The government can neither shirk its responsibilities, but it can not completely monopolize the supply, if the past fiscal expenditure practices can be changed from the supply side to the demand side, it is easy to achieve equality for all, and consumers can be given a certain choice
Reporter/He Bin
How thick is the "bottom line" of China's balance sheet?
On October 15, at the first Yesanpo China Economic Forum initiated by Chinese economists, elites from domestic and foreign political and business circles made a big start on the national "ledger".
In recent years, when it comes to China's economic problems, one of the pain points that cannot be avoided is the leverage ratio that has continued to rise since 2008. Although the Chinese government vigorously promotes supply-side reforms, it has proposed five major economic tasks of "three to one, one reduction and one supplement", one of which is "deleveraging". But from the current point of view, it seems that the effect is not prominent.
So, is China's leverage too high? Is the debt risk generally controllable? How to "deleverage", reduce leverage ratio, and resolve debt risks? Economists at the conference gave advice on this topic.
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In the early 1980s, in the early days of reform and opening up, Chinese experts and scholars once focused their research on the country's input-output table, and today, with the development of the market economy, more and more people have begun to have a strong interest in the national balance sheet, and since 2012, a number of research teams have begun to try to compile China's national balance sheet or government balance sheet.
The first to carry out this research work was the Fudan University team led by Ma Jun, chief economist of the Research Bureau of the Current Chinese Min bank. Subsequently, Li Yang, former vice president of the Chinese Academy of Social Sciences and director of the National Finance and Development Laboratory, Du Jinfu, secretary of the Discipline Inspection Commission of the China Banking Regulatory Commission, and Yang Zhiyong, researcher of the Chinese Academy of Social Sciences' Institute of Financial and Economic Strategy, also led their respective research teams to try to compile the national balance sheet or government balance sheet.
However, due to the different data sources, statistical calibers and measurement methods of each research institution, the conclusions reached are also very different: Ma Jun's team counted the government's net assets from the central and local levels.
Li Yang's team divided the government balance sheet into wide caliber and narrow caliber for statistics, in which the state-owned assets of administrative institutions were deducted, and the land transfer fee (4 trillion yuan) in 2014 was used to replace the land resource assets of the year for statistics.
Du Jinfu's team made an in-depth breakdown of the statistical caliber of the balance sheet, and divided the statistical caliber of government departments into three types: narrow government, broad government and public sector. In the narrow sense of government, the central government and local governments include party organs, people's congresses, political consultative conferences, governments and their constituent departments, the military and judicial organs, etc., which are consistent with the scope of administrative organs listed by the Central Organization Office, and also include social security institutions. Broad government includes narrow government and public institutions managed by enterprises and non-enterprises. In addition to the broad government, the public sector also includes public financial institutions and public non-financial enterprises, of which public financial institutions include policy finance, and no special instructions are given to the four major asset management companies, CIC and Huijin.
"These teams have different perspectives, different data sources, and different statistical calibers, so the conclusions reached are also very different." Wei Jianning, a researcher at the Macroeconomic Research Department of the Development Research Center of the State Council, told China News Weekly. The research group led by him compared the balance sheets prepared by Ma Jun's team, Li Yang's team and Du Jinfu's team, and screened, synthesized and adjusted the relevant data of each table one by one. According to the adjusted "2010 Narrow Government Department Balance Sheet", the total assets of China's government departments are 50.70 trillion yuan, the total liabilities are 19.67 trillion yuan, and the asset-liability ratio is 38.79%.
In addition, wei Jianning's fiscal sustainability research group also measured China's future government debt ratio, taking the Chinese government debt ratio of 39% at the end of 2015 as the benchmark, assuming that the annual fiscal deficit in the next 15 years is 3%, the debt interest rate is 4%, the average annual GDP growth is 6%, and the inflation rate is 2%, according to the IMF's analysis framework, it is calculated that by the end of 2030, The Chinese government's debt ratio was 56.6 percent, up 17.6 percentage points from the end of 2015, but still below the 60 percent warning line. After that, the research group changed the benchmark assumptions to measure China's debt burden at different deficit rates and different GDP growth rates, and the final results showed that by the end of 2030, China's government debt ratio was lower than that of developed countries and Japan. But he also stressed to China News Weekly that the data is still in the process of calculation and verification.
