The 2022 Macro Situation Annual Forum Summer Annual Meeting was held in Beijing from the 16th to the 17th. The meeting was hosted by the Chongyang Institute for Financial Studies of Renmin University of China (Renmin University Chongyang), the Global Governance Research Center of Renmin University of China, and the Sino-US People-to-People Exchange of Renmin University of China. Undertook by the research center and Jufeng Financial Research Institute, co-organized by Beijing Jufeng Financial Control Technology Co., Ltd., and supported by Beijing Jufeng Financial Control Technology Co., Ltd. and Onegram Nano (New Economist). Peng Wensheng, chief economist of CICC, gave a keynote speech at the meeting.
The following is the transcript of the speech:
First of all, I would like to thank the organizers for inviting me to participate in such a seminar today. I would like to talk about some of my own thoughts on the macroeconomic situation. The topic is ” Economic Restart and Reconstruction After the Epidemic “.
Whether it is its own impact or the need for prevention and control, the epidemic actually has the effect of a pause button on the economy. After the epidemic has eased, there is a problem with restarting economic activities. But it is not just a matter of suspending or restarting, because the epidemic has lasted far longer than expected, nearly two or three years, so it actually has an impact on the economic structure. Therefore, we say that the post-pandemic economy still has a problem of restructuring, which involves long-term economic structural adjustment.
In addition to the epidemic, everyone has recently been very concerned about the conflict between Russia and Ukraine. The superposition of the two events is rare in a century. The last time a similar combination was the Spanish flu and the First World War 100 years ago. How to understand the implications of such a shock for the economy?
First of all, thinking about economic cycle fluctuations from a traditional perspective mainly looks at demand , including consumption, investment, and exports. Because the supply capacity of the economy changes very slowly, in a short period of one or two years, the production capacity usually does not change greatly, so the short-term fluctuations of the economy are mainly caused by changes in demand. But this time is different. The epidemic will have a pause button-like impact on supply-side factors such as the industrial chain and transportation. The Russian-Ukrainian conflict has a similar effect, and the energy supply in Europe and around the world has been significantly affected, which are different from the traditional economic cycle fluctuations.
The same logic is reflected in China’s recent macro data. GDP growth fell to 0.4% in the second quarter (4.8% in 2022Q1), while CPI inflation in June rose further to 2.5% (1.5% in March 2022). From the perspective of the traditional economic cycle, if the GDP growth rate has fallen so much, the price increase rate and even the price level may decline, but our inflation level has risen instead. Behind this is the impact of the aforementioned decline in supply, which means that the macro problem we are currently facing is not only a decline in demand, but also a decline in supply, which has led to an increase in the level of inflation.
International trade data also confirms this. When the impact of the epidemic in 2020 first appeared, the volume of international trade fell much and prices fell less. After the epidemic eased, international trade recovered, but the volume rose less and the price rose much, reflecting the stagflation of the global economy .
Second, the impact on social distribution . From a structural point of view, the impact of the epidemic on economic activities is asymmetric, and not all industries, all groups of people, and all regions have the same impact. An important manifestation of this asymmetry is that it has a greater impact on low-income groups and young people . Taking the high unemployment rate of young people that has been widely concerned recently as an example, it is largely because young people who are in the early stage of work or in the stage of looking for a job have been hit by such a big epidemic, which has given him employment. brought a greater impact. Faced with such an asymmetrical shock, public policy is required to play the role of social security. Because these low-income groups and young people are hit harder, not by their own volition, nor by traditional cyclical fluctuations, but by the sacrifices made for the needs of the whole society to prevent and control the epidemic, there should be social Guarantees to make up for their losses to a certain extent.
I just mentioned restarting, but in the long run there is still a refactoring problem. Compared with the past 30 years, the global economy may face fundamental changes in the macro environment in the next 30 years. Here are four deep-seated reasons to consider.
First, the population is aging , the young population is getting smaller and smaller, and the supply capacity of the economy is declining.
Second, carbon neutrality, as a new constraint , means that reducing the use of fossil energy may inevitably pay the price of stagflation in a certain period of time. The future way out depends on technological innovation and investment, mainly in new energy and green energy.
The third is the adjustment of the industrial chain. Americans are worried that they will rely too much on China’s exports, so they want to repatriate the manufacturing industry and diversify the supply source of the manufacturing industry. However, the diversification of the source and the return of the manufacturing industry have costs. At the same time, the technological competition between China and the United States also makes us worry that Americans will be stuck in the high-tech industry, so we need to engage in independent innovation, but independent innovation also requires costs. Therefore, the industrial chain cooperation model of the world’s two largest economies in the past few decades is facing challenges, which may lead to higher costs and lower attack efficiency.
