A hurdle that can't be bypassed
Moody's downgraded our rating, and there is a lot of discussion about it.
Some say it's financial warfare;Some people say they know us very wellSome say that this is the harboring of evil intentions.
Actually, I would advise you to look at the original text of the report, that is, what is their logic.
"Moody's concerns about China's fiscal strength and policy effectiveness are mainly due to the impact of the real estate downturn on land sales income. According to its estimates, the proportion of China's real estate industry in the overall economy will still be lower than the level before the industry adjustment in 2021, so local fiscal revenue will face structural losses, and land transfer revenue in 2022 will account for 37% of local fiscal revenue (excluding ** transfer payments). In particular, for regions that rely on land sales, there is no other income** that can materially offset the loss of land sales revenue, and they are facing financial pressure for the foreseeable future. ”
We have written a lot of articles about the importance of China's property market to the national economy as a whole.
Of course, it has also attracted the doubts of some friends who don't know what's going on. The logic of questioning generally focuses on one point, if the house rises again, everyone will be hollowed out.
In fact, the logic we want to talk about is consistent with Moody's logic, that is,Without the help of land revenues to wash debts, the problem of imbalance between local fiscal revenues and expenditures will become more and more prominent. Even if trillions of bonds can be given this year, it is effective in the short term, not a long-term mechanism. Even if the financial support is a little, it is limited.
In other words, real estate is not only a single evaluation dimension of housing prices, but also involves the sustainability of local finances, the jobs of thousands of households, and the external lending and credit anchor of the financial system.
It can be said that Moody's report is a strong endorsement of our entire analytical framework.
As we have said before, China is "meso-driven", that is, the expansion of local fiscal spending triggers national economic growth, which is the core driving force.
The current situation is that the expansion of local fiscal expenditure has encountered obvious bottlenecks, which is the fundamental reason why everyone feels that it is difficult to make money.
Under the premise that there is no way to change the entire institutional arrangement, in order to maintain the continuous improvement of the living standards of the whole people, we can only do everything possible to make the local finances have money to spend. That's first and foremost a problem to solve, and it must be one of the biggest challenges in 2024:
Debt
Debt, either by income, by borrowing, or by large-scale inflation. It is clear that as of now, the visible hand has chosen to borrow new debt to wrap up old debt. However, this will lead to a significant inflation in the size of the debt in the coming years, which is as unsustainable as the US national debt. Therefore, the next task is obvious, the so-called sustainable debt will either rely on income (such as land finance) or inflation.
In the study of economics, there can be no "college entrance examination thinking", that is, there is a unique, perfect answer (scheme) that can solve all problems at the same time.
Economics, in essence, is costing. In other words, any decision you make, there is a cost. That's why I keep saying "the lesser of two evils"?
In the era when the global economy has entered a downhill road, it is even more necessary to have such a level of cognition to look at reality, otherwise it can only be the rhythm of thinking about words every day.
Are you a little confused about the current situation?What happens after this?
Actually,If we sort out the history of reform and opening up from the 90s to the present, we have always been on a "journey of long-term debt".
In those years, the reform of the tax-sharing system was carried out to help the first fiscal debtLater, when the local government ran out of money, it would allow the local government to attract investment, land finance, and export tax rebates, which would also be debt-savingAfter China's accession to the WTO, although the economy has soared, it is still necessary to use the bull market of 2006 to turn bad debts into bad debts in the banking system, which has accumulated for decadesThe "four trillion" in 2009 was a huge new debt to hedge the risks caused by external shocksSince then, radical urban investment, land finance, shadow banking, etc., have taken turns to turn into debtsThe comprehensive deleveraging in 2018 is also a fierce means of reducing debt, and the local impact is exchanged for the overall debtIn the past few years, this has been even more so, and everyone knows that risk prevention.
In other words, we have been converting our debts all along, and the relationship between our economic growth and our debts has always been a process of emotional entanglement.
The reason is also very simple, we rely on fiscal expansion to quickly achieve infrastructure, urbanization, industrialization, etc., and the whole land has been wrapped in reinforced concrete countless times.
If we hadn't, we might have been in a downturn in 2015 due to sluggish export growth.
Everyone should not think that the 20 years after joining the WTO will be a "normal state" and a great market economy. In fact, if you look at global economic history, this is the most abnormal and unsustainable. It's just that all of us have been through this super boom and we feel like we deserve it.
America's 40-year super-prosperity is inseparable from debt expansion, so how can we be left alone?
