Policy signal behind Xi Jinping's "two birds"
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History is always the best textbook for researchers, from Deng Xiaoping to Xi Jinping, from "black cat and white cat theory" to "raising two birds", from the Third Plenary Session of the Eleventh Central Committee to the Third Plenary Session of the Eighteenth Central Committee, from the reform Starting from the ground up, from the basic role of the market to the decisive role, understanding the history of China, can understand the current China.
1. For decision makers, regardless of "two cats" or "two birds", it is a "good" theory to be useful. What is "good"? For a researcher, we care about both value and values. But for policy makers, it is not the values ​​but the values ​​that are often concerned. Sometimes, the values ​​that are entangled in the standard vagueness will be stuck. Just like 30 years ago, whether "left" or "right" is good, since no one can convince the other party, it is better to put aside the dispute and concentrate on doing things. Deng Xiaoping’s "Black Cat White Cat Theory" and Xi Jinping's "Raising Two Birds" sound surprisingly popular, but the policy implications are not simple. The core idea is to seek truth from facts and speak with practice.
Some people say that catching a mouse is not necessarily a good cat. It is not necessarily a bad cat. But from the manager's point of view, catching a mouse must be a competent cat. It must not be a competent cat. Just like in the football world, almost everyone does not like Mourinho, saying that he is an arrogant madman, but why can he stand in the top giants? The reason is simple because he can keep winning the championship.
2. For policy makers, “taking the real economy to catch up†means “winning the championshipâ€, which means “catching the mouseâ€. Since the second quarter, the weight of steady growth in the central government has increased significantly. The Politburo meeting on April 30 was a key turning point. We pointed out in the article "The Growth of All Things" that policy logic is gradually returning from supply contraction (de-capacity, debt crunch) to demand expansion (steady growth), followed by the people. The daily newspaper WeChat reprinted this article, and the orientation was obvious. Judging from the actual situation in the past, this judgment has gradually been confirmed. On the one hand, many demand management policies that have been tightened in the past two years have begun to be loosened, such as the replacement of local debt, the permitting of new and old, and the construction in progress. On the other hand, many new demand management tools have begun to accelerate exploration. For example, PPP projects, special financial bonds, exchange rate depreciation, etc.
But the question is, why is there so many "cats" released by the central government, or is there no "catching mice"? Either the "cat" is not enough, or the "cat" is not looking for the right path. At present, the latter is the main reason, that is, there is a deviation in the design and implementation of steady growth. At this point, the background of the "two birds theory" is gradually clear: First, due to the increasing downward pressure on the economy, the central government should increase its efforts to engage in economic development. Second, because the economic effects are not satisfactory, the next policy ideas should be adjusted. . So, how do you understand the new thinking of the "two birds theory"?
3, "Take a cage for a bird", in order to "phoenix nirvana." If the old one can’t go, it’s natural to change it. This is the so-called "old birds do not go, new birds do not come." What is the use of "new birds" for "old birds"? On the surface, it is to replace traditional industries with emerging industries, but this is not a new idea. It is obviously more special to mention "two birds" at this level.
First, we must not rely solely on the virtual economy, but also on the real economy. In the first half of the year, the financial industry, which is powered by the stock market, made a great contribution to economic security. If the abnormal growth of the financial industry is removed, the actual economic growth rate may be only about 6.5%. This was originally an ideal scenario: reforms drive asset re-allocation - stock market rise - promote direct financing - support innovative corporate finance development - economic transformation and upgrading - the stock market continues to rise. But what I didn't expect was that the flying leverage completely turned this virtuous cycle into a vicious circle: reform-driven asset re-allocation - disorder and leverage - stock market irrational rise - regulatory deleverage - leveraged funds forced liquidation - market panic Falling - direct financing suspension - economic restructuring and upgrading blocked - stock market fundamentals deteriorated and fell back.
Second, we cannot rely solely on financial innovation, but also on technology and brand innovation. The Chinese economy first experienced the baptism of the decline of the traditional industry, and then suffered a major blow to the stock market disaster. Now it is urgent to need a "phoenix nirvana." General Secretary Xi Jinping made it clear that Nirvana "should rely on independent innovation, technological innovation, and brand innovation." Note that there is no financial innovation in it. This is in line with the previous policy guidance, showing that the central government's attitude toward financial innovation and capital markets may have changed: the awareness of risk prevention is stronger, and the pace of accelerating development is more cautious. To give a simple example, we should no longer see the article "4000 points is the beginning of a bull market" from the People's Online. In the long run, this is more conducive to building a healthy and prosperous capital market, but in the short term, this has poured a cold water on the already fragile market confidence.
