What are the main aspects of China’s economic resilience?

The Chinese economy has great elasticity and resilience. It has strong defense and self-healing capabilities against the current epidemic impact, and can enable the Chinese economy to quickly return to positive development on the basis of overcoming current difficulties and risks. on track. The epidemic will not change China's economic fundamentals and long-term trends. If a new round of reform and opening up can be promoted, the best investment opportunities will be in China.

Picture source/Xinhua News Agency

■Liu Yuanchun, Ren Zeping, Chen Yanbin and Wu Ge jointly solved the problem

A few days ago, the China Macroeconomic Forum (CMF) of Renmin University of China actively organized Internal and external experts conducted joint research on "economic growth and macro policies in the context of the epidemic."

China’s economy is highly resilient

Although the epidemic has had a certain short-term impact on China’s economy, China’s economy is highly resilient, has a lot of room for maneuver, is stable, and is improving in the long term. The basic trend has not changed. What are the main aspects of China's economic resilience?

Liu Yuanchun (Vice President of Renmin University of China and co-founder of China Macroeconomic Forum): First, the greatest resilience of China’s economy comes from the leadership of the Communist Party of China and the concentrated efforts of socialism to accomplish great things. institutional advantages. This advantage determines that China can use the power of the whole country to quickly win the battle against the epidemic and quickly restore the economic and social order to normal.

Second, after more than 70 years of development, China has laid a strong material foundation and production capacity. The epidemic has affected China’s hundreds of billions of fixed assets, nearly 900 million people in the labor force, and the world’s scale. The largest and most comprehensive production system is unlikely to cause substantial damage.

Third, China has a very large market and huge domestic demand potential. The impact of the epidemic cannot shake the self-virtuous cycle of the Chinese market. The upgrading of residents' consumption, the advancement of urbanization and industrialization, and the rapid development of the service industry will provide broad space for development.

Fourth, the vigorous development of the new economy and new driving forces will buffer the impact of the epidemic to a greater extent. In particular, the development of new business formats such as the Internet economy and online office work has ensured that China's economy and society can maintain effective operation during the epidemic and buffered the impact of the epidemic on the traditional economy.

Fifth, the Chinese government has strong economic regulation capabilities, sufficient policy toolboxes and broad policy space, which determines that the Chinese economy has strong self-repair capabilities. At present, the Chinese government debt ratio is less than 60%, the budget deficit ratio does not exceed 3%, and the average weighted interest rate of various loans remains at around 5%. This ensures that the Chinese government can continue to maintain the overall tone of making progress while maintaining stability. Implement a flexible “six stability” policy.

Overall, the current Chinese economy has great elasticity and resilience. It has strong defense and self-healing capabilities against the current epidemic impact, and can enable the Chinese economy to quickly return to the current stage while overcoming current difficulties and risks. On the track of good development.

Ren Zeping (Chief Economist of Evergrande Group, President of Evergrande Research Institute): The epidemic will not change China’s economic fundamentals and long-term trends. If it can promote a new round of reform and opening up, the best investment The opportunity is in China.

First, China is the world’s second largest economy, and the Chinese and American economies dominate the world. According to IMF estimates, global GDP totaled US$86.6 trillion in 2019, of which China and the United States accounted for 16.6% and 24.7% of global GDP respectively.

Second, China’s actual GDP growth rate in 2019 was 6.1%, which is at the leading level in the world. In comparison, the actual GDP growth rate of the United States is 2.3%, South Korea is 2.0%, the United Kingdom is 1.4%, and Japan is 0.7%, all lagging far behind China.

Third, China’s per capita GDP still has considerable room for growth. In 2019, China's per capita GDP was 70,892 yuan, or US$10,277, which is only about 1/6 of the United States and 1/5 of the United Kingdom. It is equivalent to Japan in 1981 and South Korea in 1994. It has huge potential for future development.

