Excess capital, rural revitalization and the third asset pool

This article is the content of Wen Tiejun’s speech at the “2022 Fourth Yanqi Lake Forum” on August 5. It is included in the 27th issue of “Evolution” without being reviewed by the author.

Where is the third asset pool of the Chinese economy?

The theme of today’s conference is “Building the foundation and strengthening the foundation, and seeking progress while maintaining stability”. My speech “excess capital, rural revitalization and the third asset pool” is precisely related to today’s theme.

Let me explain this title first: I was one of the earliest domestic scholars to discuss the crisis of overproduction, around the 1990s.

At that time, in the official documents, the concept of “capital” did not even appear. It was not until the 15th National Congress of the Communist Party of China in 1997 that “capital” was written into the central documents.

Therefore, it is difficult for us to discuss whether we also have periodic economic crises or overproduction in the mainstream theoretical system.

And because my theoretical foundation was too shallow and I was not deeply influenced by textbooks, I didn’t pay much attention to the concepts that the textbook system wanted to avoid, so I started discussing periodic economic crises earlier.

Since 1986, we have experienced relatively serious inflation, and in 1988, an inflation crisis with a CPI of 18.6 broke out. And I started to discuss our cyclical economic crisis in 1987, and the first related article was published in a certain issue of Xinhua Digest in 1987.

As we all know, periodic economic crises are the general endogenous contradictions of capitalism. It was inappropriate for me to propose this concept back then. Therefore, the discussion has continued since then. The “overproduction crisis” has been discussed since the 1980s and 1990s.

But what I want to tell you today is not “overproduction” in the general sense, but “excess capital”. Because “overproduction” only refers to industries, and when we talk about “capital excess”, we mainly refer to finance.

The main contradiction we are facing now is the same as the main contradiction in the world – the global excess of financial capital. China has also entered the stage of excess financial capital.

Therefore, from the general overproduction and industrial oversupply to today, when we are deeply integrated into the process of financial capital globalization, the main contradiction we face today is actually excess capital.

And what is the relationship between excess capital and assets? In the past, the first overproduction we encountered was during the East Asian financial turmoil in 1997, when a large number of overseas orders were torn up. At that time, China’s already formed coastal industries that produced consumer goods abroad suffered a huge impact.

In 1998, there were quite a number of enterprises that were unsustainable at that time, and corporate loans turned into bad debts. At that time, there were no joint-stock banks or private finance, only state-owned banks, and the financial non-performing rate reached more than 1/3. The overproduction that time was evident.

Justin Yifu Lin stood up and said that the economic crisis we encountered was a typical overproduction crisis of 1929-1933.

He even suggested that our countermeasures are the Chinese version of Roosevelt’s New Deal. At that time, when he made these analysis and policy recommendations, I listened directly to the scene, so I still remember it.

Today, the main contradiction we encounter is no longer overproduction in the general sense, but overcapitalization. Since the financial crisis in 1998, after more than 20 years of development, our current financial aggregate should be said to be the highest in the world.

As we all know, some of our banks have experienced an “asset shortage” recently. Having worked in a bank myself for 11 years and still working in a bank, we have encountered a situation where the deposits have increased significantly and the loan has not been able to find the loan head.

It stands to reason that according to the situation in previous years, we should have released half of the annual loan amount in the first quarter of this year, but in the end it was less than 1/3. A lot of funds are stranded in the bank, and there is no investment direction.

Objectively speaking, this situation is caused by a very important change. Before last year, more than 55% of resident loans were invested in real estate, and more than 50% of corporate loans were invested in real estate. Although it is impossible to do so, it is difficult for banks to change this behavior, because everyone is scrambling to invest in real estate. .

In the past, our asset pool mainly relied on real estate, especially real estate. The real estate market absorbed a lot of bank funds. Therefore, it has also caused a phenomenon objectively. Almost all the leading real estate companies are doing finance and increasing leverage.

So, we say the last asset pool is real estate. The reason why the CPI value has not risen for a long time is not because of the lack of currency issuance, but because real estate, as a speculative field that is very speculative, especially rich in financial portfolio investment and increased leverage, has attracted a lot of money. Absorbed funds from all aspects of society.

Before last year, our excess capital was mainly absorbed by real estate. When we discussed this internally, it was self-evident. I hope all business friends here today will understand this.