Another is the drop in the peace dividend . The Russian-Ukrainian conflict will not only have a devastating impact on the short-term supply capacity, but may also cause various countries to increase military spending in the long run, which means that social resources will shift from the field of consumer goods to the waste of resources in global zero-sum games.
Combined, these factors mean that we may face a stagflationary macro environment going forward . For the world , if it wants to maintain the same economic growth rate as in the past 30 years, it may have to bear higher inflation; if it wants to maintain the same inflation in the past 30 years, it may have to bear lower economic growth rate.
This is a big macro environment for the next few decades. Is it more stagnant or more swell? Judging from the performance of the response to the epidemic this time, the inflation in the United States is a little more, and the downward pressure on the Chinese economy is a little more. The epidemic is a tragedy and a disaster. Unless we eliminate the epidemic, it will inevitably have a negative impact on the economy. This cannot be wiped out by traditional macroeconomic policies such as fiscal and monetary policies. Therefore, public policy is actually faced with a choice, whether to pursue a small stagnation or a small increase. The fiscal expansion in the United States during the epidemic was supported by monetary support for fiscal expansion, or the monetization of fiscal deficits, which resulted in strong consumer demand at the cost of relatively high inflation. It is also in response to the epidemic. In 2020, China mainly relies on credit. Credit is mainly associated with investment, especially real estate. It will help consumption to a certain extent, but it will not have as much impact as fiscal expansion. Therefore, the remaining problems after the stimulus is mainly reflected in the high debt pressure in China, such as the real estate problem and the local debt problem, which will cause greater pressure on the economic downturn.
The two major economies are facing different stagnation and inflation performances, and the choices of public policies are also continuing to diverge. The growth rate of M2 in the United States has risen sharply in 2020, and half of it is contributed by finance. Almost all of the growth of M2 last year came from finance. Recently, the growth rate of M2 in the United States has declined significantly, largely because the financial contribution has begun to decline. At present, the contribution is probably less than half. China’s policies are also being adjusted, and we rely more on fiscal expansion to achieve monetary expansion. This year’s fiscal expansion may be rare in recent years.
In short, the difference in the choice of public policies among countries in 2020 is actually the choice of which level of the economy will bear the impact of the epidemic. Once this level is unbearable, it will lead to readjustment of the policy. In the United States, the monetization and expansion of the fiscal deficit in the early stage was too great, so this year, fiscal retrenchment and currency interest rate hikes are required. In China, the credit expansion was too strong in the early stage, and now we need to use fiscal expansion to make up for the bad caused by credit expansion. Effect.
It should be emphasized that in addition to the impact of the epidemic, we are also facing a downturn in the financial cycle . The so-called financial cycle is that housing prices and credit, or the debt of real estate and corporate and household sectors, complement and promote each other. An upside index of the financial cycle reflects rising house prices, while a downside signifies slower house price growth, which also means slower growth in debt. A complete financial cycle takes about 15 to 20 years, and China has experienced its first financial cycle from the beginning of this century to the present. This financial cycle has been going down in recent years. It is very bad to catch up with the epidemic. The superimposed influence has led to the recent situation, especially the recent real estate and debt problems, which have brought a relatively large impact on the economy. downward pressure.
What to do in this situation? How to choose macro policy? The best option remains financial. Why is fiscal policy critical to China at this point in time? Why does China want to expand fiscally when the United States has sharply tightened its fiscal budget this year? There are three reasons.
The first is to deal with the pro-cyclicality of finance. Reversing current cyclical pressures on credit is not impossible, but it will come at a high cost. Because investors and other economic entities have a low risk appetite, especially for real estate, how much credit expansion will it take to reverse this expectation and confidence? This is where fiscal policy is needed. Only fiscal policy can truly achieve a counter-cyclical effect. Therefore, in order to deal with the pro-cyclicality of finance, it is necessary for finance to play a counter-cyclical adjustment function.
The second is that fiscal policy has a comparative advantage in increasing supply. The problem we are facing now is not a traditional demand-driven economic cycle, but a supply-driven economic cycle by disaster shocks. We need to increase supply more, which is difficult to achieve with money and credit. An important way is to reduce the operating costs of economic entities and increase supply capacity by reducing taxes and fees.
