Jiang Chao: There is pressure to adjust policies at present. Don’t keep thinking that you should cut taxes!

Summary

The second quarter economic data was announced last week, followed by 21st Century and other media reports that the central bank will guide primary dealers to increase the MLF quota to purchase medium and low-grade credit bonds. , and over the weekend, the Bank of China and the Two Sessions jointly released the supporting details of the new asset management regulations. Supervision standards were relaxed, and the market was also moved by the news. The stock market rose sharply that day and the bond market fell sharply. Does this mean that the painful deleveraging will not be carried out? Do you want to reopen the gate to release water?

Objectively speaking, there is indeed pressure to adjust the current policy, mainly from two aspects:

First, the economic growth is declining.

The most intuitive pressure comes from economic growth. GDP growth fell to 6.7 in the second quarter, falling back to the lowest point in this economic rebound in 16 years. In the past 10 years, it was only higher than the 6.4 growth rate in the first quarter of 2009 during the financial crisis.

From the perspective of the troika, they are all slowing down. Among them, the export growth rate representing external demand dropped from 17.6 to 12.3, the investment growth rate in domestic demand dropped from 7.6 to 5.2, and the consumption growth rate dropped from 9.8 to 9. Both investment and consumption growth rates are new lows in many years.

From the perspective of production methods, the industry slowed down significantly in the second quarter, while the growth rate of the service industry actually rebounded. However, the rebound of the service industry is mainly attributed to three major industries, transportation and warehousing, information services and financial services. The rebound of the first two is easy to understand. One represents the logistics industry and the other represents mobile Internet, both of which have strong demand. However, the rebound in the growth rate of the financial industry is a bit illogical, because the financial industry is in the business of money, but there is obviously a shortage of money everywhere. The growth rates of money and financing are declining significantly. How can the financial industry get better and better?

This actually shows that except for some new economies that are still growing, most traditional economies driven by money are slowing down.

Second, debt defaults have surged.

In the first half of this year, the risk of debt default increased significantly.

From the perspective of the bond market, there have been 13 new defaulting entities in the bond market so far, while there were only 12 defaulting entities in the whole year of 2017. The marginal default rate of credit bonds calculated by the number of defaulting entities is 0.5, far from That's up from 0.29 last year. As of now, the defaulted and unpaid principal in the bond market is about 80 billion, accounting for about 0.5 of the 17 trillion credit bond stock.

In terms of the types of defaulting enterprises, only 7 are local state-owned enterprises, while the proportion of private enterprises is as high as 74. The remaining 19 so-called Sino-foreign joint ventures are actually private enterprises, and private enterprises are the hardest hit by debt defaults.

From the perspective of the P2P industry, there were more than 100 platforms that experienced thunder in June and July, mostly distributed in Jiangsu, Zhejiang and Shanghai, and later spread to Beijing and Shenzhen. Among them, there are many platforms with a cumulative transaction volume of over 10 billion. . The average number of problematic platforms per month has reached a peak in the past year and a half, and centralized explosions have also attracted widespread market attention.

In addition, due to the continued decline of the stock market, shareholders of many listed companies announced that their pledged stocks are subject to liquidation or are facing the risk of liquidation.

Deleveraging leads to credit contraction.

All of this is related to the credit contraction caused by deleveraging.

Both economic growth and debt repayment require money, and the most important indicator representing the financing of the whole society is the total social financing. In the first half of this year, the new social financing was 9.1 trillion, a decrease of 2% from the same period last year. trillion, the growth rate of social financing balance at the end of June dropped to 9.8, setting a new low since data were available in 2003.

The growth rate of social financing is not enough to represent the real changes in financing, because government financing and many other shadow banking activities are not included in the statistics of social financing. All financing is conducted directly or indirectly through banks. Therefore, Let's take a look at the bank's total assets. As of June this year, the total assets of China's banking industry were 257 trillion, with a year-on-year growth of only 6.9.

According to research by the China Financial Research Center of Tsinghua University, the current average financing cost of the whole society is as high as 7.6, which is much higher than the asset growth rate of banks, indicating that the current financing growth rate cannot guarantee the existing debt. Interest repayments will inevitably bring debt default risks and economic downward pressure.

The question is, what to do? In our opinion, there are three options to solve the problem of credit contraction:

First, rely on the central bank to release funds.

From the perspective of the central bank, a lot has been done this year.