In the research practice of national balance sheets, Wei Jianning deeply felt that there were still two problems, one was that there was no authoritative department like the Statistical Bureau, which regularly published the national balance sheet and its related data, so that the statistical caliber and statistical data of each research team were different, and there was no way to make vertical historical comparisons, so the preparation of the national balance sheet lacked continuity; second, because the statistical standards, calibers and methods of assets and liabilities in various countries were also different, so it was impossible to make international comparisons horizontally.
Therefore, Wei Jianning suggested that whether it is possible to promote the preparation of the balance sheets of major countries within the scope of the G20, unify the statistical caliber and compilation methods, it is best to link the balance sheets of each country, just like the International Linkage Table of input-output tables led by professor Klein, the Nobel Laureate in Economics that year, to explore the establishment of an international balance sheet of the national balance sheets of G20 countries in order to prevent and resolve the international financial crisis.
The risk is generally controllable
Although the statistical caliber of the research teams is different, and the calculation of debt is also very different, in the view of many economists attending the meeting, China's debt risk is generally controllable.
The former managing director of CITIC Securities and the former chairman of CITIC Securities International, Takchi Liren, compared the 2013 Japanese sovereign balance sheet and the 2013 Chinese national balance sheet calculated by the Chinese Academy of Social Sciences, of which Japan's total liabilities in 2013 were 1143 trillion yen, and the total assets were only 653 trillion yen. According to Tokuchi Tachibana, according to Japan's current net income of 55 trillion yen per year, even if it is not spent, it will take one or two decades to fill this gap.
"But Japan as a whole is relatively stable." The reason is that de di liren believes that mainly in the current Japanese personal financial assets, about 1400 trillion to 1500 trillion yuan of funds have bought government bonds through the banking system, so Japan's debt is mainly based on domestic debt, about 99% of which is digested in China, and has no relationship with overseas.
China's balance sheet, in the words of Dedi Liren, is "very beautiful" - total assets of 691.3 trillion yuan, total liabilities of 339.1 trillion yuan, net assets of 352.2 trillion yuan. "But the 'health' of the sovereign balance sheet does not mean that there is no problem, let alone that financial risks will not appear, because 'health' not only depends on net assets, but also on the liquidity of assets, and predicts and manages them with a developing and dynamic vision." Dedi Liren said.
Guan Tao, a member of the China Economic 50 Forum and a senior researcher of the Finance Forty Forum, also came to the conclusion that "China's external debt risk is generally controllable" from the perspective of foreign financial assets and liabilities. In his view, China is both a big country in the use of foreign capital and a big country in the export of capital. "Especially after 1994, China has always had a current account surplus, and our foreign debt has exceeded its external debt, becoming the world's third largest net creditor after Japan and Germany." He said.
However, there is a structural mismatch between China's foreign financial assets and liabilities, and the external assets are mainly in the government, held in the form of foreign exchange reserves. If you deduct reserve assets, the overall net debt of the private sector is actually nearly $2 trillion. "That's why the market is very tight when the renminbi exchange rate is expected to depreciate." Japan, on the other hand, is a net creditor to the outside world, and the private sector is a net creditor, and it is very afraid of appreciation. In addition, China's financial openness to foreign countries is still low, and the dependence on foreign trade is only 103%, while the United States is nearly 300%.
Guan Tao said that although China has more than 4 trillion yuan of foreign debt, this also includes some foreign investment, and in the entire foreign debt, China is mainly foreign direct investment, accounting for about 60% of the external debt stock. "This means that our capital flows are dominated by long-term capital, which greatly enhances our resilience against the shocks of capital flows."
In addition, China's short-term debt repayment capacity is relatively strong. As of the end of the second quarter of this year, China's short-term external debt solvency was 3.7 times, compared with 3.2 times at the end of the first quarter of 2015. The import payment capacity was 24.0 months, compared with 23.5 months at the end of 2014, which is much higher than the international warning standard of the relevant indicators, so China's solvency is guaranteed.
However, from the perspective of the general public budget, Wei Jianning believes that in recent years, China's fiscal revenue growth rate is declining, while the expenditure growth rate fluctuates greatly, but the overall expenditure growth rate is higher than the income growth rate, and the gap between revenue and expenditure is widening year by year, especially in the provision of the three basic public services of pension, medical care and education. "These demands are growing rapidly, but the supply is woefully inadequate, but it is unlikely that everyone will ever be satisfied if we can fully rely on government finances to meet these needs." Wei Jianning said.