Fourth, China’s urbanization rate still has room for improvement by 20%. China's urbanization rate in 2019 was 60.6%, which was only slightly higher than the world average of 55.3% in 2018 and far lower than the average of 81% in high-income countries. At the same time, the urbanization rate of China's registered population is far lower than the urbanization rate of the permanent population, and there are still about 230 million migrant workers and their dependent children who have not yet become citizens.

Fifth, China has the world’s largest market and the largest middle-income group.

China has a unified market covering a population of 1.4 billion. Goods, personnel, services and capital can flow freely. There are huge economies of scale in product research and development, production, logistics, sales and other aspects.

Sixth, China has abundant labor resources, and the demographic dividend has turned to the talent dividend. At the end of 2019, China had a working-age population of about 900 million, more than 700 million employed people, 170 million high-quality talents with higher education and vocational education, and about 8 million college students graduating every year. Although China's total population has passed the Lewis turning point, the increase in population quality has given birth to a new round of greater talent dividends in China.

Seventh, China is very active in innovation and entrepreneurship, and the number of new economy unicorn companies is second only to the United States. In 2019, the new unicorns in China and the United States accounted for 12.6% and 55.9% of the world respectively. In the future, the combination of China's information services industry with artificial intelligence, AR, and VR technologies will still unleash huge growth potential and provide important momentum for economic development.

The epidemic will not change China’s mid- to long-term positive trend

Will the epidemic affect my country’s potential growth rate? Should economic growth be restored mainly from the demand side or the supply side?

Liu Yuanchun: The economic impact caused by any epidemic is essentially exogenous, short-term and local, and will not cause a deviation from the economic development trend of a large economy. This is because a country’s mid- to long-term development trend and production capacity mainly depend on three major factors: First, the capital stock and its growth rate. The second is the status of the labor force and its human capital accumulation. The third is technological progress and improvements in resource allocation efficiency. None of these three factors will undergo fundamental changes due to the impact of the epidemic.

Throughout the history of the past century, no major epidemic has caused long-term stagnation in a large economy. The economy usually returns to the normal development track about one quarter after the epidemic subsides. Therefore, the current epidemic will only bring about minor economic fluctuations for one to two quarters at most, and will not change China's mid- to long-term positive trend. China's potential growth rate will not systematically deviate. Therefore, the current focus of economic work should be on resuming work and production in an orderly manner to normalize the economic cycle as soon as possible. It is not appropriate to launch a large-scale economic expansion plan before the economic and social order is normalized. Economic policies should focus on epidemic relief and promoting the recovery of the economic cycle system, and adhere to the basic principles of bottom-line management.

Ren Zeping: The impact of this epidemic on the economy will be greater than that of SARS in 2003, but it may be shorter. The specific impact depends on the duration of the epidemic and the strength of policy hedging. At present, both the response to the epidemic and long-term reforms should be taken into consideration, and both supply and demand sides should work together to launch several key measures that have an ice-breaking effect, release major signals, and boost the confidence of all parties. The first is to reserve projects in advance and implement large-scale infrastructure construction after the epidemic to fill the holes caused by the economic impact of the epidemic. In particular, appropriate and advanced large-scale infrastructure construction should be carried out in urban agglomerations and regional central cities with population inflows to stimulate demand, stabilize employment, and hedge against downward economic pressure. The second is to implement large-scale tax cuts and fee reductions and optimize the methods, from reducing value-added tax to reducing corporate income tax and social security payment rates, to improve companies' sense of gain. On the one hand, the social security contribution rate will continue to be reduced by 3 percentage points, of which the pension and medical insurance payment rates will be reduced by 1 percentage point and 2 percentage points respectively. On the other hand, the corporate income tax rate was lowered to 21%, which is equivalent to the U.S. federal corporate income tax rate.

Beware of six major risk points during the epidemic

What are the risk points that must be paid attention to during the epidemic?