First of all, monetary policy has actually been adjusted. The June monetary policy meeting stated that liquidity should be maintained "reasonably sufficient", which is obviously different from the "reasonable and stable" mentioned in the past, and has already hinted at a shift in monetary policy. Neutral to loose.

From the beginning of the year to now, the central bank has made three targeted RRR cuts, releasing a total of 2.3 trillion base currency. Compared with the central bank’s total assets of 35 trillion, this scale is already very impressive.

In response to the freeze in the credit market, the central bank also created the MLF collateral mechanism to encourage open market traders to purchase low-grade credit bonds and exchange liquidity from the central bank.

Judging from the effects, there are already some. For example, in the money market, the current 7-day repo rate R007 has dropped to 2.7, which is 100bp lower than the high of 3.7 at the end of last year, and has dropped to the low level at the end of 2016. In the credit market, interest rates on AA-rated corporate bonds finally began to fall last week.

There is no future for releasing water, and there is no room for borrowing.

However, if we still rely on the central bank’s flood control, there is actually no future.

After 2008, we have experienced three rounds of super easing cycles. The central bank relaxed monetary policy in 2008, 2012 and 2015 respectively. Judging from the results, it was indeed the case in the following year. There has been an economic rebound, but it is not sustainable. The result is more and more money, higher and higher debts, and bigger and bigger real estate bubbles.

And if the water release is to be effective, it must mobilize economic entities to borrow again. However, after three rounds of borrowing, the ratio of the economy's total debt to GDP has reached a historical peak of 250, and there is actually no room for borrowing.

Many people say that a debt ratio of 250 is not too much. Japan’s debt ratio is already 400. Aren’t they living well?

It is true that there is no conclusion on how high the debt ratio is, but first of all, we cannot compare it with Japan, because Japan is a special case. Except for Japan, the debt ratio is basically below 300. For example, the United States is only about 250, which is different from ours. Basically equivalent. In addition, we should not compare with developed countries, because developed countries are high-welfare societies, while China is a developing country, and BIS data shows that the average debt ratio of developing countries is only 175. For example, India is 128, Brazil is 141, and China is in a The debt ratio is already too high at this stage of development.

If we break down China’s three major economic entities, the corporate sector currently has the highest debt ratio. Its debt/GDP is as high as 159, the highest in the world. In the future, it can only deleverage and there is no room for borrowing.

The household sector debt/GDP also reached 55. Although it seems to be lower than the 80-100 level in the United States and other countries, considering that the proportion of Chinese residents in GDP distribution is much lower than that of the United States, using the household sector debt/resident The debt ratio of Chinese residents measured by income is close to 100, which is almost the same as that of the United States.

In the end, it seems that the only ones that can raise debt are government departments. The current direct debt/GDP ratio of Chinese government departments is about 36, but this only counts national debt and local debt, and does not take into account local financing platforms, There are a large number of hidden liabilities in the form of PPP, policy banks, social security and medical insurance fund pressures, etc. This actually shows that the government does not have that much room for borrowing.

Currently, our total broad money M2 is close to 180 trillion yuan, equivalent to 26 trillion U.S. dollars, twice as much as the United States.

Twenty years ago, China's M2 was only 10 trillion yuan, less than half that of the United States. If we keep releasing money and others keep tightening, what should we do with the exchange rate?

You can lower the reserve requirement ratio, but not interest rates; you can ease the currency, but not credit.

Objectively speaking, we believe that the degree of easing of the central bank’s monetary policy in this round is still significantly different from the past.

In the past three rounds of water release, the central bank has cut reserve requirements and interest rates together. Lowering the reserve requirement ratio is equivalent to loosening the currency and increasing the capital supply of commercial banks. Cutting interest rates is equivalent to easing credit and stimulating the capital demand of the real economy.

Our main purpose this time should be to avoid systemic financial risks caused by the credit freeze, rather than to stimulate the economy and real estate bubbles again. Therefore, it is understandable that appropriate targeted RRR cuts will increase the capital supply capacity of commercial banks. Moreover, the current statutory reserve ratio of China's large banks is still as high as 15.5, while the lowest statutory reserve ratio in history is only 6, which shows that there is huge room for reduction in the deposit reserve ratio.

But on the other hand, we should try not to cut interest rates, because this is equivalent to adding fuel to the real estate bubble. Moreover, China's current benchmark loan interest rate is only 4.35, which is at the lowest point in the past few decades. In fact, there is not much room for downward adjustment.

