Wu Jinglian: Does China need a stimulus policy?

Because of years of institutional defects and extensive growth, the growth model has accumulated many practical contradictions and difficulties in our economy and society. We can only advance our reforms under the conditions of continued economic development, so we must be good at dealing with these practical difficulties so that our reforms can proceed smoothly.

There are a few people who can directly feel it. The first is because the extensive growth method consumes a lot of resources, which has caused a serious shortage of our resources. We now have a very high dependence on many important energy and raw materials.

In addition, because of this extensive growth model, high energy consumption also causes high pollution, making the environment worse and worse. The most outstanding performance is that the basic conditions for human existence have been destroyed. There are three basic conditions for human beings to survive. Now there are problems, namely land, air and water.

The economist of the Bureau of Statistics made a report two days ago about the pollution and said a paragraph. There was a Beijinger who sent a text message to Harbin, saying that I couldn’t see the grandfather’s relationship on Tiananmen Square. Harbin returned to him for a paragraph, saying that our cockroaches here are more serious than your Beijing. I can't see it anymore.

In addition, the recent demand is weak and the growth rate is declining. On the one hand, our total currency circulation is too large. In 2001, our total currency circulation was only a few trillions, and now it is one hundred and ten trillion. However, in many aspects, the demand is insufficient. In general, the demand is very large, but in many aspects, the demand is insufficient and the growth rate is declining.

The third is overcapacity and business difficulties. Because the result of a large amount of investment causes two problems, on the one hand, the problem is that a large amount of investment has caused a rapid increase in production capacity. On the other hand, because the investment rate is too high, the consumption rate is too low, so the final demand is insufficient. Then there is a phenomenon, we can hardly find which product of the main products is not enough.

In 1958, the steelmaking industry was to increase from 5.35 million tons to 10.7 million tons a year. Now our steel production capacity is 1 billion tons. The production capacity of a Tangshan steel mill exceeds the total amount of European countries, but it cannot be sold. Therefore, steel mills generally lose money and it is difficult to operate. This is not only a product, but some people say that there is no product left.

The most prominent problem in the macro economy is that the debt ratio (leverage ratio) of this country's balance sheet is too high. Mainly due to state-owned enterprise liabilities and local government liabilities, this debt ratio is based on last year's statistics, and the national debt balance or national debt ratio exceeds 200% of GDP. It is generally considered that 200% is a warning line, so there is a possibility that there is a possibility of systemic risk.

The so-called systemic risk is the sudden collapse of the market, because the difficulties in some links are transmitted to a relatively large area, causing the collapse of the entire system. If you look at the discussion on the Internet the most is how to deal with the current difficulties.

What kind of policy should I adopt?

There are different opinions on the Internet now. Two main opinions, one is that the policy of bailout should be adopted, that is, to stimulate economic growth. But there is another opinion that thinks that a strong stimulus policy like 2009 should not be adopted. Because the negative impact of the 4 trillion investment and 10 trillion loans in 2009 has not yet been digested. So many people think that we should not adopt a stimulus policy similar to that of 2009.

On the one hand, the consequences of the 2009 stimulus have yet to be digested. On the other hand, several comprehensive stimulus policies have been adopted since 2009, and the intensity has not been strong in 2009. For example, in May 2012, it was also stimulated. However, from the stimulus in 2012, there was also a short period last year, mainly relying on urban construction investment, which hoped to increase the economic growth rate. However, from the stimulus in 2012 and the stimulus in 2013, the effect of the stimulus seems to be declining.

In our economics, when the growth model was discussed in 1956, the Nobel scholarship winner Solow put forward that if investment is used to drive growth, the return on investment must be diminishing. Based on his return to the US data for the first quarter of the twentieth century, he found that the United States did not have such problems. It did not rely on investment to support growth, so there was no diminishing problem. Judging from our stimulus policies in 2009, 2012 and 2013, the effect of its investment stimulus is indeed declining.

The stimulus in 2012 lasted only a few quarters, and the positive effect of this stimulus in 2009 lasted for several years, growing at more than 8%. This time in 2013, there was no stimulus and the growth rate continued to decline. So there is a kind of opinion that is not in favor. But now it seems that the call for stimulus is getting higher and higher. I think this issue needs serious consideration.

Why are the side effects of this stimulus policy very large, and its positive effects are also attenuating? This should be studied, why should we strive to maintain the growth rate of GDP?

There was a debate before the two sessions this year. Should we set the expected growth rate this year at 7.5% or 7%? Later, the opinions of both sides were absorbed at around 7.5%. The first quarter was below 7.5%, which was 7.4%, and mainstream public opinion said it was acceptable. But there is a prediction that it is still possible to continue to decline. So is it acceptable to continue to decline? There is a lot of controversy.