Then why was it finally released? The reason is very simple, because there was a requirement last year that banks must reduce the large amount of loans invested in real estate to less than 1/3, and they are not allowed to rise further in the future.

It is precisely at the juncture that the speculative investment in real estate is growing rapidly and the US subprime mortgage risk is about to appear. Government intervention and the direct intervention of the “visible hand” have indeed played an important role, so we have not The general collapse of the housing bubble, like the 2007 subprime mortgage crisis, was suppressed. After being suppressed, it is difficult for the withdrawn funds to find new investment all at once.

Therefore, we say that the main problem now is that in the process of rapid financial growth, there has been a financial surplus caused by regulation. When we put excess production and financial excess together, we should give a new concept called “capital excess”.

So, in the context of excess capital, are there any new areas for absorbing capital investment? Yes, rural revitalization.

Therefore, at the Fifth Plenary Session of the 19th Central Committee, which determines the development plan for the next five years, special emphasis is placed on changing the direction of investment and investing in the new field of rural revitalization.

From an objective point of view, we have started new rural construction in 2005, and started the “rural revitalization” strategy in 2017. After so many years, we have formed tens of billions of facility assets in rural areas. The national facility assets are 1,300 trillion yuan, and those concentrated in rural areas are tens of billions of yuan.

If we can effectively promote the organic integration of “agricultural supply-side reform” and “financial supply-side reform”, find a path for excess financial capital to invest in the countryside, and further form a closed-loop operation of capital, then the “third asset pool” It is possible to create it.

It took a while to solve this title, mainly because I think it may be difficult for everyone to understand such a title.

So the first part actually emphasizes the “bottom-line thinking” mentioned by the central government, which is exactly the same as what we are experiencing now. The “bottom-line thinking” proposed by the Central Committee a few years ago is still very predictable.

In 1989, when the United States led Western countries to sanction China and withdraw all Western capital in China, Comrade Xiaoping once put forward “two don’t be afraid”: don’t be afraid of the regression of Sino-US relations, let alone stagnation. Now is the time for the “two don’t be afraid” to happen.

In 1989, when the United States led the West to sanction China, I was doing technical work in the working group of the Rural Urban Research Office of the Central Committee of the Communist Party of China that took on loans from the World Bank.

At that time, the World Bank loan was to promote the transition of China’s system. At that time, we were clearly aware that the World Bank’s loan to China to help China ease its debt crisis was to promote privatization, marketization, liberalization and globalization.

The purpose of this loan is to push China to reshape its own system in accordance with the Western system, so the loan has not been withdrawn, and all other Western investments that are beneficial to China’s economic development have been withdrawn.

Therefore, it should be said that the actions of the United States leading Western countries to carry out sanctions and other actions that we have encountered today happened once in 1989-1990, and it continued until 1993. Partial relief.

In the 1990s, we encountered a more serious problem. It was the sudden interruption of foreign investment in the process of rapid growth of industrialization – all investment in China was withdrawn. China then entered a relatively prolonged recession as a result of the last round of sanctions.

So, will this round of sanctions repeat the results of the previous round of sanctions? Probably not better than the last round.

Because almost all countries in the world are anxious now, we are anxious about possible sanctions. Objectively speaking, the anxiety of the world is because the excess of global financial capital has become a core factor that directly affects the development of the global economy.

What caused it? To put it bluntly, after the subprime mortgage crisis in 2007 turned into the financial tsunami in 2008, the QE (quantitative easing policy) introduced by the Obama administration at that time released 4 trillion US dollars, of which 60% flowed out of the United States and entered the global commodity market. It directly caused a sharp rise in the prices of major raw materials, minerals and grains, which led to food shortages in 38 starving countries.

When the crisis happened, China was in the process of accelerating its integration into globalization, so we imported high-priced minerals, energy and food on a large scale.

Therefore, at that time, our policy researchers discussed that this was called “imported inflation”, or “imported inflation”, that is to say, China’s large-scale imports helped the United States’ large-scale additional currency to digest what should have happened in the Inflation in the United States allows the United States to issue a large amount of money without inflation.

Therefore, the strategic relationship between China and the United States was good at that time, and it would not say that it would sanction China.