Liu Yuanchun: First, as economic growth slows down, employment risks are the biggest gray rhino. The manufacturing employment index in February was only 37.9%, down 15.7 percentage points from the same period in 2019, indicating a contraction in the job market. Although it will not cause widespread unemployment, the employment situation is obviously tight.

Second, the current structural upward trend in prices will further emerge, and the risk of "stagflation" should be guarded against. It is foreseeable that prices will release quickly after the epidemic control is relaxed. At the same time, inconsistent resumption of work and production in different industries and regions will also lead to bottlenecks in the supply chain and rapid rise in prices of some raw materials.

Third, we must be alert to the risks of rapid global economic decline and sharp fluctuations in financial markets caused by the global spread of the epidemic. At present, the spread of the epidemic around the world is obviously intensifying. Therefore, China will face huge uncertainties in the global economy and international financial markets in the coming period, and should make corresponding plans to prevent the potential impact of external shocks on the Chinese economy.

Fourth, we must attach great importance to the uncertainty of the real estate market and prevent housing prices from falling rapidly. After the epidemic, there will be more cases where real estate companies will quickly withdraw funds through significant price cuts. Once expectations for price cuts are formed, it will easily form an adverse cycle of "decline in home purchase intention - reduced demand leading to falling housing prices - increased expectations of price cuts", which will have a negative impact on the real estate market. stability will have a greater impact.

Fifth, we must be highly vigilant about the risk of asset bubbles caused by loosening monetary policy. At present, the economic cycle has not been basically restored, the liquidity released by monetary policy is difficult to flow into the real economy, and the large-scale entry of funds into the financial market will bring the risk of asset bubbles. The asset bubble will trigger a sharp correction in the financial market and hinder China's economic recovery after the epidemic.

Sixth, we must be highly vigilant about the risk of exacerbating government debt caused by overly aggressive fiscal policies. Unlike the 2008 international financial crisis, the impact of the epidemic is short-lived and economic operations will return to normal after the epidemic. Therefore, there is no sufficient reason to adopt large-scale stimulus policies similar to those in 2009. Moreover, overly aggressive fiscal policy will lead to a significant increase in government debt and macro-leverage, which will become the core source of financial risks and hinder the improvement of social productivity.

Ren Zeping: At present, we must balance epidemic prevention and control with resumption of production, and be wary of the phenomenon of "one size fits all and layer upon layer" of epidemic prevention and control in various places. Some cities with relatively mild epidemics have blindly copied measures from severe epidemic areas and adopted various excessive restrictive measures. They have failed to seek truth from facts and adapted measures to local conditions. They have expanded epidemic prevention and control measures indefinitely without having a bottom-up plan and without enterprises footing the bill, and economic development has basically stagnated. , which is essentially a manifestation of laziness and irresponsibility.

The "one-size-fits-all, layer-by-layer" prevention and control has disrupted the order of economic operations and brought severe pressure to enterprises, industries, industrial chains, and social stability. Therefore, we should adhere to the "two-pronged approach" of epidemic prevention and control and the resumption of work of enterprises, adopt zoning and hierarchical prevention and control measures, put an end to laziness and neglect of government in the name of epidemic prevention and control, and restrict the resumption of work of enterprises in a simple and crude way.

How much impact will the epidemic have on the global supply chain? What measures should China take to consolidate and improve our position in the global supply chain to enhance international competitiveness?

Ren Zeping: The epidemic has impacted the global supply chain, and China must adopt reform methods to stabilize growth. The first is to liberalize market access in basic fields such as automobiles, finance, energy, telecommunications, and electricity, as well as service industries such as medical education, to cultivate new economic growth points. Deepen the reform of state-owned enterprises, implement competition neutrality and ownership neutrality, eliminate ownership discrimination, and improve market competition and resource allocation efficiency. The second is to take the registration system reform as the starting point to improve the multi-level capital market supporting system. The third is to promote the reform of the housing system with "human-land linkage and financial stability" as the core, strengthen the residential and real economic attributes, and weaken the financial attributes. On the one hand, we should reform the “people-land linkage” with the increase of permanent population as the core. On the other hand, we should maintain the stability of real estate financial policies, return to marketization, support rigid needs and improved demand for home purchases, and support mergers and acquisitions and reorganizations between industries. The fourth is to mobilize the enthusiasm of local governments and entrepreneurs, provide local officials with new incentive mechanisms, and provide reassurance to private entrepreneurs.

