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zhang liqing of central university of finance and economics: 5% growth in the second half of the year is a foregone conclusion, and structural reforms are needed while providing appropriate stimulus

this is the second special issue of "economics talk" "ask for advice on new reforms"

guest of this issue: zhang liqing, professor of school of finance, central university of finance and economics, director of international finance research center

text and video | feng biao

editor | liu peng

china's economy achieved the expected growth target of 5% in the first half of the year. will it need to increase policy stimulus in the second half of the year? how will the reform plans in important areas such as real estate, finance and taxation, and capital markets set by the third plenary session of the 20th cpc central committee affect economic development?

recently, tencent finance's "economic experts" column planned a series of dialogues on the theme of "asking for advice on new reforms". this issue's content is a dialogue with zhang liqing, professor at the school of finance of central university of finance and economics and director of the international finance research center.

in zhang liqing's view, in the face of the current economic cycle, while appropriately carrying out macroeconomic stimulus, we must actively promote and deepen structural reforms. otherwise, the stimulus will not only be ineffective or ineffective, but will also cause the macro leverage ratio to rise further, making future economic growth constrained by the huge pressure of repaying principal and interest.

in terms of real estate, zhang liqing believes that the current house price/rental price ratio in some cities is still high. the third plenary session of the 18th cpc central committee proposed to "accelerate the establishment of a housing system that promotes both renting and purchasing, and accelerate the construction of a new model for real estate development." in his opinion, more local governments will purchase completed or upcoming buildings, and then subsidize the sale or rental of them to low- and middle-income housing demanders.

regarding the new round of fiscal and taxation reforms, zhang liqing believes that through the classification of tax types and the adjustment of proportions, local fiscal resources are expected to increase. moreover, the third plenary session of the 18th cpc central committee once again mentioned "improving the real estate tax system". in zhang liqing's view, real estate tax is expected to become an important source of local fiscal resources.

the following is the full text of the conversation with zhang liqing:

on the macroeconomic trend

there is no doubt that the growth rate in the second half of the year will be 5%. structural reform is very important.

tencent finance:china's economic growth in the first half of the year was 5%, just reaching the expected target. what is your prediction for the second half of the year?

zhang liqing:with real estate investment continuing to decline sharply and consumer demand still weak overall, the 5% economic growth in the first half of the year was not easy, mainly driven by manufacturing investment and exports. at the same time, it also shows that the chinese economy is still relatively resilient.

in the second half of the year, the main challenge facing the chinese economy is still insufficient demand. in terms of domestic demand, as the scarring effect of the epidemic has not completely disappeared and the real estate market adjustment is still continuing, growth and employment recovery may still fall short of expectations. consumption remains weak overall due to slow growth in residents' income. due to a lack of orders and high actual financing costs, the confidence of small and medium-sized enterprises still needs to be restored.

it is worth mentioning that cpi has been hovering around 0 since the beginning of this year, and ppi has been in negative growth for 21 consecutive months. the sluggish prices indicate that there is a certain deflationary pressure, which has a strong inhibitory effect on both consumption and investment.

of course, there are also some favorable factors. for example, some stimulus policies introduced this year, such as the issuance of ultra-long-term special government bonds, the relaxation of home purchase restrictions and down payment ratios, and the reduction of reserve requirements and interest rates, will gradually show their effects. in addition, global economic growth expectations have improved. recently, the imf, the world bank, and the oecd have all raised their full-year growth forecasts by 0.1, 0.2, and 0.2 percentage points respectively compared with the forecasts in january this year. finally, exports in the second half of the year may continue the growth trend of the first half of the year and become an important support for growth.on the whole, there should be no major suspense about achieving growth of around 5% in the second half of the year.

tencent finance:recently, the interest rates of medium-term lending facilities (mlf) and other institutions have been lowered. do you think there will be further interest rate cuts? is it necessary to increase the intensity of macroeconomic policies?

zhang liqing:if there are signs that the trend of slowing growth since may is continuing, it may be necessary to increase stimulus appropriately, including further lowering the reserve requirement ratio and interest rates. there is room for this, and measures such as tax and fee cuts can also be increased.

it should be emphasized that the role of macroeconomic policies is limited. if the market falls into a liquidity trap, that is, when investors lose confidence in the growth outlook due to weakening expectations, they will become insensitive to interest rates and liquidity, so monetary policy will become ineffective. expanding fiscal spending is a direct way for the government to promote investment and consumption. these expenditures will directly increase demand, but they may have a negative impact on resource allocation efficiency and increase the long-term debt burden.

i have always advocated thatin the face of downward economic pressure, while carrying out appropriate macroeconomic stimulus, we must actively promote and deepen structural reforms. otherwise, the stimulus will not only be ineffective or ineffective, but will also cause the macro leverage ratio to rise further, thus constraining future economic growth under the pressure of huge principal and interest payments.

