sheng songcheng: real estate should gradually achieve a soft landing
2024-09-04
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the third plenary session of the 20th cpc central committee reviewed and adopted the "decision of the cpc central committee on further comprehensively deepening reforms and promoting chinese-style modernization" (hereinafter referred to as the "decision"), which made overall arrangements for china's further reform and opening up in the next five years and also pointed out the direction for the transformation and development of the financial industry.
the subsequent meeting of the political bureau of the cpc central committee pointed out that the adverse effects of the current external environment changes have increased, domestic effective demand is insufficient, economic operations have diverged, key areas of risk are still many, and the transition from old to new drivers is painful. at the same time, the meeting emphasized that the reform, development and stability tasks in the second half of the year are very heavy.
in the next five years of reform, what are the key tasks of china's high-level reform and opening up of the financial industry? how to deal with the adverse factors of current economic development? how to balance short-term challenges and long-term transformation?
regarding the above issues, caixin recently interviewed sheng songcheng, professor of economics and finance at china europe international business school.
sheng songcheng is an authoritative expert in monetary and financial theory and macroeconomic regulation. he has both policy implementation experience and profound academic foundation. he has presided over the research, compilation and promotion of china's original social financing scale index, which has appeared in the central economic work conference and the government work report of the national people's congress for 14 consecutive years and is a key indicator reflecting china's macroeconomic and financial operations. in recent years, sheng songcheng has mainly been engaged in university teaching and research, and his research results have had a great impact on both policies and markets.
sheng songcheng believes that the reform priorities in the financial sector in the "decision" are five aspects, namely "high-quality development, central bank system, capital market, financial openness and the formulation of financial laws."this reflects the central government's two major ideas for financial reform: one is to enhance the ability of the financial industry to serve the real economy, especially to support high-quality development. the second is to pay more attention to financial supervision and financial security. for example, in terms of financial opening, the wording of the interconnection of capital markets and the construction of cross-border payment systems are relatively cautious, the former is "steady and prudent advancement", and the latter is "autonomous and controllable".
the three major risks facing the current macroeconomic operation are real estate risk, local debt risk and small and medium-sized financial institution risk. in sheng songcheng's view, the most important of these is real estate risk.
at present, real estate investment and housing prices have not stabilized, and there is a discussion in the market about whether china's real estate will follow the "japanese path" or the "american path". in this regard, sheng songcheng said bluntly, "china will not follow the american path, nor the japanese path."in his opinion, china's development is different from that of japan and the united states in the past. china is investing the resources squeezed out of the real estate market into new quality productivity and developing modern manufacturing and advanced service industries.
"we are currently in the pain period of the transformation from old to new drivers," sheng songcheng suggested. "on the one hand, in terms of capital investment, more resources should be directed to advanced manufacturing and modern service industries. on the other hand, the real estate industry should gradually achieve a soft landing."
the current macroeconomic policy should
fiscal policy as the main policy and monetary policy as the auxiliary policy
caijing: since the beginning of this year, market institutions have concentrated on buying treasury bonds, pushing the medium- and long-term treasury bond interest rates down rapidly. against this background, the central bank has begun to conduct treasury bond trading operations in the secondary market. what do you think of this? what else can the central bank do with its monetary policy?
sheng songcheng:there are two main reasons for the large market demand for government bonds: first, there is an asset shortage and limited investment channels, while government bonds are risk-free assets and can easily become a "safe haven" for funds; second, the market expects that interest rates will gradually decline in the next one or two years, and buying government bonds is the choice made by financial institutions after careful consideration.
in august this year, the central bank carried out open market bond trading operations, buying short-term bonds and selling long-term bonds from some primary dealers in open market operations, with a net purchase of bonds worth 100 billion yuan for the whole month. the "buy short and sell long" operation not only helps to curb the unilateral downward trend of the long end of the yield curve, but also meets the regulatory goal of guiding short-term interest rates downward.
monetary policy has a "pushing rope effect", with better tightening effects and limited easing effects. under current conditions, fiscal policy should be the main focus, with monetary policy in coordination. for example, the ministry of finance issues treasury bonds, the central bank reduces the reserve requirement ratio to release liquidity, and commercial banks buy treasury bonds to support fiscal efforts.
caijing: the third plenary session of the 20th cpc central committee proposed to speed up the improvement of the central bank system and smooth the monetary policy transmission mechanism. recently, the central bank has made many adjustments in monetary policy operations. what kind of reform ideas does this series of adjustments reflect?