Monetary policy must focus on targeted regulation and precise regulation

The current CPI is at a high level in several years, which constrains the implementation of monetary policy. However, the impact of the epidemic on the catering, tourism and other industries It is obvious that small and micro enterprises in particular need to increase countercyclical adjustments. In this dilemma, how should monetary policy be positioned?

Chen Yanbin (Executive Director of the National Economics Textbook Construction Key Research Base of the Ministry of Education of Renmin University of China, Professor of the School of Economics, and a main member of the China Macroeconomic Forum): In January 2020, the year-on-year CPI rose to 5.4%, touching reached its highest level since 2012. The core CPI, which excludes food and energy prices, increased by only 1.5%, staying at a low level below 2% for 16 consecutive months. The trends of overall CPI and core CPI are divergent, which has caused certain problems in the formulation of monetary policy.

Theoretically, monetary policy formulation should focus on core CPI rather than overall CPI. This is mainly because the CPI, which includes food and energy prices, is prone to unexpected large fluctuations, which will disrupt public expectations and restrict monetary policy space. This round of CPI rise is mainly due to the rise in pork prices and the impact of the epidemic, and is not significantly related to economic fundamentals. Therefore, prudent monetary policy should not constrain the rise of the overall CPI, but should adhere to the goal of stabilizing the economy and increase countercyclical adjustments.

Of course, the issue of expanding CPI increases caused by rising pork prices cannot be ignored. Effectively solving the structural problem of rising pork prices requires fiscal subsidy policies and other highly targeted economic policies to stimulate production to respond and achieve price stability. Monetary policies that focus on total adjustment cannot be relied on.

Wu Ge (Chief Economist and Assistant to the President of Changjiang Securities): First, in order to cope with the severe impact of the epidemic, monetary policy should adhere to a prudent and slightly loose approach. With various industries generally suffering heavy losses in the first quarter, loose monetary policy is needed to "escort" stable growth and employment. Second, it is necessary to grasp the intensity and pace of monetary policy easing, adhere to moderate easing but avoid "flooding". Currently, CPI growth is at a high level, and the extent of monetary easing needs to consider its impact on prices. At the same time, excessive monetary easing can easily lead to sharp increases in housing prices. In the future, it is still necessary to adhere to the positioning of "housing is for living, not for speculation" to prevent excessive liquidity from driving up housing prices. Third, monetary policy must adhere to targeted regulation, precise regulation, and rational use of policy tools. The epidemic has had a greater impact on the secondary and tertiary industries as well as small and medium-sized enterprises. Therefore, monetary policy operations must focus on targeted regulation and precise regulation, and rationally use structured monetary policy tools to achieve targeted assistance.

How can monetary policy improve regulatory efficiency during the epidemic and more effectively enhance support for the real economy?

Chen Yanbin: In the face of this epidemic, monetary policy promptly adopted a variety of measures to release relatively abundant liquidity, and actively guided market interest rates downward through policy interest rates. However, it should also be noted that the current effect of monetary policy is more reflected in the rapid rise of the stock market, and the problem of funds "diverting from real funds to virtual funds" has emerged. Therefore, improving the efficiency of monetary policy regulation and making monetary policy more effective in supporting the real economy is a key issue that needs to be solved urgently.