Therefore, as long as the central bank insists on using targeted easing monetary policy and does not take the initiative to lower interest rates, it will be different from the previous comprehensive release of money.

The second is to relax supervision.

The source of this credit contraction actually lies in the strengthening of financial supervision under deleveraging and the comprehensive regulation of shadow banking.

From 2012 to 2017, the assets of commercial banks nearly doubled from 120 trillion to 250 trillion. The main reasons behind this are actually shadow banks, fund subsidiaries, brokerage asset management and trusts. Non-bank financial institutions such as China Banking Corporation and other non-bank financial institutions vigorously develop channel businesses to help banks avoid on-balance sheet capital supervision, thus causing excessive currency issuance.

Beginning in 2017, with the drafting, solicitation of opinions and official introduction of new asset management regulations, shadow banking began to shrink, ultimately leading to an overall decline in non-standard financing in social finance, thus dragging down Social finance growth.

Therefore, if financial regulations are relaxed, it will indeed help ease the credit crunch. The new asset management rules and regulations released by the three ministries and commissions last weekend (7.21-7.22) have indeed relaxed the regulatory standards, so the market response has been particularly enthusiastic. After all, everyone wants to live a good life and does not want to live a hard life.

The slowdown in deleveraging does not mean another increase in leverage.

From the perspective of avoiding systemic financial risks, it is actually understandable to moderate the relaxation of financial supervision, because the development and growth of shadow banking cannot be achieved in a day, so all shadow banks should be closed down in the short term. Not realistic. Therefore, the new asset management regulations have left a two-and-a-half-year buffer period for each bank, and at the same time, they have given each bank greater freedom in operations. For example, they can control the rhythm of shadow bank balance sheet return by themselves, and old products cannot be cleared. can be temporarily renewed, and new products can also be appropriately allocated with non-standard assets if the term matches.

However, the slowdown in the pace of deleveraging definitely does not mean another increase in leverage. Because the main reason for the out-of-control development of shadow banking is channel business, and channel business is still strictly prohibited in the promulgated detailed rules, and the direction of breaking the rigid redemption has not changed, so shadow banking will not revive. The central bank has made it clear that the scale of old products must be controlled within the overall scale of existing products before the issuance of the "Guidance Opinions", and the maturity date of new assets invested shall not be later than the end of 2020. In fact, it only slows down the shrinkage of shadow banking, not We will vigorously develop shadow banking again.

The painful lessons caused by the out-of-control development of shadow banking in the past are still vivid in our minds. I believe we will not make such mistakes again.

The third is to rely on financial resources.

In fact, in addition to relying on the central bank to release water and relax supervision, fiscal efforts can also alleviate the credit crunch.

On the one hand, finance collects money from the economy through taxation, and on the other hand, it spends money through expenditure.

Therefore, the less money the government takes and the more money it spends, the more money there is in the economy.

There are two ways to spend money. The first is to increase fiscal spending. This is actually what we did in the past three economic slowdown cycles, including 2009, 2012 and 2012. In 2015, a significant rebound in the actual growth rate of fiscal expenditures and a significant expansion of the fiscal deficit rate have been observed.

In order to improve the current credit contraction, we can actually consider increasing the fiscal deficit ratio again. This is actually the lesser of two evils. After all, the side effects of fiscal force should be far less than monetary release.

And it can change the way the government spends money, from increasing fiscal expenditures to reducing fiscal revenue, that is, increasing tax cuts, and tax cuts must be real.

In recent years, the government has been encouraging tax cuts and fee reductions. However, judging from the tax growth in the first half of this year, our tax growth rate was 14.4%, of which value-added tax increased by 16.6% year-on-year, and corporate income tax increased by 12.8%. Personal income tax increased by 20.3%, none of which was lower than the nominal GDP growth rate of 10%.

If the tax growth rate is equivalent to economic growth, the value-added tax, corporate income tax and personal income tax in the first half of the year would have been 190 billion, 60 billion and 70 billion respectively, for a total of 320 billion more. This shows that the real tax burden of our residents and enterprises has not declined, but has actually increased significantly. If this extra tax is refunded to the real economy, taxes can be reduced by RMB 640 billion throughout the year, directly boosting GDP growth by 0.8.

