2022-05-15

What Magic Weapons Can China Use to Save the Economy?

Yes, that's the headline. Machine translated article after the jump. Nothing new, except that a top headline in the finance section used the word 法宝 which means: Buddha's teaching / Buddhist monk's apparel, staff etc / (Daoism) magic weapon / talisman / fig. specially effective device / magic wand. Chinese think the ecoomy is in serious trouble.

iFeng: 多位顶级专家发声:应对压力,中国经济有哪些“法宝”?

With the outbreak of the epidemic, the global industrial chain and supply chain have encountered unprecedented impacts, superimposed by the conflict between Russia and Ukraine, global inflation has continued to rise, and the international financial market has intensified turbulence, bringing many new uncertainties to the global economy.

How does the global economy thrive in turmoil? How can China withstand the pressure and move on?

The 2022 Tsinghua PBC Chief Economist Forum was held online on the 14th, and many top experts discussed.

Take advantage of China's "late comer advantage"

Justin Yifu Lin, Dean of the Institute of New Structural Economics at Peking University , pointed out that the world is undergoing tremendous changes and the economic landscape has undergone tremendous changes. On the one hand, the growth rate of the most important countries is declining; on the other hand, emerging market economies are rapidly rising, especially China.

He pointed out that China is currently catching up with great strides and has the advantage of being a latecomer. China's current technology penetration rate is similar to that of Germany in the 1940s, Japan in the 1950s, and South Korea in the 1980s. The economic growth rate of this latecomer model is 8% to 9%.

For China, there is an annual economic growth potential of 8%. At the same time, China has a very large domestic market, a high share of the international economy, and a good political environment to ensure stable economic growth.

"These are China's advantages, and China should play to these advantages to maintain dynamic economic growth." He said that China is the world's largest economy in terms of purchasing power parity, with a potential economic growth rate of 8%. If China can maintain such rapid growth, it will continue to contribute to the development of the global economy, and it will continue to contribute at least a quarter or more to global economic growth every year.

Yu Yongding, a member of the Chinese Academy of Social Sciences, mentioned that for a long time, China has accumulated more than 3 trillion US dollars of reserves through current account surplus and capital account surplus, exceeding the requirement of foreign exchange reserve adequacy ratio. However, the rate of return of foreign exchange reserves is extremely low, and the proportion of foreign exchange reserves in overseas assets is too high; a considerable part of foreign exchange reserves are "borrowed" rather than "earned", so the financing cost of some foreign reserves is very high .

That's why, he said, despite China's $2 trillion in net overseas assets, its investment returns are negative. This is in stark contrast to the United States.

To this end, Yu Yongding pointed out that China's overseas asset-liability structure needs to be adjusted. The first is to increase the net income of overseas investment and reduce the proportion of foreign exchange reserves in China's overseas assets; the second is to improve the safety of China's overseas assets, especially foreign exchange reserves.

Do not engage in "flooding" in response to the epidemic

During the epidemic, China withstood the pressure and maintained economic growth.

Zhang Xiaohui, Dean of the PBC School of Finance, Tsinghua University, pointed out that since the outbreak of the epidemic, China has not engaged in "flooding", but has adopted a structural counter-cyclical monetary policy, with credit funds directly reaching small, medium, and micro, and technology-based enterprises, and targeted and precise support for the manufacturing industry. On the premise that the monetary aggregate basically matches the economic demand, it not only activates the vitality of micro-subjects, enhances the overall innovation ability, stabilizes the industrial chain, supply chain, and stabilizes the macro-economy.

Guan Tao, global chief economist of BOCI Securities , believes that during the epidemic prevention and control period, various departments should work together to maintain smooth logistics and stable industrial and supply chains. This requires not only fiscal, taxation and financial policy support, but also public health policies and other industries. Coordination with regulatory authorities.

Guan Tao pointed out that it is necessary to strengthen the coordination and linkage of fiscal and monetary policies, as well as the coordination and cooperation between fiscal and monetary policies and other policies, increase fiscal, taxation and financial support for weak links in key areas, and strive to achieve the goals of stable growth, stable employment, and stable prices. At the same time, it is necessary to continue to do relevant work to stabilize external demand, but also to further expand domestic demand, especially to avoid the double encounter between external demand contraction and domestic demand slump in the future.

Unblock the internal circulation to promote consumption

Affected by the epidemic and the Ukrainian crisis, the internal and external circulation of China's economy has encountered certain obstacles. How to unblock the inner circulation?

Li Xunlei, chief economist at Zhongtai Securities, said that domestic demand mainly depends on investment and consumption. On the investment side, infrastructure investment currently plays an important role, but it is not enough to completely smooth the internal circulation through infrastructure investment, and the consumption engine has not yet started. Foreign capital is more constrained by overseas demand, and with the tightening of the Fed's monetary policy, the overall external demand will also weaken. Therefore, it is very important to promote consumption.

Regarding the way to promote consumption, Li Xunlei believes that fiscal policy should be more active. At present, the main financial investment is to stabilize enterprises and employment, and the expenditure on consumption is relatively small. It is recommended to issue consumer coupons, which are more targeted than the way of cash in the United States.

Shen Jianguang, chief economist of Jingdong Group, also pointed out that the core of domestic demand depends on consumption. The government has introduced a series of measures to promote consumption, including tax cuts and fee reductions, infrastructure construction, issuance of consumer coupons or transfer payments to groups in difficulty severely affected by the epidemic, and subsidies to the beneficiaries. Next, we can also consider providing central financial support for consumer vouchers issued by local governments. He believes that this approach "has an immediate effect on short-term consumption."

Identify long-term economic growth drivers

In the long run, economic growth needs to rely on long-term momentum to realize its structural potential. 

Xue Lan, Dean of Schwarzman College at Tsinghua University , said that innovation is a very important driving force for China's economic and social development. Over the past four decades, China has made great strides in innovation through reform and opening up, and is challenging the U.S.'s global leadership in science and technology.

However, he also emphasized that China is still far from enough in terms of R&D investment in the whole society, especially in the government's basic research investment, and there is still a gap between the United States and the European Union in the proportion of the top 1% of scientific and technological papers. In addition, some key technical areas will be "stuck".

Liu Shijin, the former deputy director of the Development Research Center of the State Council , believes that it is necessary to transform "tackling climate change" into a driving force for economic growth. Fundamentally, the green transition still requires “technological change”, replacing the original high-carbon technologies with low-carbon and zero-carbon technologies. Green innovation can greatly reduce the cost for human society to deal with climate change.

Liu Shijin pointed out that although the initial price of green products was high, as the competition for innovation intensifies, the price will drop. At the same time, relevant technologies in the green field should be opened up, which will make relevant trade, investment, and technology transfer more active, and will have a more positive impact on global development.

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