4. Steady growth and steady growth, the core is “stable†and not “growthâ€. Abandoning the past 2012-14 political reform as the core of the idea does not mean returning to the large-scale stimulus ideas before 2012. It is a miracle that China’s economy has been growing for nearly 40 years. We cannot expect a 40-year-old middle-aged person to be a long-term leader. For a middle-aged person, the key is to prevent disease and maintain a healthy body.
(1) The infrastructure should be stable. No infrastructure, no recovery. But in the first half of the year, the infrastructure was shouting more and doing less. In July, the growth rate of infrastructure investment did not rise and fall, coupled with the August military parade and the Tianjin explosion, and the resistance to infrastructure recovery in the next few months is still very large. Therefore, the central government's support for infrastructure will only increase and will not weaken. The first is to further play the role of policy banks, mainly the special financial bonds of CDB and the Agricultural Development Bank, and the further expansion of PSL. The second is to speed up the introduction of social capital through the PPP model. In fact, the policy has already done a lot, mainly the normative guidance, but the bank and social capital are still waiting to see, the signing rate is not high, the government's current thinking is to use the PPP industry fund to use the true Gold and silver provide guidance. The third is to speed up the launch of some exemplary key infrastructure projects, such as the “underground economy†represented by underground pipe corridors, and regional infrastructure projects such as Beijing-Tianjin-Hebei, Xinjiang, and Northeast China.
(2) Interest rates should be stable. The wait-and-see attitude of the previous monetary policy, the rebound in internal public financing demand, and the external share of the external exchange rate depreciation have led to a certain impact on interest rates. At present, it is mainly short-term, but if the central bank does not take hedging measures, interest rate concerns will be transmitted to long-term interest rates, affecting the transmission of monetary policy to the real economy, which is contrary to the original intention of the central government. Therefore, the central bank will definitely take advantage of the interest rate. Last week's 100 billion reverse repurchase and MLF have released short-term liquidity, and the next step of RRR (release of long-term liquidity) has been on the line.
(3) The exchange rate should be stable. After a one-off depreciation of the RMB exchange rate, the central government may be more inclined to see two-way fluctuations in the exchange rate rather than stimulate exports through a sharp depreciation as the market said. On the one hand, the depreciation of the export is also questionable, depending on the price elasticity of the commodity. On the other hand, excessive devaluation may trigger capital outflows and new turmoil in the global economy (which has been reflected in the international market these days), and it is not good to injure yourself.
(4) The stock market should be stable. If the stock market is not stable, the economy will be difficult to stabilize. The decline in trading volume and the suspension of IPOs may have a significant impact on GDP. And if the stock market is not popular, the next step of state-owned enterprise reform, industrial transformation and capital account opening will be greatly limited. How stable? After all, the Chinese stock market is still a retail-based market structure, and it is difficult to live securely without real money. Real money is not free. The current funding source of the company is obviously unable to support the long-term market. The next step is to gradually shift to Huijin and accelerate the introduction of institutional investors and long-term funds.
5. The whole world is "being a neighbor," and we will not always make wedding dresses for others. In the two bird theories, the method of resolving the overcapacity of the traditional industries was specifically mentioned, that is, “highly attaching importance to the domestic and international markets and the two overall situations, and putting the cages in the global perspective to observe and seek a broader space for vacillation. "This is a very important change of thinking. In the past, we were "being good neighbors", but other countries are "being a neighbor", on the one hand, we are competing for a limited export share, and on the other hand, we are re-balancing the industry to promote the return of the industry. , reduce imports and increase exports. This has actually adversely affected our economy in a global environment where the total global economy is limited or even shrinking. To reverse this situation, we must eliminate the overvaluation of the RMB exchange rate on the one hand, and speed up capacity cooperation and output on the other, from the international market.
6. The environment facing the current government is not necessarily the worst, but it must be the most complex, and the ability of decision makers is an unprecedented challenge. From the perspective of policy makers, it is necessary to continue high-pressure anti-corruption and avoid passive absenteeism. It is necessary to fight against PPI deflation and avoid CPI inflation. It is necessary to exchange exchange rate depreciation to stimulate exports and exchange rate stability to curb capital outflows. Avoid adjusting the pain, not only to speed up the elimination of production capacity but also to avoid financial risks. It is necessary to speed up the opening of the capital account and maintain the stability of capital flow. The most difficult thing is not to prescribe the right medicine, but how to balance the multiple diseases. The challenge of the current decision makers.