Moreover, we see that the U.S. economy and stock market continue to rise. In fact, the currency is still tightening, and it is relying on tax cuts to stimulate economic vitality. This is very worthy of our reference.

Don’t always think about letting go, we really should reduce taxes!

In summary, we believe that the policies at the central bank level so far are worthy of recognition. The currency has been directional easing to prevent systemic financial risks, but it has not directly cut interest rates to stimulate the economy.

Financial regulatory policies are just scale adjustments, slowing down the pace of deleveraging and allowing shadow banks to close smoothly, thereby making deleveraging more sustainable, but they are by no means redeveloping shadow banks and adding leverage.

What really needs to be done is not to let the central bank loose money and relax supervision, because the shadow banking is out of control and the currency is over-issuance is actually the source of all our current pain. If we still drink poison to quench our thirst, it can relieve the temporary pain, but in exchange for It's endless pain.

What should really be done should be fiscal tax cuts, and they should be vigorous and sincere tax cuts. The sign of tax cuts should at least be an obvious significant drop in tax rates, or a significant drop in tax revenue growth. Moreover, tax cuts have many benefits. They can directly reduce the burden on residents and enterprises. However, borrowing money actually increases the long-term burden on entities. Tax cuts can also stabilize economic growth, and returning money from the government to the real economy can also increase funds. The efficiency of use is really killing two birds with one stone when used properly.

I hope we can maintain the stability of our currency and increase our efforts to reduce taxes. This is a truly promising policy combination.

1. Economy: Continued downward pressure

1) Demand remains sluggish. In mid-to-early July, real estate sales in 37 major cities fell by 8.8% year-on-year. The decline was significantly narrower than the -19 in June. However, the sales volume decline in third- and fourth-tier cities was still high. In the first two weeks of July, the passenger car retail and wholesale growth rates of the China Passenger Car Association were -12.9 and -14.3 respectively, indicating that car sales are still sluggish.

2) The industry continues to slow down. In mid-to-early July, the coal consumption for power generation of the six major groups increased by 11.3% year-on-year, and the growth rate was basically the same as in June. However, the growth rate of coal consumption for power generation dropped sharply to 3% in mid-July. The national blast furnace operating rate in the first two weeks of July dropped significantly compared with June. . All show that the industry continued to slow down in July.

3) The economic downturn is under pressure. GDP growth fell back to 6.7 in the second quarter. From the perspective of demand, the growth rates of investment, consumption and exports of the Troika have all declined significantly. From the perspective of production, industry has slowed down significantly, while the recovery of the service industry is difficult to sustain.

The social financing growth rate dropped to a record low of 9.8 in the second quarter, which means that the economy will still be under continued downward pressure in the second half of the year.

2. Prices: Inflationary pressure weakens

1) Food prices rebound. Vegetable prices rebounded last week, pig prices soared, and food prices ended five weeks of decline, rising 0.8 month-on-month.

2) CPI fell slightly in July. Since July, vegetable prices and pig prices first fell and then rose. So far in July, the prices of edible agricultural products from the Ministry of Commerce and the wholesale prices of agricultural products from the Ministry of Agriculture have dropped by 1.1 and 2 month-on-month respectively. It is predicted that the CPI food price in July will fall by 0.6 month-on-month, and the CPI will drop slightly in July. to 1.8.

3) PPI fell in July. Since July, steel prices have fluctuated at high levels, while coal and oil prices have peaked and fallen. As of now, port futures investment prices in July have remained unchanged month-on-month. It is predicted that the PPI in July will fall by 0.1 month-on-month, and the PPI in July will peak and fall to 4.4 year-on-year.

4) Inflationary pressure has weakened. Although PPI rebounded slightly in the second quarter, CPI fell significantly, and overall prices continued to decline. The GDP deflator fell to 2.8 in the second quarter, which has been falling for three consecutive quarters. Looking to the future, we believe that PPI has peaked and the subsequent decline will accelerate, while CPI will continue to remain low, which means that subsequent inflation pressure will continue to weaken.

3. Liquidity: Money remains loose

1) Monetary interest rates rose slightly. Last week, the currency rate R007 edged up 8bp to 2.69, and R001 rose 14bp to 2.5. DR007 uplinks 2bp to 2.65, and DR001 uplinks 15bp to 2.46.

