**: China Macroeconomic Forum (CMF).
Mao Zhenhua Co-Director and Professor of the Institute of Economic Research, Renmin University of Chinese, Co-founder and Co-Chairman of the China Macroeconomic Forum (CMF), Chief Economist of CCXI
The following views are compiled from Mao Zhenhua's speech at the CMF Macroeconomic Monthly Data Analysis Conference (December 2023).
Since the beginning of this year, the economy has achieved recovery growth, but the economic strength is lower than expected, because from a cyclical perspective, the economy has not yet reached the stage of cyclical recovery. Since the third quarter, with the support of a number of stable growth policies, the economy has generally shown a wave-like repair trend, and there have been signs of stabilization. However, the current pressure of economic operation ** current prices and assets ** falling at the same time indicates that the bottoming process of China's economic cycle has not yet been completed. **It is the result of the joint action of market supply and demand, and is an important reference index reflecting the macroeconomic situation and operational characteristics. Prices and assets are under pressure, reflecting that the current imbalance between supply and demand in the economy is still relatively prominent, and to a certain extent, it also reflects that a number of policies introduced before have not fundamentally reversed the expectations of micro entities for economic weakening. Adhere to the problem-oriented principle, in the face of the current contradiction between supply and demand, weak demand and insufficient expectations of market players, I think that at present and in the future, we need to pay more attention to the trend of the economy.
1. Since the beginning of this year, the ** level has continued to be sluggish, and the risk of deflation deserves a high degree of vigilance
At the same time as the current price level is running at a low level, the assets are also under pressure, and there is still deflationary pressure in the process of economic bottoming. Since the beginning of this year, monetary policy has continued to make steady growth, liquidity is reasonable and abundant, M2 has always maintained a double-digit high growth rate, but under the easy money, the price level measured by CPI has not risen but continues to fluctuate at a low level, and the CPI has been negative for two consecutive months in October and November, especially the poor performance of commodities, and the consumer goods in the CPI in November have fallen to -1 year-on-year4%, while the year-on-year decline in PPI also expanded this month. Corresponding to **, the retail sales of goods in the total retail sales of consumer goods from January to November increased by only 3 year-on-year in two years2%, which is still far from the normalization level of about 8%, and the current consumer confidence index is less than 90%, and the gap from the normal level of 120% is also large. In addition to the continued low price level fluctuations, real estate and other assets are also under downward pressure, this year's large and medium-sized cities new commercial housing ** index, second-hand housing ** index continued to grow negatively year-on-year, **market** has also fallen, as of November the Shanghai Composite Index compared with the beginning of the year ** by about 5%. It can be seen that although the economy has seen a certain recovery growth, the level has not improved synchronously, and the continued downturn indicates that China is still in the stage of economic bottoming, and the recovery stage in the economic cycle has not yet arrived. In the process of building a bottom in the economy, it is necessary to be vigilant against the simultaneous weakening of prices and assets** to avoid falling into the risk of balance sheet recession.
2. * The signal points to two key problems in the process of economic bottoming and stabilization
First, there is insufficient demand. Insufficient consumer demand is an important manifestation of insufficient aggregate demand. Income is an important influencing factor of consumption, and the income level of residents is the key to determining their ability to consume and spend, so the problem of insufficient domestic consumption demand can also be understood as a problem of income. Previously, under the disruption of the epidemic, the growth rate of residents' income has slowed down significantly, and the current income gap of residents has not been fully filled, especially some enterprises that closed down during the epidemic, especially small enterprises and individual industrial and commercial households, have not reopened, and the loss of these operating income may be irreversible. At the same time, the income situation of some low-level workers, such as Didi drivers and takeaway workers, has not improved significantly, and the pressure on bottom-level employment and youth employment is still greater. In addition, with the adjustment of industry regulatory policies in the past two years, the income of employees in education and training, Internet, real estate and other industries, as well as the non-salary income of teachers, doctors and other groups have been affected to a certain extent. If the income level of residents does not improve, it will be difficult to change the pattern of insufficient consumer demand.