It should be said that since that round of quantitative easing, the United States has entered a one-way street of quantitative easing without a U-turn:

Obama continued to launch quantitative easing policies; after Trump came to power and was hit by the epidemic, he directly issued consumer checks of $4,800 to each household to maintain government operations and social consumption, so it was also quantitative easing; to Biden to take over The latter is still quantitative easing.

Therefore, the United States has been maintaining the basic policy of quantitative easing since Obama rescued the financial crisis in 2008 and now for more than ten years, which has caused a lot of inflation to occur.

But the main reason why it has not experienced inflation is that a considerable number of developing countries, including us, have provided it with cheap commodities. As long as consumer prices don’t rise, it can flow massively additional money around the world.

Many domestic scholars do not take these policies adopted by the United States into the stage of financial capital expansion as a background to analyze, which makes many of us focus only on domestic policy, thinking that our own domestic policies are not well done.

When we discussed dealing with “imported inflation”, we put forward a point of view: under the pressure of imported inflation and imported deflation, any country’s independent domestic macro-control is ineffective, because you can’t control that A country that has issued a large amount of currency.

Not only that, but it must be pointed out that it is not only the United States that is promoting quantitative easing, it is also pulling its Western allies — the European Union and Japan to engage in quantitative easing, so there are different versions of quantitative easing in the United States, Europe and Japan. The world is flooded with financial liquidity.

This is the main source of today’s world crisis, and the root cause of the inexplicable anxiety that almost all countries and the public in the world have today.

That’s why my title today is “capital excess.” From general overproduction to excess capital, this is the main source of today’s world crisis. This point cannot be overemphasized.

Everyone should know that financial expansion, especially in a system with the Federal Reserve as the main monetary policy authority, must be directly tied to the government’s debt expansion.

We see that the US government’s military spending has reached the highest level of 800 billion US dollars, and it is still increasing. At the same time, whether it is military spending or other social spending increases, all have to rely on the Federal Reserve to issue more money.

Objectively speaking, the combination of the two has resulted in the double expansion of the financial bubble and the debt bubble.

Whenever U.S. debt expands to a certain level, it turns into a war. No one needs to think too much about the reason for the outbreak of war, because the law that evolves into war is an objective existence. “Military is the most extreme manifestation of political struggle, and politics is the concentrated reflection of economy.”

In fact, the purpose of the various military conflicts in the world today, and even the situation in the Taiwan Strait that has fermented not long ago, is very clear.

Next, we want to say, under this circumstance, what is the cause of the various confusions in understanding and public opinion that have occurred around the world? Attributed to the Cold War ideology after World War II.

Since the era of the Bush administration, we have heard various Cold War voices, such as the evil of communism, etc. These arrangements have been proposed and operated during the old Cold War, and the results of the operation are relatively relatively Effective.

After the end of the old Cold War, it entered the “post-Cold War”, which is the main contradiction between the United States and Europe. This contradiction was not clearly expressed until Trump took office. The United States made it very clear that the EU must disintegrate and the euro must be abandoned, “because the EU is my enemy.”

The so-called “post-Cold War period” means that after the disintegration of the Soviet Union in 1991, European countries could use their own hard currency nearby to monetize the huge physical assets and facility assets left by the Soviet Union and Eastern Europe. Base.

Back then, I carried a bag on my own and traveled to seven countries in the Soviet Union to do research. I have clearly understood that after the local collapse, they had to use Western hard currency to complete the monetization of their own real economy, and even when promoting the construction of the capital market later, this capitalization process was also completed by foreign capital.

As a result, Europe has received huge economic and institutional benefits, forming the European Union, becoming a whole, and then having the basis for issuing the euro. As soon as the euro came out, it became a currency system with a higher value than the dollar. Therefore, the confrontational conflict between the dollar group and the euro group occurred, which is called the main contradiction of the “post-Cold War period”.

Now China has become the main contradiction in the “new Cold War period”. Many people are reluctant to accept this concept. It doesn’t matter, everyone can have doubts.

But the “new Cold War” was not proposed by us, and we are not willing to join it, but the “Cold War ideology” is still the most important soft power tool in the world. So if the United States and the West do not use this cold war ideology, which has always been effective, as a tool and soft power in the process of trying to suppress China, it would be stupid.