In fact, the problem of poor transmission of China's monetary policy has always existed, and its root cause lies in the distortion of the economic and financial systems and mechanisms. On the one hand, there are some sectors with soft budget constraints in the real economy, which have a large demand for credit funds and crowd out the credit resources of other sectors. On the other hand, in the context of certain interest rate controls, commercial banks can obtain stable net interest margins, so they are unwilling to take too many risks and are more willing to invest credit resources in sectors with soft budget constraints.

Efforts need to be made to improve the regulatory efficiency of monetary policy. The first is to strengthen the coordination and cooperation between monetary policy, macro-prudential policy and micro-financial supervision to promote better capital inflow into the real economy. The second is to moderately adopt structural monetary policies to guide financial institutions to increase support for specific regions, specific industries, and specific groups. But this can only be used as a stop-gap measure in special periods and cannot be used on a long-term or regular basis. The third is to strengthen the expectation management and forward-looking guidance of monetary policy to give the public confidence and stable expectations. The fourth is to actively promote supply-side structural reforms to eliminate distortions in the economic and financial systems, and accelerate the pace of interest rate marketization reforms.

Wu Ge: In order to ensure the achievement of development goals throughout the year, monetary policy must be more proactive and flexible and appropriate on a sound basis. Make good use of existing financial support policies, introduce new policies in a timely manner, seek a dynamic balance among multiple goals, properly respond to the short-term impact of the epidemic on the economy, and avoid "flooding". First, continue to maintain reasonably sufficient liquidity and guide the real economy’s financing costs to decline. Comprehensive use of open market operations and medium- and long-term liquidity injection tools such as standing lending facilities and medium-term lending facilities to keep the total amount reasonable. Deposit benchmark interest rates will be adjusted appropriately in a timely manner to reasonably reduce bank liability-side costs. The second is to continue to make good use of structural monetary policy tools. Policies that have been introduced must be implemented accurately, the responsibilities of lending banks must be consolidated, and enterprises must be strictly screened to ensure that loans are used in the field of epidemic prevention and control. At the same time, it is necessary to improve the efficiency of approval and lending, and effectively reduce the actual financing costs of enterprises. The third is to adopt targeted support measures in accordance with the times and local conditions. It is necessary to pay close attention to the development of the epidemic, reasonably adjust the policy pace, and take targeted measures according to local conditions. Design targeted support plans based on the evolution of the epidemic in different regions and the progress and plans of resumption of work and production in different industries. Fourth, we must pay more attention to financing support for small and medium-sized enterprises and private enterprises. Consideration may be given to providing companies with deferred support for principal and interest repayments during special periods based on the epidemic situation in different regions. Overdue credit records will not be reported to companies that fail to repay in time due to the impact of the epidemic.

Efforts should be made to maximize the utility value of fiscal policy from various aspects

Finance is currently in a tight balance, especially some local governments are under great debt pressure.

In the process of responding to the epidemic, how to implement the policy positioning of "active fiscal policy"?

Chen Yanbin: At present, the overall finance is facing the pressure of reducing revenue and increasing expenditure, and fiscal operations will still be in a state of "tight balance". Fiscal policy, as a counter-cyclical adjustment tool, should be stepped up to improve effectiveness, so that limited fiscal resources under "tight balance" can play a greater role. Specifically, we must start from the following aspects: First, appropriately increase the target deficit rate for 2020. Appropriately raising the target deficit ratio reflects the positive fiscal policy positioning and can alleviate the current pressure on fiscal revenue and expenditure to a certain extent. Second, fiscal policy must be targeted and targeted. For industries and enterprises that have been severely affected by the epidemic, more targeted tax reduction and fee reduction policies should be introduced to further reduce the tax burden on enterprises and help enterprises, especially small and medium-sized enterprises, tide over the difficulties. Third, fiscal policies must improve quality and efficiency. While reducing tax revenue, we should avoid an increase in non-tax revenue, effectively reduce the macro tax burden, and stabilize economic growth at the minimum cost.

