Yu Yongding: at present, expansionary fiscal policy should be adopted, and the central bank can bypass commercial banks to buy treasury bonds

category:Finance
 Yu Yongding: at present, expansionary fiscal policy should be adopted, and the central bank can bypass commercial banks to buy treasury bonds


First, the 4.9% economic growth rate in the third quarter was lower than the market expectation and the potential economic growth rate, but it was similar to my own previous expectation. Through the analysis of historical data, my colleagues and I have always believed that the stimulus of macro policy and fiscal policy is not enough, so it is difficult to achieve the potential economic growth rate of 6%, let alone higher than the potential economic growth rate. So 4.9% is expected. Of course, we must be sure that this is the best economic growth rate in the world, and it has not come easily. But China can do better to restore our economy to the level of potential economic growth at a faster speed.

Second, if the fourth quarter economic growth rate can reach 5.4%, the annual economic growth rate can reach about 2%. But if we want to achieve the annual economic growth rate of 2.5%, the corresponding economic growth rate in the fourth quarter will be higher than 7%. However, in terms of current consumption and investment (we dont know the quarterly year-on-year growth rate of final consumption and capital formation), it may be difficult to achieve a growth rate higher than 7% in the fourth quarter. Even if the annual economic growth rate reaches 2.5%, we will still face two problems:

First, is it possible to achieve the annual employment target better? According to historical experience, the economic growth rate of 2.5% is not enough to create 9 million new jobs. Although the employment statistics of the first three quarters showed that 8.98 million new jobs were created, accounting for 99.8% of the annual target. However, according to the analysis of employment elasticity in the past, if we want to create 9 million jobs, the corresponding economic growth rate should be more than 3%. Therefore, in the case of low economic growth, even if the employment goal has been achieved, we can still question the quality of the completed employment goal. It is possible to achieve the goal of employment as a task. But what about the labor productivity after employment growth? If we increase the number of redundant employees at the same time of increasing employment, we can not say that we have really achieved the goal of employment. The fundamental way out of employment is economic growth, followed by the adjustment of economic structure. Without economic growth, it is difficult to have high-quality and efficient employment growth. At the end of the third quarter, the total number of rural migrant workers was 179.52 million, a decrease of 3.84 million over the same period of last year, a year-on-year decrease of 2.1%. The difficulty of college graduates in finding jobs and finding professional counterparts shows that Chinas employment problem is still serious.

Second, this years fiscal revenue target is 21 trillion yuan, and the fiscal deficit target is 3.67 trillion yuan. The premise of the 21 trillion fiscal revenue target is that Chinas annual nominal growth rate will reach 5.4%. In the first three quarters, the GDP deflator was only 0.7%. It is estimated that the inflation this year will not exceed 1%. If the actual growth rate reaches 2% - 2.5%, the nominal economic growth rate will only be more than 3%. Therefore, under the condition that the nominal growth target of 5.4% is not reached, it is difficult to achieve the fiscal revenue target of 21 trillion. In order to fight the epidemic, all kinds of necessary financial expenditure cannot be reduced or should not be reduced.

Therefore, under such circumstances, the financial situation of the government is likely to deteriorate. If we want to avoid the deterioration of the fiscal situation, the choice the government faces is to reduce the fiscal expenditure and prevent the fiscal deficit from rising further. As a result, the economic growth rate will further decline, thus forming a vicious circle.

Therefore, the government should adopt expansionary fiscal policy even if the financial situation deteriorates. For an ordinary family, we should advocate living within our means. But for the central government, this concept is conservative today. As long as government debt is under control, there is no need to worry too much about the increase in fiscal deficits. From January to August, investment in fixed assets decreased by 0.3%. In September, the situation was better, so the first three quarters increased by 0.8% year on year, from negative to positive for the first time in the year. Generally speaking, Chinas investment growth rate is too slow, so we should further increase investment. As real estate investment and manufacturing investment are not under the direct control of the government, the government should greatly strengthen infrastructure investment. Infrastructure investment is to a large extent the provision of public goods. The shortage of Chinas public goods is obvious to all. It goes without saying that there is still a huge gap in urban transportation, rail transit, education, medical care, pension, health and epidemic prevention in traditional infrastructure. This years precipitation in southern cities has generally seen seven armies flooded, causing huge economic losses. When the economy is in a period of insufficient effective demand and PPI is in a downward channel, it is the best time to increase infrastructure investment. What can we be hesitant about?

There are three prerequisites for increasing infrastructure investment. First, reserve projects; second, local governments are neither lazy nor lazy in their administration, nor do they engage in the white elephant project or build development zones in a disorderly way to pursue their political achievements; third, they have sufficient funds. The implementation of Chinas infrastructure investment mainly depends on the local government. According to reports, local governments are short of funds and do not want to spend money or issue bonds. The problem here is not entirely economic. From the economic dimension, lack of money and lack of money are the main problems faced by local governments. Due to the decline of economic growth rate, the tax revenue of local governments is reduced, but the expenditure on epidemic prevention is very high, so the local financial difficulties are very serious. In this case, the central government should increase fiscal expenditure, further increase the fiscal deficit, and issue bonds for financing. However, this may also raise the interest rate and produce crowding out effect. Therefore, the central bank should strengthen the open market operation and purchase treasury bonds, i.e. Chinese QE. Under the restrictions of the central bank law, the central bank can not directly buy treasury bonds, but can buy them by detour. The Ministry of finance issues additional treasury bonds, commercial banks purchase treasury bonds, and the central bank purchases treasury bonds from commercial banks through open market operations. This is what all countries are doing, and our country can do it, too. Under the situation of global economic deterioration, if China can achieve sustainable and higher economic growth, Chinas economic growth will become unstoppable and will not be affected by the world economic growth rate, which may turn the current challenge into an opportunity.

In a word, the current situation of Chinas economic growth is relatively good, but it may be better. In addition to continuing the supply side structural reform and adhering to reform and opening up, China should also increase the expansion of fiscal policy and strive to achieve an annual economic growth rate of more than 2.5%.

After the epidemic, consumption will gradually return to the normal level, but it is impossible to rebound sharply and become the main driving force for economic growth. In the past, the proportion of consumption to GDP was too low and the proportion of investment was too large. Therefore, China has been adjusting the proportion of consumption and investment. But the ratio between investment and consumption is actually a choice between consumption now and consumption in the future. In the long run, due to the aging population, if there is not enough savings and investment, there will be no sufficient consumption in the future. In short, consumption is one of the factors to solve the economic imbalance in the short term, but we should not forget that only investment, of course, effective investment and materialized investment in advanced technology, is the most important driving force for economic growth. Infrastructure investment can stimulate economic growth in the short term, and improve economic growth potential in the long term. We must give full play to the role of infrastructure investment in Chinas economy.

Produced by Netease Research Bureau (wechat official number: wyyjj163)

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