During the two sessions, Premier Li Keqiang said that the purpose of "stable growth" was to protect employment. Because the growth rate has no direct impact on the public, it is employment. Then there is a problem here. What is the relationship between employment and growth? The growth rate is guaranteed to protect employment. What is the relationship between employment and growth? It seems that there is usually a perception that there is a linear relationship between employment and growth. That is to say, the growth rate increases by one percentage point, and the employment growth rate is a percentage point. There is a fixed proportional relationship.

This is actually not the case. Because growth has a structural problem, what kind of industry grows fast, and the contribution of different industries in growth is different. The difference in structure has a different impact on employment. For example, under the old growth model, where is the investment mainly invested? Investing in heavy chemical industry, employment elasticity is very low. From various industries, what kind of industry has high elasticity of employment? Overall it is the service industry.

We have this situation now, and although our growth rate has dropped, the employment situation has not deteriorated. I think that as long as it can guarantee employment, the growth rate is higher and the relationship is not much lower. The stimulus policy of relaxing the monetary policy to increase investment is more harmful than profit. The advantage is that it can increase GDP growth. The disadvantage is that it hinders the transformation of the economic development model and further accumulates debt. The amount of money in circulation is already 200% of GDP. This is a very high proportion. The debt ratio cannot be increased any more. The leverage ratio is too high. It is a sword hanging on our heads. It continues to increase the proportion of leverage. In the medium and long term, it poses a higher danger.

Some people say that the current total monetary policy is too tight, which is actually wrong. For example, last year it grew by 13.1% from broad money. The 7.5% growth rate, plus 2% of the inflation rate is 9.5%, and 13.1% over 3.6% more currency. Therefore, I think the most correct policy is to promote reforms while keeping the national economy from a systemic crisis. Only reform can improve efficiency, and we can fundamentally solve the difficulties we have encountered.

What should we do to prevent a systemic crisis?

First, we must prevent risk accumulation. Try to release the risks that exist now. What can I do? Let me talk about the idea here. To stop invalid investments without return. Some people say that infrastructure investment has nothing to do, and things are going against it. This kind of thinking is totally inconsistent with the way of thinking about economics. Because economics is based on basic constraints, resources are scarce, and resources are scarce. Question, where should this resource be placed? It should be placed in an effective and rewarding part.

If it is not scarce, it is infinite, as long as it is thrown in the matter, no problem. However, because it is scarce, there are many things that need to be done, and there are rewards. The opportunities for investment that can improve the overall economic efficiency should be seized. You must seize the opportunity to avoid taking invalid investments.

Second, stop blood transfusions for zombie companies. Some companies are actually zombies now, and there is no hope of coming back to life. But it is still maintained with bank loans and government subsidies.

Third, use state-owned capital to repay the government's contingent liabilities. The so-called contingent liabilities mean that the government has liabilities, but it is not visible on the balance sheet. For example, our social security fund has a gap, and according to some units, there is no problem in the medium and long term, but some units believe that there is a gap, and this gap is not small. Like this kind of thing, use the government's capital to get it back now, so that we can reduce the leverage of our national debt.

In Shanghai the previous year, this was done, and Shanghai Jiahua was sold to supplement the social security fund, because old industrial cities, especially pension funds, often have large gaps. In addition, the resolution of the Third Plenary Session clearly stipulates that part of the state-owned capital should be allocated to enrich the social security fund. This is not difficult for us to do, which makes our country's economic stability more beneficial, and it establishes a social security system for employees and state-owned enterprises. The reforms will have great benefits.

Fourth, bankruptcy and reorganization of insolvent enterprises will be carried out in order to release the risks and turn the earthquake into a small earthquake. For companies with too high debt ratios, asset restructuring should also be carried out so that small risks are released and not allowed to accumulate. Turning the big earthquake into some small earthquakes will not cause the whole system to oscillate.

Fifth, revitalize the stock of assets such as the development zone of “sun-bathing”. There are many development zones where there are no enterprises coming in, and there are hundreds of development zones in one province. Most of them have such a state. The stock of these assets needs to be revitalized. We can also think of other ways, but this must be done, so that some risks release or eliminate it, so that the risk does not accumulate too much and then erupt.

Sixth, coupled with flexible macroeconomic policies, it is possible to avoid systemic risks. Short-term policies are also needed when there are some local capital chains to exercise, or may cause systemic risks, but I don't think a comprehensive stimulus is a good policy.

(The author of this article: famous economist, researcher of the Development Research Center of the State Council.)