It will definitely use this tool. So if we are unprepared on this issue and don’t know how to deal with the Cold War ideology, it means that we will lose and lose in the soft power competition.

There is some confusion in ideology and public opinion in China, largely because practitioners have not experienced what the old Cold War was about, and they do not know what the essence of the post-Cold War is.

Moreover, soft power cooperates with smart power. Under the hard power of military hegemony, the minimum price is paid, such as instigating internal contradictions in various countries, which then evolve into social conflicts or even turmoil, and then “subdue people without fighting.” Soldiers”, this is the organic combination of soft power and smart power.

These two points have proven to be effective during the transition from the old Cold War to the post-Cold War. If we don’t bring these things up today, it will be almost difficult to understand the chaos that has occurred today.

Rural revitalization is a “ballast stone”, what should we look at and how to do?

After analyzing the main contradictions in the past, let’s take a closer look at China’s main strategies today.

I hope everyone can understand why the Fifth Plenary Session of the 19th Central Committee in 2020, when deciding the direction of the Five-Year Plan, specifically proposed “rural revitalization” as a “ballast stone” for addressing the challenges of globalization.

The “ballast stone” is the core of a solid foundation. The central emphasis is on practicing internal strength, consolidating the foundation, and turning to a dual-circulation strategy with the “big domestic circulation” as the main body. Actually this gives a new stage.

What is the new stage? That is, the domestic big cycle takes the domestic unified national market as the main demand orientation, and uses the domestic large market to drive China’s investment direction – in the past, it was invested in cities, but now it is invested in rural areas.

It should be noted that just after the trade war, technology war and financial war started one after another, the central government made a new investment plan – 7 trillion investment in “rural revitalization”.

However, before a better investment direction is formed, what problems should be solved first? infrastructure. Our new rural construction started in 2005, and it will take 15 years to get to 2020. It has solved the “five connections to the village” at the level of all administrative villages in the country, that is, “water, electricity and gas” plus broadband.

When we opened up to the outside world and opened 14 coastal cities, it was “three connections and one leveling”; now our rural construction is “five connections and one leveling”, “five connections to the village” plus farmland water conservancy infrastructure construction and land leveling.

This means that our rural society now has the basic construction conditions for coastal open cities; it also means that the current rural society has the same conditions for entrepreneurship and innovation as coastal open cities.

In the past, it took us 15 years to complete the access to townships and villages at the administrative village level; and through the “poverty alleviation” strategy, administrative villages in mountainous areas, plateaus and even desert areas have completed the “five access to the village”.

This time, another 7 trillion yuan is invested to complete the “five connections and one leveling” of all natural villages. That is to say, to make all natural villages reach the same level of basic construction as coastal open cities, it means that mass entrepreneurship and mass innovation can go directly to the depths of rural society.

These are the basic conditions for emphasizing the “three new ideas” (new stage, new concept, and new pattern) today. Therefore, at the beginning of 2021 after the Fifth Plenary Session of the Central Committee of the Communist Party of China, the national leader made a three-new speech, emphasizing that we have entered a new stage, and this new stage is dominated by the domestic cycle, so now we must have new ideas.

Some confusion in our domestic public opinion field today lies in the lack of understanding of what new ideas are. The new concept is “people-centred”.

In the past, we were short of capital, and now we have entered a stage of excess capital. In the past period of capital shortage, some of the policies we implemented were new capital policies, such as the slogan that some localities used, or even “investors are local masters”.

Now it is required to “never forget the original intention, keep in mind the mission, and put the people at the center”. From the capital-centered concept in some places in the past to the current people-centered development concept, this is a major connotative adjustment.

How does it develop? Two mountains – clear waters and lush mountains are invaluable assets; what is further promoted? Use “two mountains” to promote the digital ecological village.

A friend asked me just now, what do you think of digital agriculture and digital villages (digital + wisdom)? I say the field is very broad.

Under the condition that every natural village (equivalent to a production team) has completed the basic construction, if China can take ecological civilization as the main development direction in the next step, not just as ecological construction, then it is possible for us With ecological development, the original financial capital-led financial development model will be changed.

There is global anxiety in the world today, largely because of an overall glut of financial capital. If we can transfer excess finance to ecological construction, it means that we have found a new asset pool.

