According to the report, China is in a downward phase of the financial cycle, and the moderate expansion of the central government's fiscal resources and the government's active mitigation of risks will help strengthen economic resilience
Text: "Caijing" reporter Tang Jun
Editor|Zhang Wei
On the afternoon of July 23, the Institute of Finance of the Chinese Academy of Social Sciences (hereinafter referred to as the "Institute of Finance" of the Chinese Academy of Social Sciences) held the release and seminar of "China Macro Financial Analysis" in the second quarter of 2024.
According to the "China Macro Finance Report" (hereinafter referred to as the "Report") released at the meeting, in the first half of 2024, China's financial cycle will continue to decline, but GDP (gross domestic product) will increase by 5% year-on-year, economic growth will remain resilient, and China's economic and financial cycle will continue to be misaligned.
At the seminar, the steady development of the real estate market and risk mitigation became the focus of discussion.
"Real estate has a big impact on the current macro economy." Huang Wentao, chief economist of China Securities Construction Investment, said that the growth rate of real estate investment in the first half of the year was about -10%, which was a macroeconomic drag and needed to be strengthened by policies.
According to the report, the real estate market continued to adjust and optimize the real estate control policy in the second quarter, and after the introduction of measures such as the "517 New Deal" (on May 17, 2024, the central bank and other regulatory authorities issued a series of policies to relax real estate regulation), the real estate market showed marginal improvement signals, but market confidence has not yet been significantly reversed, and policy reinforcement is still needed to build a bottoming rebound.
Therefore, the report suggests that the real estate market should be rescued as soon as possible to avoid the relaxation of the "toothpaste" policy.
On the demand side, first-tier cities should completely cancel the purchase and loan restriction policy as soon as possible to promote the stock demand to enter the market as soon as possible. At the same time, the issuance of ultra-long-term special treasury bonds will be used for the government's purchase of commercial housing and the construction of affordable housing to ease the pressure on local finances.
China's financial cycle has bottomed out further
According to Cao Jing, an associate researcher at the Institute of Finance of the Chinese Academy of Social Sciences, the results of calculations based on private sector credit and housing price data show that since 2019, China's financial cycle has entered a downward phase, and it is now further bottoming out.
At the same time, in the first half of 2024, China's GDP grew by 5% year-on-year, continuing to lead the world's major economies, and the economic recovery showed strong resilience and vitality.
With the implementation of a new round of large-scale equipment renewal and the trade-in policy of consumer goods, the internal structure of consumption and investment has improved. In the consumption structure, durable goods consumption and online consumption performed better; In the investment structure, manufacturing and infrastructure investment grew steadily. Among them, private investment in the manufacturing industry increased by 11.5% year-on-year in the first half of the year, showing that the vitality of private investment in the manufacturing industry has been enhanced.
In terms of exports, the year-on-year growth rate of exports denominated in US dollars rebounded to 8.6% in June 2024, a new high since April 2023, under the effect of the recovery of external demand and the strengthening of foreign trade stabilization policies. Among them, the competitive advantage of mechanical and electrical products with high technical content and added value is obvious, and the export of integrated circuits and automobiles increased by 21.6% and 18.9% year-on-year respectively in the first half of the year.
Among them, the real estate market trend has attracted much attention.
According to the report, after the "517 New Deal", the real estate market is still in an adjustment cycle as a whole, but there are signs of marginal improvement.
The specific performance is as follows: first, the sales status of commercial housing has rebounded, and the property market in first-tier cities has increased in transaction volume; Second, housing prices in some cities began to stop falling and stabilized, and second-hand housing in first-tier cities improved significantly, among which the sales prices of new and second-hand houses in Shanghai rose month-on-month in June; Third, the financing environment of real estate enterprises is improving, and the investment capacity is gradually recovering, and real estate investment in the first half of the year fell by 10.1% year-on-year, and the decline did not continue to expand.
At the same time, the report also admits that the confidence in the real estate market has not been significantly reversed, the downward pressure on housing prices in first-tier cities, the pressure on destocking in third- and fourth-tier cities and the liquidity risk of private real estate enterprises cannot be ignored, and policies are needed to stabilize the real estate market.
