China's economic recovery. The implementation of this plan is expected to promote the structural optimization and high-quality development of China's economy at multiple levels.
Under the influence of many variables, the global industrial chain is accelerating its reconstruction. This is partly due to the adjustment of geopolitical and economic policies.
The European and American economies in the environment of high interest rates are not currently in recession as expected, and have shown some resilience in the near future; To some extent, it can be attributed to the restructuring of the global industrial chain. In the process, the economies of North America, Europe and other regions have shown a growth momentum. For example, European countries are trying to improve their competitiveness through the transition to a green economy and a digital economy. In order to cope with the uncertainty of the global supply chain, enterprises have adopted a diversification strategy to diversify risks. In this way, in a high interest rate environment, fiscal policy support, a strong labor market, and improved corporate profitability may provide support for the European and American economies.
However, while the restructuring of the global industrial chain may pose a potential challenge to China's external demand, the rebound in export growth in April also demonstrates the resilience of China's exports. Its sustainability depends on the stability of the global economic recovery, the process of supply chain adjustment, and China's response.
The key to coordinating short-, medium- and long-term goals is to identify the core issues and priorities for each period, and to develop an integrated policy mix to progressively achieve the economic transformation and development goals. The combination of fiscal stimulus and structural reforms can not only solve the current problems facing the economy, but also lay the foundation for high-quality development in the future, so as to find a balance between short, medium and long-term goals and achieve sustainable economic growth.