Wu Ge: In the context of increasing economic downturn risks and pressure on fiscal revenue and expenditure, in order to actively hedge against the impact of the epidemic, we must continue to implement targeted fiscal and taxation policies and further optimize the expenditure structure. Make full use of policy tools such as special bonds to implement policies and maximize the effectiveness of fiscal policies. The first is to implement tax cuts and fee reductions more accurately. Consideration can be given to research and introduction of phased and targeted tax policies. The policy orientation will shift from "larger scale" to "precise implementation." Pay close attention to changes in tax burdens in different industries, and focus on supporting the resumption of work and production in severely damaged industries. The second is to optimize and adjust the fiscal expenditure structure. It is necessary to implement the concept of zero-based budgeting, pay attention to assessing the financial affordability of major projects, reduce expenditures on non-essential and non-key projects, and compress general expenditures. Fiscal funds should be invested in key areas with greater leverage, based on the principle of marketization, to shoulder the needs that the market cannot meet. The third is to expand the issuance and use of special bonds. Since special bonds are debts earmarked for specific purposes and are not included in the fiscal deficit, and have the advantages of low cost and flexible use, it is recommended that the issuance and use of special bonds be further expanded in the future.

A package of policies to help the market restore confidence

In addition to monetary policy and fiscal policy, what other important measures should be taken to help the market and the public restore confidence faster and better?

Chen Yanbin: We should also adopt a more comprehensive perspective and adopt a package of policies of "micro policies must be flexible + industrial policies must be accurate + reform policies must be practical + social policies must support the bottom line" to help the market and the public regain confidence. . First, efforts should be made to implement the policy combination of "reform policies must be practical + social policies must support" to better enhance consumer confidence. As far as reform policies are concerned, the core is to increase residents' disposable income and reverse the rapid decline in disposable income growth for middle-income people. At the same time, it is necessary to accelerate the establishment of a long-term mechanism for the stable and healthy development of the real estate market and reduce the crowding-out effect of housing on residents' consumption. As far as social policies are concerned, the core is to improve the social security system and assistance system so that residents can reduce precautionary savings and better release consumer demand. Second, efforts should be made to implement the policy combination of "flexible micro policies + accurate industrial policies" to better enhance the confidence of entrepreneurs. In terms of micro policies, administrative approvals should be further simplified and the business environment should be optimized. As far as industrial policies are concerned, efforts should be made to implement functional industrial policies with deregulation and promotion of competition as the core features, so as to provide entrepreneurs with greater development space and more development opportunities.

Wu Ge: First, strengthen epidemic prevention and control and communicate well with society. The top priority during the epidemic is epidemic prevention and control. Only when the epidemic is properly controlled can the economy develop normally. The second is to stabilize employment and the supply of agricultural products and protect basic people's livelihood. Offline recruitment is currently difficult to carry out. Online employment training projects can be created, online recruitment can be carried out, and the Internet can be used to solve employment problems. At the same time, now is the season of spring plowing and sowing. It is necessary to resume farming and animal husbandry in an orderly manner, reduce the impact of the epidemic on agricultural product output, and stabilize the supply and price of agricultural products. The third is to promote the orderly resumption of work, resume social production as soon as possible, and implement the policy of dividing epidemic areas. The epidemic situation in most epidemic areas in China has eased, and each region should advance the resumption of work in an orderly manner according to the local epidemic situation. High-risk areas attach great importance to epidemic prevention and control, medium-risk areas arrange for timely resumption of work, and low-risk areas restore industrial production capacity as soon as possible. The fourth is to strengthen the public health service system and make up for the shortcomings of the system. On the one hand, a disease prevention and supervision system must be established to detect the possibility of potential special disease outbreaks as soon as possible. On the other hand, attention should be paid to cultivating advanced talents for the prevention and control of major diseases. At the same time, we should strengthen information disclosure by departments at all levels, give full play to the supervisory role of media and public opinion, and create an atmosphere that seeks truth from facts and encourages telling the truth.

Chief Editor丨Mao Jinghui Editor丨Cao Yang