7, for the market, although the turmoil is still there, but the stock market disaster has already put the "cow" far out of the air, and fell heavily on the ground. In the future, if A-shares want to restore the bull market, they can only drag their injured bodies back. This may take quite a while. From the macro fundamentals, the enthusiasm for supporting market prosperity is still there. With the changes in population structure and the level of economic development, the trend of asset re-allocation from real estate to financial assets has not changed. However, the injured A-shares urgently need to solve the following problems:
(1) In the short term, the injured body needs to be restored. This time, the A-shares were flying too high and fell too fast, causing serious injuries to the body. On the one hand, many high-priced funds are still deposited in the market and need to be slowly changed hands. On the other hand, the rapid decline has caused many leveraged funds to be forced to liquidate, private equity funds have been forced to liquidate, and stock pledges have been forced to redeem. Coupled with a lot of gray leverage, many companies and individuals may fall into the debt quagmire and need to digest slowly.
(2) In the medium term, the injured mind needs to be comforted. On the one hand, the global butterfly effect caused by the June stock market crash continues: A-share plunge - domestic wealth effect shrinks - RMB depreciation pressure - central bank is forced to depreciate at one time - market panic - central bank toss dollar assets (US debt) intervention - dollar depreciation - US stocks fell - global market panic - A-share panic... This cycle is so large that no single force can end. Even if Vice Premier Wang Yang and the US Treasury Secretary call, it is difficult to change one of the links, let alone the entire system. On the other hand, in the past, the stock bull market supported the reform and transformation, which in turn supported the bull market. But now if the stock market weakens, it will form a vicious circle of reverse, which will affect everyone's confidence in reform and transformation. Although Rome can fall apart in a day, it is not a day's work to rebuild Rome.
8. The third wave of the global financial crisis has gradually entered a climax, and it is necessary to fully prepare for external risks. Last year's ruble and the recent devaluation of the renminbi, tenge, and ringgit were not isolated incidents, and they were the third wave of financial crisis. When Bernanke hinted to withdraw from QE in May 2013, he proposed that the third wave of the financial crisis has kicked off and combed the evolutionary logic of the three wave financial crisis: the first wave was the banking crisis, which occurred in the central countries ( The private sector of the United States has resulted in de-leverage of the private sector in developed countries and leverage in the public sector; the second wave of sovereign debt crises subsequently erupted in the public sector of sub-central countries (European pigs), with the result that the private sector and the public The department is simultaneously de-leveraging, and global demand is shrinking. The third wave of comprehensive monetary and financial crises has been transmitted to peripheral countries (emerging markets) that are over-reliant on foreign demand and foreign investment. As a result, emerging markets are in a vicious circle of economic recession and capital outflows, which may in turn lead to developed markets. The formation of drag (especially the fluctuations in the Chinese market) has triggered global panic.
Since 2013, the third wave of the financial crisis has progressed and culminated. 2013 is a prelude, and the expectation of QE withdrawal has already led the most vulnerable countries to fall, such as India, South Africa and other countries with current account deficits, insufficient foreign exchange reserves, and severe economic downturn. 2014 was the first half. With the accelerated withdrawal of QE, a number of countries with relatively stable current accounts, relatively sufficient foreign exchange reserves, and relatively stable economic growth, such as Russia. In 2015, we have entered the second half, and the Fed’s interest rate hike has become a new source of risk. From the Vietnamese dong to Kazakhstan’s tenge, some national currencies with large current account surplus, relatively stable domestic economy and sufficient foreign exchange reserves are also falling. The fundamentals of the renminbi are the best, but they have also accumulated a lot of depreciation pressure, forcing the central bank to depreciate at one time.
Looking back, "there is no egg under the nest." Emerging economies with better fundamentals are only temporarily postponing the crisis, but they have not completely lifted the risk. If the reform and transformation cannot be completed within this limited time, the fall will eventually fall. For China, although we are the best in emerging economies, it is necessary to evade risks. (Author: Executive Dean Minsheng Securities Research Institute, chief economist at Minsheng wealth tube Kiyotomo Minsheng Securities Research Institute senior macroeconomic researcher Zhuzhen Xin)