Second, expectations are weak. In addition to the price level, the downside of assets** may be more noteworthy. The decline of assets will lead to the shrinkage of residents' wealth and weaken expectations, which will then affect consumer demand. Since the beginning of this year, a series of stable real estate policy combinations have been introduced, but the industry is in the stage of deep adjustment, and the downturn in housing prices has not been fundamentally reversed, and the index of newly built commercial housing in 70 large and medium-sized cities in November and the index of second-hand housing were -0 year-on-year7% and -37%, down 0 from October1 percentage point and 03 percentage points, commercial housing sales, housing new construction data is still not good, whether the real estate market adjustment has reached the bottom remains to be further observed. As an important carrier of residents' wealth, the continuous decline of real estate has made the residential sector tend to be cautious due to asset damage, unwilling and afraid to consume, and the expectations of future income and assets are also pessimistic.
To sum up, the first signal reflects that China is still in the bottoming stage of the long economic cycle, and the core of building a solid bottom is to build a strong bottom. We should not only pay attention to the trend of prices, but also pay attention to the trend of assets, to prevent the two from continuing to fall synchronously, and consolidate the foundation for the repair of the bottom of the economic cycle.
3. A two-pronged approach to deal with the downward pressure
From an international point of view, in the early 90s of the 20th century, the Japanese economy entered a long-term recession after the bursting of the asset bubble, during which the inflation level continued to be low. At present, China is also facing similar downward pressure, and it is necessary to deal with this problem in a two-pronged manner, on the one hand, to resolve the risk of deflation, and on the other hand, to prevent the continuous downward trend of assets and avoid triggering balance sheet shrinkage.
It is proposed to transfer investment expenditure in the infrastructure sector to subsidy expenditure in the consumption sector, and about 10 trillion yuan of cash or digital currency can be issued in batches. As mentioned above, the problem of the downturn under the easy money has not been reversed, and it is difficult to effectively solve this problem with insufficient demand and weak expectations by monetary policy alone, and it is necessary to increase policy efforts in the fiscal field. It should be noted, however, that Keynesian stimulus for the expansion of public investment may not always be effective. Taking Japan as an example, in response to the bursting of the asset bubble and the downturn in economic growth, Japan has adopted an extremely loose fiscal and monetary policy, launched zero interest rates and quantitative easing policies, and increased spending to expand the scale of infrastructure, but from a practical point of view, due to the decline in investment efficiency, Japan's public investment growth rate has not gotten rid of the downturn at the same time, and has squeezed out the resources of other sectors, and the growth rate of consumer expenditure in the household sector has also declined significantly. At a time when the efficiency of China's infrastructure investment is low and the consumption multiplier is significantly higher than the investment multiplier, the focus of fiscal expenditure should be to expand household consumption. I would like to reiterate my previous proposal to issue cash consumption subsidies of about 10 trillion yuan in batches in the consumption sector, so as to enhance consumption capacity and boost consumer confidence, and reduce infrastructure investment by 10 trillion yuan and increase consumption subsidies by 10 trillion yuan for the current economic recovery.
The delay in the construction of affordable housing slows down the supply of real estate, and the downward trend of real estate is curbed as soon as possible. For example, in the face of the decline in real estate investment, the policy tries to generate incremental investment through the construction of a large number of affordable housing, but this investment is demand in the short term, but it forms supply in the medium and long term, and will form further downward pressure on housing prices due to the increase in supply. **The sector needs to accelerate the introduction of relevant policy measures to support assets**, rather than focusing on increasing supply, otherwise the actual effect of the policy and policy expectations may be in opposite directions. It is suggested that the construction of affordable housing should be suspended, and the existing stock of commercial housing can be converted into affordable rental housing through the acquisition of existing commercial housing. Large-scale affordable housing construction, including old reform, is on the supply side, and the problem of excess real estate supply has been more serious, and it is more effective to boost the demand side.
Continue to deepen the reform of the market system and optimize the first-class discovery mechanism. Mechanism is the core of the market mechanism, and market decision is the key to the market playing a decisive role in resource allocation. To insist that the market plays a decisive role in the allocation of resources, it is necessary to give full play to the decisive role of the market and promote the in-depth development of the reform. Only the correct discovery mechanism can correctly guide the allocation of resources, different types of ownership of enterprises through fair competition to complete the market exchange is the basis for the realization of the "correct" discovery mechanism, from this point of view, it is still necessary to continue to optimize the business environment, promote the free flow of goods and factors between fields, between regions, fair trade, adhere to fair competition and healthy competition between enterprises of different ownership, we need to pay close attention to the current situation of shrinking private economic investment and operational difficulties, otherwise the market The signal will become unclear enough to clearly reflect the supply and demand situation, and may even misguide the allocation of resources, further increasing the current imbalance between supply and demand.