why is structural reform important? last year, the imf made a forecast and made two different forecasts for china's economic growth trend from 2023 to 2037. whether or not to actively reform will determine the growth rate in 2037, which are 4.1% and 2.4% respectively.

at present, actively promoting reforms in all aspects is the key to boosting the confidence of consumers and investors and changing their sluggish market expectations. at present, it is particularly necessary to deepen structural reforms, especially to implement the reform idea of ​​"letting the market play a decisive role in resource allocation" emphasized again by the third plenary session of the 20th cpc central committee. we must continue to improve the rule of law, fair and transparent investment and business environment, especially strengthen the protection of property rights and interests of private entrepreneurs, reduce unnecessary government intervention in enterprises, and minimize price distortions. only in this way can we effectively restore the investment confidence of enterprises and effectively realize the strengthening of expectations.

interpretation of the new round of fiscal and tax reforms

consumption tax reform will not affect prices, and real estate tax is expected to become an important source of local financial resources

tencent finance:the third plenary session of the 20th cpc central committee set the direction for fiscal and taxation reforms in the future. what specific reform arrangements do you predict?

zhang liqing:in terms of taxation, i think there may be three areas of policy reform.

first, the city construction tax, education surcharge and local education surcharge will be merged into local surcharge, and local governments will be authorized to determine the specific applicable tax rates within a certain range.

the second is to reform the consumption tax, with the direction of expanding its scope, shifting the tax collection stage to a later stage and appropriately delegating it to local governments in order to increase local fiscal revenue.

third, for some shared taxes, such as value-added tax and income tax, the distribution ratio between the central and local governments will be adjusted. currently, the central and local governments share 50:50 value-added tax, and the central and local governments share 60:40 corporate income tax and personal income tax. how to set the sharing ratio of these shared taxes may need to be coordinated according to the structure of the central and local governments' power and financial power after the adjustment.

fourth,real estate tax is expected to become an important source of local fiscal resources. the "decision" adopted at the third plenary session of the 18th cpc central committee once again included "improving the real estate tax system."according to the reform tasks proposed in this decision to be completed by 2029, it can be assumed that it will take at most five years for the introduction of real estate tax.

tencent finance:consumers are very concerned about the reform of consumption tax. will it have a direct impact on consumer prices?

zhang liqing:consumption tax is levied by the central government at the production and import stages. it is an indirect tax because enterprises can pass on this tax to the consumption stage. we believe that the future reform is to stop levying taxes at the upstream stage and put the tax collection at the end. therefore, the cost at the upstream stage will not increase. in the end, whoever consumes will pay the tax, so i think it will not affect the price of goods. and after the consumption tax is collected by the local government,local governments can appropriately lower the consumption tax rate based on their own financial conditions, which means that local governments can make adjustments more flexibly, which is beneficial to promoting local consumption.

on capital market reform

the effectiveness of reform measures is delayed, and short-term factors affect expectations

tencent finance:after april this year, a series of documents on capital market reform boosted market confidence in the short term, but the stock market still rose and fell later. what was the reason?

zhang liqing:the core contents of the new nine articles include: strictly controlling the access to issuance and listing, strictly enforcing continuous supervision of listed companies, increasing the intensity of delisting supervision, strengthening the supervision of securities and fund institutions, vigorously promoting the entry of medium and long-term funds into the market, strengthening transaction supervision, further comprehensively deepening reform and opening up, and better serving high-quality development.

the new nine-point policy is of great significance to the long-term healthy development of the stock market. however, in the short term, the market's response to the relevant measures seems to be somewhat delayed, and it may take time to test whether some measures have been truly implemented and how effective they are.

in addition, compared with these institutional factors, the impact of the macro, fundamental and financial aspects cannot be ignored in the short term.the great downward pressure on macroeconomic growth and the declining profitability of many listed companies have also affected investors' expectations for market prospects.

tencent finance:in recent years, the number of new unicorn companies has declined. what do you think are the reasons? how can the reform of the capital market help more unicorn companies?

 zhang liqing:a unicorn enterprise refers to an unlisted company that has been established for less than 10 years and has a company valuation of more than us$1 billion. currently, the united states and china are the countries with the most unicorn enterprises, far ahead of other countries. according to the "2024 global unicorn list" released by hurun, the number of unicorn enterprises in the world has reached 1,453, with 703 in the united states, accounting for nearly half of the global total. china has 340, ranking second.

before 2018, my country's unicorn companies developed rapidly, with the number of new ones increasing every year. in 2018, the total number reached 202, but the growth rate dropped sharply thereafter.

there are many reasons for this. first, after the outbreak, the macroeconomic environment and industry development at home and abroad have undergone profound changes, which has led to changes in the risk preferences of various venture capital and private equity investors. in general, investors have become more cautious.

second, the tightening of domestic regulatory policies for industries including the internet, education and training, and e-commerce has also had a certain impact on related investments, and companies may choose to do relatively safe things more often. third, the capital market is not active enough, ipos have decreased significantly, secondary market trading volume has shrunk for a long time, and the valuation of unicorn companies has shrunk.

