People's Daily Asks Official 5 Questions on Economy, 8 Signals On Current Policy

UPDATE: The English version of the People's Daily article is now available. Five most pressing questions on the Chinese economy — Exclusive Interview with an ‘Authoritative Insider’

Original post from May 26 follows:

Liu Shan explains the 8 signals on the front page of the People's Daily. The article (linked at bottom) appeared on May 25, and was in the format of an interview, with 5 questions put to an unnamed government official.


1. The economy will not fall off a cliff, the central bank will intervene
Despite the decline in economic growth in the first quarter, but authorities believe that, in line with expectations, both "face", there are "lining", improved quality of economic growth, which accelerated growth in the service sector industrial structure, terms of consumer demand structure is relatively stable, income Rural grow faster than urban growth.

Such changes can be seen as a positive outcome of the restructuring appears, it can be said on the other side of poor academic performance. But from the perspective of a long period, this change is positive, it should be recognized.

Authorities stressed that the economy does not appear cliff-style drop sharply, the fundamentals are good. Stressed that China has the world's highest household savings rate, which suggests that if necessary, the central government can start stimulus, the household savings into investment and consumption.

2. Take the initiative to adjust, whoever doesn't take the initiative will lose. This applies to companies and local governments.
Differentiation in economic growth, there are differences between regions, there are differences between the industry, there is differentiation between companies. Cause of this phenomenon is the existence of structural adjustment initiative. Authorities said the restructuring is the new normal more essential characteristics

3. Investment still leads the economy, consumption will need new policies
Authorities stressed that the steady growth to "combination", one long-term combination of recent, the second is a combination of development and reform, the third is a combination of domestic and international. This expression is to determine the trend of China's economy to be placed within the framework of the international economy, we should see China's economic adjustment is a global rebalancing process, thus it is necessary to consider short-term macroeconomic policy counter-cyclical, but also to take into account the long-term structural adjustment. And steady growth can not influence reform, institutional reform should create conditions for growth.

Such decision-making ideas determine the short-term counter-cyclical measures still rely on investment, but now more emphasis on the money come from, invested there, pay attention to the efficiency of investment. Due to the economic downward pressure is not small, the macro-control, government investment is still the main means, which is a last resort thing.

But central to the growth in consumer awareness plays a fundamental role, thus to stimulate consumption, increase the income and improve the social security system, so that residents dare to consumption. It can determine the future government will change the social security predicament realized through state-owned assets, and by improving the social security level to stimulate consumption. The best way is to increase the level of social services equalization residents, including reduced medical expenses, changes in primary and secondary school enrollment approaches, so that residents reduce savings and increase immediate consumption.
Residents to the central government realized the negative effect in the consumption abroad, it was likely that the recent increase in the country "free zones" to increase the supply of imported goods by reducing tariffs or duty-free, "a tremendous growth momentum, keep valuable consumer resources" . This way it can play the real economic and political double-edged sword effect. Economically, the expansion of household consumption in the country. Politically, Hong Kong ease the contradiction.

4. Bull market is needed for long-term growth and may last three years
Central also hope to achieve steady growth and lower leverage dual effect. To achieve double-click solution is to increase direct financing. Increase direct financing and reduce the proportion of credit, you can do both. It is believed that the current management of the cooling leveraged equity financing is not to suppress the stock market, but want to avoid the bubble quickly burst of rapid expansion. If the policy is well managed, this round of the bull market should be maintained at least three years.
[Emphasis in original]

5. In preventing default risk, the government will kill chickens and let the monkeys watch
Previously I judge the government to achieve the purpose of preventing risks, may avoid a partial payment crisis, maintaining rigid payment situation. But authorities believe that "the risk of the release of local but also a timely release, breaking the rigid payment, but is conducive to reduce long-term and global risk." This means that the government may have chosen to break the rigidity of payment situation, without causing systemic risk under the premise of a warning to others. On the one hand to the old debtor active destocking actively to capacity. On the other hand allow the market to establish the concept of contract, financing impulse inhibition.

6. Real estate still not a good sell
Authorities said the "market is facing a painful destocking phase, effectively digest real estate inventory is a real problem, which is related to demand, but also related to defuse the risks."
This shows that the government has a very objective understanding of the real estate market, real estate inventory must be reduced as soon as possible. Policy will stimulate demand for housing, but developers should cut prices. A price reduction can reduce inventory as soon as possible in order to be able to both help consumption, and also to avoid a payment crisis.

7. Macro policy will seek balance
Fiscal policy and monetary policy will be more active, but the point is not the same positive performance.

In addition to increasing fiscal spending, tax cuts and more actively, in particular to avoid the corporate levy "taxes to." If you want to do two balance, it is not easy. On the one hand the government is short of money, tax cuts on the other hand also a dilemma. However, as the authorities said, China has institutional advantages, so it is possible to provide investment loans by policy banks, disguised fiscal monetization.

Loose monetary policy will continue to cut interest rates or RRR. Fed rate hike expectations create significant possibility of capital outflows, in order to avoid foreign exchange decline, the central bank will drop RRR to hedge liquidity shortage. This is also a double-edged sword, can add liquidity to stabilize the stock market, thus increasing the attractiveness of the hot money, avoid large-scale capital outflows.

8. The policy will not change, encourage everyone to get rich
"The current social psychological expectations at a sensitive stage, critical to the stability expected." Expected to stabilize, there should be policy statements, to maintain political stability, social harmony, not left nor right. Therefore, the central policy is "the direction of the party and the government to promote market-oriented reform is clear support for entrepreneurs is consistent, adhere to public ownership is dominant and diverse forms of ownership develop is the basic economic system in the primary stage of socialism. The central authorities have not changed the direction of reform of state-owned enterprises, private enterprises to protect property rights policy has not changed, adhere to the policy of opening up and foreign investment has not changed. "

This is a private entrepreneur propaganda, to tell them the anti-corruption drive is not anti-private property, but also foreign propaganda, telling foreigners the antitrust actions does not represent opposition to foreign investment.

Original People's Daily article: 五问中国经济(权威访谈) (5 Questions About China's Economy, Interview with an Official)

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