At present, the county-level banks generally have excess investment and deposit, and the deposit gap is relatively high. What’s the meaning? Just can’t use the money.

So no matter where I go, I tell the local cadres that you don’t have to go out to attract investment, as long as you do your own system design, your savings will be sufficient for industrial transformation. There is no need to say much about this, just a reminder that our previous experience is still valid today.

I just mentioned that during the East Asian Financial Crisis in 1997, our financial institutions had a non-performing ratio of 1/3, far exceeding the 8% capital adequacy ratio given by the Basel Accord at that time. All these banks are supposed to go bankrupt.

But what were the characteristics of our year? The national system can concentrate its efforts on major affairs. At that time, the finance and the bank were not separated, so the finance directly came forward to directly strip all the non-performing assets of the bank and set up four major asset management companies to deal with these non-performing assets.

Because as long as the economy is booming, many non-performing assets will eventually become realizable assets. Since then, it has been renovated step by step. At present, there are 6 of our large state-owned banks in the top ten in the world, and the top 4 are all ours – Zhongnong Public Construction.

At that time, under the unified leadership of the central government, the national finance and banks started large-scale capital construction investment in 1998, thus creating the “first asset pool”. After more than 20 years, the asset size of our “first asset pool” has reached tens of trillions.

And because the capital construction of the year was mainly invested in coastal areas and cities, urban belts were formed. With the conditions to carry industrial clusters, the “second asset pool” came into being, that is, urban real estate.

At present, urban real estate is relatively saturated, and there may even be a situation where the bubble is squeezed out. How to deal with this situation? We just reported a policy proposal not long ago, so I won’t mention it here today.

It can only be said that we have now entered the stage of creating a “third asset pool” – rural revitalization, which is actually the county economy.

To a large extent, the county economy is actually the valorization of small and medium-sized enterprises to develop ecological resources by using the conditions in place of basic construction. This is the spatial expansion of today’s “third asset pool”.

Because the basic construction is in place and the rural areas have “five links into the village”, a large number of spatial ecological resources can be developed under conditions, it just depends on what method we use to develop.

We also know that the investment function that the current finance can undertake may not be as good as in the past, because the finances of various places are somewhat tight, and it is already quite difficult to continue to use the means of financial investment. Then we have to rely more on finance and use financial methods to drive the continuous expansion of real assets in rural society.

Because the assets formed by large-scale infrastructure construction over the years can absorb financial intervention as long as it is tradable. That is to say, if the current 1,300 trillion facility assets are used to drive the development of ecological resources, the basic conditions for financial expansion can be formed.

Assuming that 1300 trillion of facility assets are used as the chassis, it should at least correspond to financial assets of the same scale. But our current financial assets are only half of the size of facility assets, about 600 trillion, which means that finance can expand exponentially. As long as the expansion of real assets and financial assets is effective assets, then the debt as a molecule will be significant. Zoom out.

Many of us today are worried about what to do with debt in the future. I said that there is no need to worry, because debt is a molecule, and as long as we can expand realizable assets, it will be fine.

So, where is the room for further expansion of realizable assets? Cities are relatively saturated. However, a large number of ecological resource assets have not been monetized and capitalized, so we say that the surplus finance will be turned to the realization of the value of ecological resources, and the ecological capital will be deepened.

In this regard, there is plenty of room for investment. However, because our experience in the past was concentrated in the industrialization stage, and the development was mainly industrial production, we were not very good at entering the new stage of ecologicalization to invest, so we still need to continuously improve our “third asset pool”. To know, to understand its value.

Let me give you an example. We are helping a company make wild ginseng futures recently. As we all know, American ginseng is in serious surplus now, and wild ginseng is still scarce. It has to grow for at least 5 years before picking, and better for 10 or 15 years, which means that it is an investment with relatively high expected returns. field.

We have grain futures, rubber futures, sugar futures, hog futures, etc., but we seldom have designs on agricultural futures like wild ginseng that can generate expected returns.

Therefore, we are now discussing with various places how to make these products with high expected added value in the agricultural field that can be directly realized first; on a tradable basis, after monetizing this part of production means, then It can promote its futures trading.

We have now started a large number of experiments, first let futures companies do long and short futures trading valuations for a certain crop of a certain area. After the long-short transaction is completed, the value of the future output is formed, and then this value is used to reverse the insurance company’s insurance on the agricultural production value.