in addition, without the support of an active capital market, both initial financing through private placement and later exit through listing will face great difficulties.

talking about the real estate situation

current housing prices are still high and the bubble cannot be burst immediately

tencent finance:how do you view the current real estate situation? first-tier cities have also relaxed their purchase restrictions. do you think the real estate market has hit bottom?

zhang liqing:data show that the rental-to-sale ratio in my country's first-tier cities is generally higher than the international reasonable range. specifically, in 2023, the average rent-to-house price ratio in first-tier cities was 1:636, which is significantly higher than the internationally recognized reasonable range of 1:200 to 1:300. this shows that the housing prices in first-tier cities are significantly higher than the rental level, and there is a certain degree of housing price bubble.

over the past two years, housing prices across the country have fallen by an average of about 15-20%, with some places seeing a drop of more than 50%.however, if measured by the rental-to-sale ratio, there is still a bubble and housing prices are still relatively high.

now there is a dilemma.on the one hand, there is a bubble, but this bubble cannot be punctured immediately, otherwise it will have a major impact on the banking system and even systemic financial risks.

on the other hand, if it is allowed to break down slowly, there will continue to be expectations of a fall, which is not conducive to the clearing and restoration of equilibrium in the real estate market, and is also a negative factor for economic recovery. if residents hold on to their money and wait for housing prices to fall to a reasonable range before buying at the bottom, then during this period, residents will try to reduce various investments and consumption.

tencent finance:the "decision" adopted at the third plenary session of the 18th cpc central committee mentioned that we should speed up the establishment of a housing system that combines renting and purchasing, and accelerate the construction of a new model for real estate development. how do you understand this?

zhang liqing:the third plenary session of the 18th cpc central committee proposed “renting and purchasing at the same time”, which represents the main direction of housing policy reform. it can even be said to be the most significant change made to the housing system since the commercialization of housing in 1999.

some time ago, relevant policy signals were released. for example, the political bureau meeting on april 30 this year proposed "coordinating the study of policy measures to digest the existing real estate and optimize the incremental housing"; on june 12, the people's bank of china further proposed "supporting local state-owned enterprises to purchase the existing commercial housing at a reasonable price for the distribution or leasing of affordable housing."

it is expected that in the future, more and more local governments will purchase completed or upcoming properties, and then subsidize their sale or rental to low- and middle-income housing seekers.

talking about hot topics in the financial industry

it is necessary to appropriately reduce the salaries of senior executives, as frontline employees do not earn much.

tencent finance:the decision of the third plenary session of the 18th cpc central committee proposed: "improve the positioning and governance of financial institutions and improve the incentive and constraint mechanism for serving the real economy." recently, there is a view that the financial industry, as a non-production sector, should not make too much money. too high income in the financial industry will increase the cost of real enterprises. the recent salary cuts in financial institutions have also attracted attention. what do you think of this issue?

zhang liqing:recently, some people have begun to believe that the financial industry is worthless because it is not hard-core technology and that it is an optional transaction cost. some financial practitioners have even developed a sense of "professional shame."

i think this so-called "theory of the uselessness of finance" is a completely wrong perception; if some practitioners begin to develop a "sense of professional shame", i really don't know what is happening in this society.

although the financial industry is not a productive sector, it is one of the most important modern service industries. under the market economy, without the modern service industry, various productive industries cannot operate normally. it is hard to imagine that if the banking, insurance, trade, logistics, r&d and other industries are closed, the modern manufacturing industry can still operate normally, let alone develop. therefore, it is very wrong to oppose the financial industry to the productive industry.

last year, the resolution of the central financial work conference clearly stated that finance is the lifeblood of the modern economy. in order to build a financial power, we must strive to develop science and technology finance, digital finance, inclusive finance, pension finance and green finance, and do a good job in five major areas to better serve the real economy. it should be said that finance is of great significance to the high-quality development of china's economy and the development of chinese-style modernization.

finance is a knowledge-intensive industry. most of the practitioners have higher education. in the process of becoming a professional in this industry, they often need to pay more investment, including time and money. income is compensation for the investment. there are also many foreign-funded financial institutions in china. if domestic financial institutions cut salaries too much, it may also lead to the loss of some excellent financial talents.

in fact, compared with the high intensity of their efforts, the income of many front-line employees is not high, so much so that many young people who have just joined the job will jokingly call themselves "financial migrant workers." on average, the starting salary of college and graduate students majoring in finance may not be as high as that of computer and some high-tech fields. of course, in some financial institutions, the remuneration and bonuses of middle and senior managers may indeed be high. for such situations, it is necessary to impose appropriate restrictions, which is also in line with international trends. examples that can be used as reference include:in 2013, the european union made regulations that in principle, bonuses for bank executives should not be higher than twice their salary in order to prevent excessive risk-taking.