In addition, in the first half of the year, the growth of new industries and new drivers accelerated, mainly in the following aspects: first, the continuous growth of strategic emerging industries such as high-end equipment manufacturing; Second, the high-tech industry is growing rapidly; Third, the prosperity of modern service industries such as software and information technology services, leasing and business services has rebounded, hitting a new high since July 2023; Fourth, the financial sector has strengthened its support for green and low-carbon development, with the increase in green loans reaching a record high of 3.7 trillion yuan in the first quarter.
Cao Jing said that behind the dislocation of China's economic and financial cycles, there are three major factors to support economic resilience: first, macro policies should work together to avoid the impact of excessive credit contraction on the real economy; Second, the old and new drivers have been smoothly converted, and traditional drivers such as real estate and infrastructure investment have withdrawn too quickly; The third is to take the initiative to resolve risks, and the three major risks have achieved phased results.
At the same time, the report argues that China is in a downward phase of the financial cycle, and the moderate expansion of the central government's fiscal resources and the government's active mitigation of risks will help strengthen economic resilience. From the perspective of the vitality of micro subjects, the current feeling of micro subjects is still cold, and macro policies need to continue to strengthen and actively expand domestic demand.
It is proposed to raise the debt ceiling
How will macro policies be strengthened next? The report puts forward three major policy recommendations.
The first is to plan a new round of fiscal and taxation system reform to stimulate the enthusiasm of local governments. Specifically, it includes rationalizing the fiscal relationship and debt structure of the central and local governments, and reducing the expenditure responsibility and debt repayment pressure of local governments; Fiscal transfers are moderately tilted towards low-income households and the unemployed.
The second is to adapt to the new normal of social finance growth and accelerate the reform of the monetary policy framework. Gradually incorporate the buying and selling of government bonds in the secondary market, especially short-term government bonds, into the monetary policy toolbox.
The third is to increase the rescue of the real estate market as soon as possible to avoid the relaxation of the "toothpaste" policy.
The report further proposes three major measures to rescue the real estate market: First, first-tier cities should fully cancel the purchase and loan restrictions as soon as possible, and announce to the market that the policy will be relaxed until now, so as to promote the stock demand to enter the market as soon as possible. The second is to issue ultra-long-term special treasury bonds for the government's purchase of commercial housing and the construction of affordable housing, so as to ease the pressure on local finances. Third, the provincial government directly participates in the province's leading private real estate enterprises, which not only helps to improve the financing ability of the leading private real estate enterprises, but also enables local governments to obtain benefits from equity investment.
On the same day, the Institute of Finance of the Chinese Academy of Social Sciences simultaneously released a special report entitled "Central Bank Buying and Selling Treasury Bonds: Major Changes in Macroeconomic Governance".
At present, the People's Bank of China holds about 1.52 trillion yuan of government bonds, accounting for 3.56% of the central bank's total assets. In proportional terms, the PBOC holds about 5.1% of the total. Compared with Japan and United States, there is still a lot of room for improvement.
According to the special report, the central bank's buying and selling of treasury bonds is an important tool to promote the coordination and coordination of fiscal and monetary policies, and is an important starting point for improving the macroeconomic governance system.
Judging from the historical experience of various countries, government bonds are an important driving force for economic development. Faced with the situation of insufficient effective demand and the "flattening" of household and enterprise balance sheets, it is necessary to give full play to the advantages of China's national credit and give full play to the role of the central bank in national governance in buying and selling treasury bonds.
From the perspective of debt sustainability, China's central government balance sheet is very healthy, the leverage ratio is relatively controllable, and the government debt is much smaller than the government assets, which is fundamentally different from some developed countries. At present, the People's Bank of China has a large "room for growth" in the secondary market to buy and sell treasury bonds.
Therefore, the special report suggests that China should appropriately raise the debt ceiling, issue more bonds by the government, and buy more bonds by the central bank, so as to give full play to the leverage role of treasury bond funds.
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