Then take the insurance policy to make the conditions for the entry of the agricultural company and the financial reinsurance, and then make the mortgage conditions for the local commercial banks to enter the agricultural loan. Finally, when this part is purchased and stored, there will be warehouse receipts in the warehouse, and there will be a lot of financial space for investors to enter.

Our current design is called nesting of multiple financial instruments, such as futures, insurance, agricultural bills, finance plus commercial banks, etc., using multiple financial instruments to nest, forming a financing platform for the county economy.

Use the financing platform of the county economy to connect with the investment projects of the trillions of investment in rural revitalization issued by the higher authorities, turn these investment projects into small projects, and continuously invest in working capital at the village level. Once the ecological resources of high-level organizations are combined with the funds that are continuously invested in these projects, their ecological resources can be priced.

Not long ago, I went to a town in the deep mountains of Jilin. It is known as the most beautiful tourist town in the country, but its natural resources are not very suitable for tourism, and there are no strange mountains and green plants.

But it has dark nights there. Therefore, the economy of homestays there is very developed, and the roofs of every household are made of transparent glass, so you can watch the stars at night. The starry sky is the ecological resource there, which we call “space ecological resources”, which has not yet been priced.

The development of these resources requires financial intervention to a large extent. After all, a homestay costs one or two million from construction to renovation. It is a relatively large-scale loan subject.

But now we don’t have that kind of loan. Therefore, if we do not consider nesting a variety of financial instruments to design a county-level financing platform, it will be difficult for this place to get investment.

The “third asset pool” is in line with the ecological civilization strategy, rural revitalization strategy, and urban-rural integration strategy proposed by the country for the global financial capital excess crisis we are currently encountering. Investment space and conditions for the formation of a “third asset pool”.

Many friends in the business world today say that they cannot find good assets to invest in: real estate is a relatively surplus and saturated field; in the past, we mainly relied on an export-oriented economy, but now foreign investment has declined, and Western countries such as the United States, the European Union, Japan and South Korea are still Sanctions may be imposed due to a certain action, and trade settlements and water and land circulation may be suddenly interrupted.

The old road is not necessarily easy to go. Under this circumstance, anyone with a little vision should pay close attention to the ecological civilization strategy proposed by the central government, and consider how the development of space ecological resources can become a new investment field.

Next, let’s talk about a few conditions. We say that “spatial ecological resources” have three characteristics—integrity, non-standard and public. (See below)

The means of production in the ecological age are not the same as the means of production in the past industrial age. Therefore, for the transformation of enterprises, it is arduous and fundamental.

Therefore, in this transformation, we propose that these assets invested by the state in the countryside should be transformed into rural collective assets by means of PPP (that is, the cooperation between the government and social capital), so that the county economy of a county can increase the scale of 100-200 The above-mentioned enterprises have transformed fixed assets into fixed assets of the village collective, transformed project investment into working capital, and let them go through industrial and commercial registration and become enterprises, which in turn supported the county economy and kept the industry in the county.

In this way, we can make the county economy become the main area of ​​the country’s next ecological transformation, which is exactly what the Fifth Plenary Session emphasized – keep the industry in the county, develop the county economy, and let the farmers share the industry in the county. ‘s earnings.

The goal of common prosperity in the next century can also be gradually achieved through such institutional arrangements, so we have designed a basic structure (see the figure below), such as how to make government assets available to the village collective, and how the village collective can provide external investors and investors. Villagers make shares separately.

In this way, we can effectively drive the county economy to form a structural reorganization – what to do at the village end, and what to do at the county end. Ultimately, we want to achieve a closed loop of capital, so that the value of space ecological resources can be realized. , so that farmers can obtain long-term property income through this method of “making shares to the village”.

Especially in the process of monetizing and capitalizing transactions, we designed to introduce property rights transaction markets at the county level.

At present, each province already has property rights exchanges, which have financial functions. We just introduced the provincial property rights exchanges and property rights trading centers to the county level, so that they also have financial functions, and can connect to various financial forms, and finally form With the capitalization of resources and the formation of a closed loop of capital within the county, the “third asset pool” is created.

That’s all I have to say today, thank you all.

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