Wu Jinglian: The Chinese government’s strong place is not right.
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Finding problems from the supply side and seeking countermeasures
Not looking for problems from the demand side. The three phases are superimposed, the four are reduced, and the current economic challenge is big. The core issue is that since 2008, the growth rate of GDP has not covered up a series of contradictions.
In the past, once there was a problem, we all took the Keynesian theory to drive through the problem. Keynesianism believes that the economy is limited by demand. Many professors do not support Keynesianism. I think it is a bit useful for short-term analysis and not suitable for a long time. For example, we have encountered a problem of diminishing returns on investment, and the stimuli that are repeated again and again have become less effective. For example, the leverage ratio is pushing higher. Although some people say that Japan is still high, Japan is mainly a central government bond. As long as the central government is in, and Japan’s economic strength is still very strong, as long as the government does not collapse, the government debt is high.
But China is a local government debt, which is very difficult to deal with. China’s corporate bonds are the biggest, and this problem is very large (the EU’s demand for corporate bonds cannot exceed 90% of GDP). In some cases, if there is no support for corporate bankruptcy, there will be a chain effect, and other related companies’ balance sheets must Write down, and one by one is affected. The running event continues to appear, we can't do it anymore! Monetary expansion has led to a sharp rise in housing prices. Recently, a series of suppression policies have been introduced, but it is useless to rely on housing prices.
This reform from the demand side turned to the supply side last year.
Why can we maintain high growth for so many years? The analysis from the supply side can also explain: the investment is large, the labor force is greatly increased, and the efficiency is improved (reformed, the urban and rural areas are opened up, and the resources inefficiently used in the countryside, such as land and manpower, are improved; open, foreign equipment is introduced. Improve the level of). However, it has changed now. The demographic dividend disappeared, investment could not be supported, and there was little room for efficiency improvement (the original factor that led to efficiency improvement was being reduced). And our general technical level is no different from that of developed countries, but the quality is too bad, so we must improve efficiency.
Why emphasize structural reform?
I came up with this idea in 1995, why has it not been realized? Because of institutional barriers, the government still plays a decisive role in resource allocation. To break this system, reform can be achieved. How to do it? It is necessary to establish a system to stimulate innovation and entrepreneurship. Structure reform. Many governments have to adjust the structure, but the government does not know what to do and should not do it. For example, subsidizing new energy vehicles, but found that many companies and the government jointly defraud subsidies.
It is up to the market to improve the efficiency of the supply side, not the government!
What the government should do is: go to one, one, one, one, and make up: go to excess capacity to go to stocks, leverage and reduce costs to make up the short board, and achieve effective reconfiguration.
What the market should do is: resource optimization, co-prosperity incentive mechanism, how to make the market work? The government must also play a good role.
What should the government do? For example, to prevent systemic risks, to release risks, to deal with zombie enterprises, so as not to accumulate; to plug the social security gap; short-term policies still need to be used, but less monetary policy. In the past we have been spending money and have invested in many projects. But now it is necessary to provide tax benefits to support enterprises.
The Chinese government is strong. Some people say that this is the best model. Actually, it is not. It depends on where it is strong. What the government has to do is not to directly determine the allocation of resources, but to provide public goods. It is necessary to do basic research and research and share it with the whole society; basic education, social security system, and non-command industrial planning. Don't make up the "supply side", you must make up the "demand side", and the supply and demand side sandwiches the market, then let the market work. (Organized from the author's speech at the China Europe Business School)
(The author of this article: famous economist, researcher of the Development Research Center of the State Council.)