As the downward pressure on China's economy has increased, the Chinese market doubts about financial de-leverage and supervision have also increased.
There are mainly three types of the sources of doubts. The first type is market opinions, which are mainly from enterprises and investors. Facing business difficulties, they mainly hope that the loose monetary policy will make the market liquid. The second type is local opinions, which are mainly from local governments. Debt burden and rectification of financing platforms have brought pressures on local financing; the local governments feel that they are facing difficulties in development and hope that the central government can be more relax, but such local opinions are not openly expressed. The third type is the opinion of the academic circles, mainly from research institutions, universities and think tanks. Their opinions are based on development concepts and policy research and some of them hope for flexible currency while others wish for easy finances. There are signs showing that the views supporting the loose finances begin to increase, and gradually become more similar to the "major release" policy proposed by Anbound.
The controversial issues are mainly concentrated in the following categories: (1) Whether China's macro-leverage problem is an aggregated or a structural problem. Some research institutions believe that China's macro-leverage is superficially an aggregated problem, in fact it is essentially a structural issue. (2) Is the nature of the macro-leverage problem a financial issue or a monetary issue? Some economists believe that the issue of macro leverage is ostensibly a financial while essentially a fiscal one. Central bank officials have also pointed out that the fiscal problems in the Chinese economy cannot be fully expected to be resolved by monetary policy. (3) Is financial supervision aiming for comprehensive rectification, or targeting local regulation?
Among them, Wu Xiaoqiu's doubts are quite representative. Wu Xiaoqiu said that he doesn't quite understand this kind of regulation. The market-oriented structural change of finance is the mainstream trend in China, and no one can make China turns back to the era where traditional finance dominated everything. If China is reverted to that era, it will definitely face huge problems. The central bank has been doing its best recently; if there are some problems in the market and the real economy, it will start to cut the interest rate to increase liquidity and maintain ample market liquidity. This is a good will of the central bank, but in the current situation where various financing channels are contracted and consolidated, the effect is less than satisfactory. Wu Xiaoqiu likened this to a reservoir full of water, but the water flow into the farmland has not increased. These policies seem good on the surface, but the effect is not obvious. The reason is that the channels that did not violate the rules too much were cut off and narrowed down. It is difficult for Chinese private enterprises to obtain funds in formal financial channels, and quite a lot of them obtain funds through non-conventional channels, although the cost is relatively higher. Many innovation channels have contracted or closed down; the risk seems to be controlled, but it greatly jeopardizes the efficiency.
In July, the Economic Work Conference of the second half of the year will be held. The controversies on macroeconomic policies mentioned above will have greater influence than the usual discussions; it is believed that they will have a greater impact on economic decisions in the second half of the year. In particular, the international trade war has brought uncertainties to the Chinese economy and this will undoubtedly slow down China's economic growth to a certain extent. Therefore, how should we view the new changes in the Chinese and international economic situation? How should we treat the problems faced by the Chinese economy? All these will affect the economic decision in the second half of the year.
Partially, the different views and disputes mentioned above may have their own reasons, but the huge system of the Chinese economy; many of its problems are not formed within just a short span of time. Whether it is structural or aggregated problems, regardless if it is fiscal or monetary policy, high debt or high leverage, all these are complicated issues that have been accumulating for a long period of time. For complex system problems, there has never been easy and fast solution; rather the issues need to be sort out and a systematic solution should be conceived.
In response to these different controversies, Anbound has its own point of view from a system perspective.
First of all, regarding aggregated and structural problems, from the perspective of system and basic logic, the aggregate always comes and inseparable from the structure. Anbound's chief researcher Chan Kung pointed out that the currency must expand after the infrastructure construction frenzy, which is an aggregate problem; but conducting infrastructure investment is still a structural problem.
Second, macro-leverage is neither a financial nor a fiscal issue in China, but an economic issue. Judging from the statistics of the first half of the year, the current financial situation of the government is good, but the economy is not. We believe that the occurrence of leverage is related to the characteristics of the economic development in China. Our current economy relies mainly on the government, which has a large amount of resources, and state-owned enterprises have evolved into a capital platform. In addition to a small amount of manufacturing and foreign trade, private enterprises have mostly withdrawn or retreated in the trend of the advancement of national enterprises, so there is not much of market at all.
Third, the so-called "movement-style" supervision, it is necessary to combine the actual situation of China. We believe that the movement of financial supervision is not to be seen in this way: if it is not possible to engage in "movement-style" supervision, to what extent will it develop? It would be easy for scholars to voice their opinions, but when in reality China is facing troubles, no one will be willing to bear the responsibility; at least economists will not.
Fourth, where is the focus of financial regulation? Is it the channels or the money supply? Based on the current situation, it would rectify the channels and then release the currency. Will such focus and order change in the future? The answer is that it is not necessarily right now, as it depends on the overall factors, including external factors.
Fifth, regarding China's tightening economy, this is not only a question of money, but also a market issue. Excessive production will naturally lead to a tightening period. At the end of 2017, Anbound's proposal of "major release" based on the analysis of China's economic system was not aiming for financial clean-up and rectification, but was against the inevitable trend of China's economy under various constraints. Even if there is no financial rectification, China may still move toward "major release" in the future.
It should be emphasized that the "major release" policy is not intended to solve the tightening finance, but to expand China's internal market and to expand China's consumption. When China expands its liberalization by various means and invests huge amounts of resources into the international market, it must also bear the pressure to expand the internal market and internal consumption. The design of relevant policies does need to be deeply thought out.
Final Analysis Conclusion:
The Chinese economy is a complex and huge system, many of the issues are the result of accumulation of long period of time. Evaluating macroeconomic policies and financial consolidation measures must be based on systematic thought, so that a more rational and appropriate system decision can be reached.
