Wu Ge is the chief economist of Changjiang**
The following views are compiled from Wu Ge's speech at the CMF Macroeconomic Monthly Data Analysis Conference (January 2024).
Number of words: 3590 words.
Reading time: 9 minutes.
At present, there are differences in the interpretation of micro and macroeconomic indicators. Theoretically, aggregate indicators are based on micro-households and enterprises, and if microeconomic performance weakens, it is difficult for macroeconomic indicators to perform strongly. Macro and micro data should be consistent. Everyone's different feelings about macro and micro may be due to different analysis and understanding of data, and how the nominal economic growth rate after excluding the base effect deserves our attention
In the actual economic situation in the past 2023, there is a clear divergence between the indicators such as ** indicators, capacity utilization rate, consumer confidence index and aggregate indicators. Clarifying these differences will allow policymakers to have a positive approach to the economy. When there are only economic challenges, there will be a positive counter-cyclical policy, and the size of the pressure also determines the strength of the policy.
First, the key to countercyclical adjustment is strength
After the Politburo meeting in July last year, ** pointed out that there have been major changes in the relationship between real estate supply and demand, and clearly proposed to increase counter-cyclical adjustment. The policy direction has been clear, and the key to the problem is intensity. Taking interest rates as an example, nominal interest rates have continued to fall, and the central bank has made a lot of efforts, including stabilizing the net interest margin of commercial banks. It is important to note that the rate will fall by an appropriate amount? Are there any standards and rules for adjusting interest rates? Nominal interest rates are continuing to decline, but with various complex factors at home and abroad, the decline in the return on investment of residents and enterprises exceeds the decline in nominal interest rates. There are also such problems in fiscal policy. The narrow fiscal deficit ratio will increase from 3% to 3% in 20238%, but if land transfer income, special bonds and other indicators are included, will the broad fiscal deficit rate be more active?
Household balance sheets have been weakened by various factors during the pandemic, and if policy is limited in terms of increments, there may be a gap between the actual and expected recovery.
Second, the crux of the problem lies in the lack of aggregate demand
The supply-side structural reforms of 2015 and 2016 were based on the sharp expansion of supply in the previous period, and in the current cycle, macroeconomic policies have been very prudent since the epidemic and have not formed a strong oversupply. Therefore, at present, the prescription should be mainly prescribed on the lack of demand.
The lack of demand can be seen in a lot of data, but in specific industries, there are also supply issues. The capacity utilization rate of high-tech manufacturing industry is declining faster than that of traditional industries, which means that high-tech industries are facing heavier excess pressure, which is rare in the past few cycles. It is necessary to clarify the leading role of ** and the market in cultivating new momentum, and clarify which side is more sensitive to ** and the market, otherwise there may be structural excess.
The experience of countries around the world shows that few countries can achieve stable economic growth despite the continued downturn in real estate. Regardless of whether it is a developing or developed country, the economy is still very dependent on the "housing" in food, clothing, housing and transportation. At both the investment and sales ends, the speed and magnitude of China's real estate adjustment are more obvious than those in Japan in the 1990s. At present, a popular concept is to solve the real estate problem in the form of land use and output: there may be an overdraft of the monetization and resettlement of shantytowns in the early stage of real estate, and now the decline in housing prices is conducive to some residents to buy houses, and the fuller and earlier the real estate market adjustment, the more conducive to economic stability.
However, there are concerns with this concept. Real estate is a systemic market, we do not think that real estate should not be adjusted, but if this adjustment is unilateral, continuous and large, then it may mean that the stock assets of residents have dropped significantly. According to the statistics of the central bank, 70% of residents' asset allocation is real estate. It is not difficult to imagine that under the condition of unchanged income, the continuous decline in housing prices seems to be conducive to individual home purchases, but on the whole, it means that residents' assets have shrunk, which will further affect residents' consumption and investment.
Just like the "frugal paradox" of economics, thrift is a virtue at the micro level, but from the macro level, if each family is excessively thrifty, it will have a negative effect on the overall economy. The same is true in the real estate sector, the continuous price reduction of micro real estate is conducive to the purchase of houses, but the macro may bring unilateral pressure on the wealth of the whole residents, and the drag on the entire economic momentum is obvious.
For commercial banks, there will be resistance to credit expansion if the value of real estate collateral shrinks significantly. This is not something that central banks can solve by promoting credit expansion through macroprudential management.
Many people believe that with the aging of the Chinese population and the development of urbanization, the equilibrium area of real estate will also decline in the future, and eventually falling to the equilibrium point can solve a series of problems. This concept is feasible under normalization, fitting real estate area according to long-term variables such as population and urbanization process. However, under the non-normalization, it is difficult to find a new equilibrium point with traditional concepts. Japan also had a real estate overdraft problem in the 80s, so is it necessary to repay this overdraft over 20 years? This is not a given.
Under the abnormal situation, if residents' confidence weakens, the equilibrium area of real estate may be significantly reduced, which will deviate from the equilibrium area fitted with long-term variables. If a young person expects to have a housing demand in the next three to five years, but keeps delaying buying a house due to confidence issues, it will make this rigid need "disappear". In the case of significant changes in expectations, it is problematic to calculate the equilibrium area of real estate from traditional population and urbanization data, because this equilibrium area is dynamic and uncertain.
3. The "visible hand" reverses market failures
On the real estate supply side, the central bank continued to make efforts to adopt policies such as "three arrows" and "three not less than" to promote the delivery of buildings. However, objectively speaking, on the one hand, commercial banks respond to the "guarantee of delivery", on the other hand, there are also practical problems such as risk considerations, and there may be certain difficulties in policy promotion.
If real estate enterprises cannot rely on their own strength to come out, and at the same time, commercial banks and other external funds can not exert a large force, the real estate market is prone to failure, which must play the power of the visible hand.
In the 90s of the last century, China successfully coped with many challenges, when encountering the first downward pressure and financial risks, on the one hand, it strengthened counter-cyclical adjustment, and on the other hand, it also gave public funds to the rescue on the supply side, including the establishment of four major asset management companies to rescue banks. Infrastructure investment needs to be paid attention to, but it must be controlled to a certain extent.
The macroeconomic control in the past year or so seems to be different from the previous mode of control. In the past, if you get out of the upper and lower range of PMI, it often means a strong countercyclical adjustment, but in the past year or so, this strength has not been very strong. Perhaps this shift stems from a change in economic goals from a quarterly to an annual level, but this could increase economic volatility. It is suggested that in the new year, the aggregate demand policy should be strengthened, and the interval regulation and control should be strengthened in the direction of the established economic growth rate, so as to create a more stable macro environment for China's economy to move towards high-quality development.
ExtensionStretchRead
Liu Yuanchun: In-depth Analysis and Reflection on China's Current Macroeconomic Policies (1).
Mao Zhenhua: Stability and progress, breaking and standing, and coordinating the relationship between stock and increment in economic operation.
Miao Yanliang: From inefficient monetary expansion to efficient credit expansion.
Liu Yuanchun: The key to boosting confidence in A-shares is to stabilize the economy, and macro policies are expected to be significantly strengthened in 2024.