In order to maintain economic stability, but also to play games with foreign countries and to upgrade industries, then the rigid expansion of fiscal expenditure has become a way to do so.
Therefore, don't talk about it every day, just a few bricks. The real core is that our development model has always been the first system, has always been the manufacturing industry first, as long as we can do the industry is overcapacity, these are very consuming financial expenditure. More critically, behind this is the job bowl of hundreds of millions of families.
The so-called Chinese economic miracle, relying on exports in the era of globalization dividends on the one hand, and fiscal expansion under the first-class system on the other, has finally created a super production capacity that frightens the United States.
As for ourselves, there is a bug in this model, as long as the export growth rate is not strong, it can only be in the process of various debts. This is because only by maintaining all kinds of debts can the financial sector continue to carry out projects, engage in infrastructure construction, and promote industrial upgrading.
It starts with the debt and ends with the debt
In the 90s, our economy had a peculiarity:
When it is loose, it is too hot, and when it is tight, it is too cold.
To put it another way, when it is allowed to stack debts, everyone immediately stirs up the **;When we started to reduce debt, the demand side immediately cooled down, and the economy went down.
Why was this law broken after China's accession to the WTO?
Because, every time there is a risk of decline on the demand side, strong external demand can always support the demand side, so that our economy can continue to grow.
Now, with the decoupling between China and the United States approaching, the long-term vision of exports supporting our aggregate demand is worrying. After all, we live in the dollar system, and there is not much domestic demand in developing countries that can help us hedge against the loss of the European and American markets.
As a result, in recent years, we can gradually feel the old way of China's economy in the 90s. That is, as soon as the austerity policy comes out, it will immediately be too cold;Allow loose stimulation, and then it is easy to dry out.
Please remember that this is the most important rhythm for the families of our time to defend their wealth.
At this time, real estate becomes very important.
Real estate is not just a fixed investment, nor is it just an asset for a household. In fact, real estate is the "anchor of credit" of the entire financial system, the most powerful credential for local financial financing, the mother of domestic demand, the only channel for the visible hand to return purchasing power to households, the cornerstone of the bottom of the big A, the credit collateral needed to ensure that the over-issuance of money does not cause inflation, and the shock absorber for hedging the sharp decline in the net inflow of the US dollar.
The real question before us is:
Will we accept the arrangements made by the United States for us, or will we confront them to the end?
If you choose the former, then don't pull real estate, and slowly use a generation to digest past debts.
If the latter is chosen, it will be necessary to upgrade the industry, new urbanization, new infrastructure, make up for shortcomings, and strengthen the military industrial system. Then, at this stage, we can only stabilize the real estate.
In fact, in many economies, the urbanization rate has not increased at all in the past 20 years, but housing prices have risen. Why?It's nothing more than printing too much money. If nothing else, South Korea next door is a good example.
Finally, let's use everyone's imagination and take a look at the Japanese property market in the 70s.
After the end of World War II, Japan's property market was soaring, and in the early 70s, the first oil crisis was encountered, and the economy declined due to the lack of good measures in advance, which led to a sudden failure of the property market, just as we said today that "the property market cycle has peaked".
Moreover, at that time, there were already obvious signs of an aging population in Japan. As a result, Japan desperately upgraded its industry, made up for its shortcomings in various ways, and fought 3 rounds of ** war with the United States.
Around the end of the 70s, Japan's industrial upgrading began to improve, exports stabilized, and the property market also stabilized. 1980 In 1982, interest rates exploded in the United States, and the global Great Depression occurred. 1983 In 1984, Japan began to stimulate domestic demand, and the property market took off again. Throughout the 80s, the United States has been attacking Japan's cutting-edge industries, so that Japan no longer has the ability to compete with the United States in the frontal battlefield for the industrial chain.
Therefore, after the collapse of the property market in the early 90s, Japan did not have the external competitiveness of major industrial upgrading (the chaebol equity was still taken away by the United States), and finally the Japanese property market became lost for n years.
My question is, why can't we be Japan in the 70s, but must be Japan in the 90s?Why can't our property market be the Japanese property market in the early 70s, but the Japanese property market in the 90s?
Is it because many financial voices lack knowledge, or is it because of other purposes?
Finally, let's uncover a puzzle:
Why did Moody's issue such a report at this time?
People hope that you will stabilize the real estate and not make an obvious ** within 2 years. This rapid tightening of credit means that there is a large reduction in global aggregate demand, which will force the United States to continue to hollow out itself and increase leverage to hedge against China's lack of domestic demand.