The third is to play the role of social security, adjust income distribution, and deal with asymmetric effects. Only finance can play the function of social security.
In short, in the second half of the financial cycle, in the context of a credit crunch, monetary expansion is used to support fiscal, not credit expansion, that is, “tight credit, loose money, and loose finance.”
Looking at the fiscal strength this year, we should not only focus on the budget, but also on the government funds, the central bank’s profits, and the use of past fiscal balances. We estimate that China’s general fiscal expansion this year will be 3 percentage points higher than last year. Why does the Chinese economy experience relatively large downward pressure in the second half of 2021? Because in 2021, China’s broad fiscal deficit ratio will shrink by 3 percentage points, from 8.6% to 5.6%. At the same time, the ratio of new loans to GDP contracted slightly last year. With both fiscal and credit tightening, the downward pressure on the economy last year is not surprising at all.
How is this year? Benefiting from the policy force, credit has basically stabilized, but the economy itself has pro-cyclical downward pressure, so the demand for credit is a relatively weak stabilization. In terms of finance, there is an expansion of three percentage points, which is the biggest difference between this year and last year. It means that as long as there is no major recurrence of the epidemic in the second half of this year (which is difficult for our macro policies to control), the economy should be able to recover from the second half of this year to the first half of next year. There is a clear and even relatively strong rebound. Regarding the inflation forecast for the next few quarters, there is indeed a relatively large uncertainty. The biggest uncertainty is the epidemic, which is difficult to control by macro policies. However, the overall judgment is that there will be a relatively strong economic rebound from the second half of the year to the first half of next year . In the first half of next year, due to the base effect or the CPI inflation that accompanies the rebound in growth, there will also be a relatively obvious rise.
Will the policy overshoot? Because in many cases, the strength of counter-cyclical adjustment is not easy to grasp. Especially to reverse the inherent pro-cyclical downward pressure on the economy, it may often need to overcorrect, that is, the policy may overshoot, which will inevitably bring negative consequences. Effect. The key is to compare the three whole options of fiscal expansion, credit expansion and monetary easing, which overshoot has less negative effect. The risk of fiscal expansion is inflation, and the risk of credit expansion is further debt expansion and worsening real estate problems. If real estate prices rise further, even first-tier cities may have problems next. In the case of relatively large interest rate hikes in the United States, monetary easing may bring back pressure from currency depreciation.
Which of the three risks has less negative effects? It’s a matter of opinion. In my personal opinion, the negative effect of CPI inflation at this point in time may be relatively small . Not to say it is good, but to say that its negative effects are relatively small. Therefore, if overdoing it is unavoidable, I think we should rely more on fiscal expansion, because another round of large-scale debt expansion through credit is just drinking poison to quench our thirst.
Finally, to sum up, in the short term, the economy will restart. In the first half of the year, the data was weak and the policy was loose. In the second half of the year, the data became stronger and the economy improved, but the policy was still loose. However, it is estimated that it will be difficult to achieve the 5.5% growth target this year. Although other countries rarely have an annual target for economic growth, some countries have an inflation target, and the inflation target is also two years, not the next year. Why two years? It is to reserve some elastic processing space to deal with some unpredictable shocks. If you look at this year and next year together, two years instead of one, an average growth of a few percent should be said to be possible.
As far as this round of economic restart is concerned, in terms of macro policy choices, fiscal and monetary coordination is our new direction, especially when the central bank’s profits are turned over. The risks faced are mainly two non-economic factors, one is the new crown epidemic, and the other is the impact of geopolitical conflicts, especially the conflict between Russia and Ukraine. This is a short-term, 12-month analysis.
In the medium term, there are three aspects to economic restructuring. The first is debt restructuring . In the downward phase of the financial cycle, we are facing the pressure of debt restructuring from real estate development companies to local urban investment debts. This is a problem we will face in the next few years. The second is innovation-driven , which both boosts growth and improves supply. The third is common prosperity . Against the background of the downward financial cycle and the impact of the epidemic, promoting common prosperity will also be the focus of policy in the next few years.
In short, debt restructuring solves the existing problems in the past, and technological innovation and common prosperity are the two new directions for the future, and they are also the directions we should focus on when thinking about future macroeconomic development.
thank you all!
Note: Unless it is marked as original, it is all submitted by netizens or institutions for sharing. If you need to publish, please contact [email protected].
This article is reprinted from: https://www.dx2025.com/archives/171624.html
This site is for inclusion only, and the copyright belongs to the original author.