Wei Jianning believes that the government can neither shirk the responsibility that should be assumed, but also can not completely monopolize the supply, if we can turn the past fiscal expenditure practices from the supply side to the demand side, it is easy to achieve equality for everyone, but also to give consumers a certain choice, and the biggest advantage is that the supply side can be liberalized, so that social capital can come in, not only can quickly increase the supply, but also through the introduction of competition, improve supply efficiency and service quality.
Develop multi-level capital markets
In 2008, the Chinese government and academic circles clearly proposed "deleveraging", but to this day, China's leverage ratio is still increasing, and the focus has shifted. If the increase in leverage before 2008 was mainly caused by developed countries, it is now mainly caused by emerging and developing countries. Therefore, many people believe that the next round of crisis is still a crisis of increased leverage, or a debt crisis, but the main body of debt has shifted to the vast number of emerging economies and developing countries.
On August 31 this year, the National Finance and Development Laboratory of the Chinese Academy of Social Sciences released a report pointing out that as of the end of 2015, China's total debt was 168.48 trillion yuan, and the leverage ratio (debt/GDP) of the whole society was 249%.
"Although China's leverage ratio is relatively high, it is not used for consumption, but for investment, accumulating a lot of assets." If our leverage is effective, backed by high-return assets, it is actually a healthy lever. Guan Tao believes that while non-financial enterprises reduce leverage, the government and households can also appropriately increase leverage, and even some leverage can be transferred to the foreign sector, in the case of the cost of foreign capital, broaden the use of foreign capital channels, and appropriately increase the external liabilities of non-direct investors.
In addition, to develop equity financing, for some external sectors, the proportion of Equity Financing in China is too high, but the proportion of non-equity financing is too low, but for some internal sectors, the proportion of equity financing is too low, and the proportion of debt financing is too high, so it should be balanced. "Because equity financing is not developed, the capital market is not developed, resulting in the opposite effect of monetary stimulation." And we must solve the problem of financing difficulties and expensive financing that Chinese enterprises are now facing, fundamentally not by reducing interest rates and monetary policy, but by developing multi-level capital markets. Guan Tao said.
Wang Yuan, chief economist of the China Development Bank, believes that the first responsible entity for deleveraging is still the enterprise. Because China's corporate debt is more concentrated in state-owned enterprises, 60% to 70% of which are large and medium-sized state-owned enterprises. "In the past, many debt problems were digested by relying on high economic growth, and borrowing while digesting. Maybe when the economy is good, some not-so-good phenomena are covered up by economic prosperity, and the problems are not solved in time. But this kind of ultra-high-speed economic growth will not happen again in the next period of time, at least 5 to 10 years, so now is the most appropriate time, and the market should put the solution to the corporate debt problem on the agenda. ”
One of the important ways to resolve corporate debt is debt-to-equity swaps. On October 10 this year, the State Council issued the Opinions on Actively and Steadily Reducing the Leverage Ratio of Enterprises and the Guiding Opinions on Market-oriented Banks' Debt-to-Equity Swaps, which opened the curtain on debt-to-equity swaps.
In Wang Yuan's view, the biggest breakthrough in this debt-to-equity swap is to raise marketization and legalization to an important position, requiring the selection of the object of equity transfer on the basis of merit, and adhering to market bargaining, and in principle prohibiting banks from directly converting creditor's rights into equity. Because China's financial industry is still operated separately, separate industry supervision, direct conversion of creditor's rights and equity will have an impact on the asset quality of banks, and it is difficult to control risks.
In terms of supporting policy support for reducing leverage, the document mentions fiscal and taxation, social security, and improving administrative efficiency, and emphasizes the overall coordination of multiple ministries and commissions, Wang Yuan believes that social security should be mentioned in the first place, "The reason why many enterprises cannot see death and not save is because it involves the placement of thousands of employees, the livelihood of thousands of families, and the issue of social stability." ”
Wang Yuan further explained that if China has an unemployment benefit system and a sound insurance system, even if the enterprise goes bankrupt, employees can at least temporarily tide over the difficulties through relief and insurance funds. "Therefore, we must carefully design and introduce strong supporting policies." In addition, since 60% of the debtor enterprises are large and medium-sized state-owned enterprises, the administrative efficiency of local governments is of paramount importance. In addition to creditor banks and debtor enterprises, the implementing entities of debt-to-equity swaps also need independent third parties as implementing institutions, such as merger institutions, strategic investors, etc. Therefore, in the process of debt-to-equity swaps, China needs to establish a diversified multi-level capital market."