2) The central bank invested heavily. Last week, the central bank operated reverse repurchases worth 580 billion yuan, with 40 billion yuan of reverse repurchase maturing, a net investment of 540 billion yuan in reverse repurchases, a net investment of 70 billion in treasury cash, and a net investment of 610 billion yuan in the open market last week.

3) The exchange rate continues to depreciate. The U.S. dollar index fell last week, and the RMB weakened against the U.S. dollar. The onshore and offshore RMB depreciated to 6.79 and 6.78 respectively.

4) Monetary remains loose. Last week, the central bank issued the "Central Bank Notice" on the asset management business, and the China Banking and Insurance Regulatory Commission issued the details of the "New Financial Management Regulations". Among them, the principles of breaking rigid redemption, eliminating nesting, and unified supervision have not changed, but the principles of standard investment, compressed pace, and pricing have not changed. Methods and other aspects have been relaxed compared with the market’s most pessimistic expectations. We believe that in the context of credit contraction and increasing downward pressure on the economy, money will remain loose, and the relaxation of financial regulatory standards will also help improve the credit freeze, but will not change the general direction of deleveraging and credit contraction.

IV. Policy: Increase credit extension

1) Merge national and local taxes. The State Council issued the "Reform Plan for the National and Local Tax Collection and Administration System". The reform of national and local taxation from separation to merger will help improve operational efficiency, improve taxpayer convenience, reduce tax compliance costs, optimize the tax business environment, and promote governance modernization.

2) Reorganization and integration of central enterprises. The reorganization and integration of central enterprises is still listed as a key task by the State-owned Assets Supervision and Administration Commission in the second half of the year. The State-owned Assets Supervision and Administration Commission stated that it is necessary to steadily promote the strategic reorganization of central enterprises in equipment manufacturing, coal, electric power, communications, chemical industry and other fields, and promote the further concentration of state-owned capital in key industries, key fields and advantageous enterprises that are in line with the strategy. Led by enterprises with dominant main businesses, we will build collaborative development platforms for new energy vehicles, Beidou industry, large cruise ships, and the industrial Internet, continue to promote the integration of resources in coal, steel, offshore equipment, environmental protection and other fields, and accelerate the promotion of tax-free business, coal Professional integration such as terminals will improve the efficiency of resource allocation.

3) Increase credit extension. The China Banking and Insurance Regulatory Commission stated that it is necessary to unblock the monetary policy transmission mechanism and increase financing services for private enterprises and small and micro enterprises. Large and medium-sized banks should give full play to the "head goose" effect, increase credit supply, and reasonably determine the price of inclusive small and micro loans. This has led to a significant decline in the actual loan interest rates for small and micro enterprises in banking financial institutions.

5. Overseas: Trump commented on the Federal Reserve, Powell reiterated gradual interest rate hikes

1) Trump commented on the Federal Reserve. In an interview with CNBC last week, Trump said that he was not "excited" about the Fed raising interest rates and that the Fed would raise interest rates again every time the economy strengthens. Trump commented on Powell's appointment as chairman of the Federal Reserve this year, saying that he appointed a very good person at the Federal Reserve. However, he believes that the Federal Reserve's interest rate hike may interfere with the U.S. economic recovery, saying that he is worried that the timing of the interest rate hike may not be good. When the Japanese and European central banks maintain monetary easing, the interest rate hike may put the United States at a "disadvantage."

2) Powell reiterated his intention to gradually raise interest rates. Last week, Powell attended a hearing of the U.S. Senate Banking Committee and reiterated that the best way at present is to maintain a gradual increase in interest rates. It is difficult to predict the outcome of the current trade discussions. The risks facing the U.S. economy are roughly balanced. The FOMC realizes that raising interest rates is too fast or too slow. risk.

3) Trump accuses the EU of currency manipulation. Last week, Trump said that the European Union and others have been manipulating exchange rates and lowering interest rates, while the United States is raising interest rates and the dollar is getting stronger. The dollar index fell after his speech. Since the second quarter of this year, the U.S. dollar index has risen sharply by nearly 5 points.

4) Trump’s chief economic adviser is bullish on the U.S. economy. Last Wednesday, Trump's chief economic adviser Kudlow expressed an optimistic view on the economy on Wednesday, believing that the U.S. economic growth will be much higher than the norm in the past 10 years. The current economic growth rate is 3, and it may reach 4 in two quarters, and More tax reduction measures will be introduced in the future.