sheng songcheng:in line with the spirit of the third plenary session of the 20th cpc central committee, the central bank's monetary policy reform ideas focus on two aspects: first, adhere to a supportive monetary policy stance, while the policy intensity and direction reflect the requirements of high-quality development. second, smooth the monetary policy transmission mechanism and improve the effectiveness of the policy interest rate.
among them, the reform of the smooth monetary policy transmission mechanism mainly includes three aspects:
first, optimize the intermediate variables of monetary policy regulation, and gradually shift from focusing on the growth of total money and credit to focusing on price-based regulation.
second, further improve the market-oriented interest rate regulation mechanism. judging from governor pan gongsheng’s speech at the lujiazui forum and the recent interest rate cuts, the 7-day reverse repurchase rate will become the main policy rate, and the importance of the mlf (medium-term lending facility) rate will decline.
third, gradually incorporate the secondary market treasury bond trading into the monetary policy toolbox to increase the channels for the release of base money. at present, treasury bonds account for less than 4% of the central bank's balance sheet, and the scale of china's short-term treasury bond issuance is relatively small, which is not conducive to the central bank's direct regulation of short-term market interest rates.
in addition, the establishment of a modern central bank system also means the reform of the internal management mechanism of the central bank. as a macro-control institution, the central bank requires strong decision-making and research capabilities at the head office level. the federal reserve is a typical example in this regard. therefore, improving the central bank system also means strengthening the head office's capabilities in institutional reform. in the new round of national institutional reforms launched in 2023, the central bank abolished the county branches, and its internal logic lies in this.
"finance": since april 2024, the growth rate of m1 (narrow money) has been negative for four consecutive months. how should we view this data change?
sheng songcheng:negative growth of m1 is indeed rare in history. m1 is mainly composed of cash and demand deposits of enterprises and institutions. the current negative growth is mainly due to two reasons:
first, the economic activity is not high, and enterprises have low willingness to invest. enterprise demand deposits often reflect the activity of enterprise operations and investments. if enterprises put the funds in demand deposits after receiving them, it means that they have a strong willingness to invest because they need to use these funds in the short term. this actually reflects the main problem facing the current macro-economy - insufficient effective demand.
second, the statistical scope of m1 needs to be optimized. the theoretical basis of the m1 indicator is that money is the medium of commodity exchange and the means of payment, that is, money that can be used for payment at any time should be classified into the m1 category. at present, a large number of chinese residents pay through electronic payment methods such as wechat and alipay. the funds are actually personal demand deposits or reserves of third-party payment institutions. this part of the money has not yet been counted in m1, and there are certain omissions. recently, governor pan proposed to revise the money supply indicator. it is expected that after the revision, the indicator will be more complete, in line with the actual liquidity situation, and can more accurately reflect the relationship between money supply and economic operation.
"finance": the central bank has proposed to downplay the past regulation that focused on the growth of total monetary credit, and gradually shift to price-based regulation. does this mean that indicators such as social financing and total credit have less significance for monetary policy?
sheng songcheng:downplaying does not mean being unimportant, nor does it mean withdrawing.
take the scale of social financing as an example. this is a unique indicator in china. it is calculated from the asset side of financial institutions and the issuers of financial markets, and can more comprehensively reflect the situation of various market entities and regions obtaining financing from the financial system. this indicator is very suitable for china's national conditions. in the description of monetary policy in the government work report, there are still references such as "the scale of social financing and money supply should match the expected targets of economic growth and price levels", indicating that these indicators are still of great significance. of course, with the development of the economic and financial situation, financial indicators also need to be revised and improved. in the 1970s and 1980s, with the rapid development of financial activities, the federal reserve revised the statistical caliber of money supply 16 times.
it needs to be emphasized that financial data are interrelated and reflect the overall financial operation. no single indicator should be viewed in isolation.
suggested to develop
productive services
caijing: the third plenary session of the 20th cpc central committee pointed out that it is necessary to coordinate development and security and implement various measures to prevent and resolve risks in key areas such as real estate, local government debt, and small and medium-sized financial institutions. in view of the current situation, what else do you think needs to be done to prevent and resolve risks in key areas?
sheng songcheng:prevention and mitigation of risks mainly focus on the following three aspects:
the first is real estate risk. we should not only promote the stabilization of the real estate market, but also build a long-term mechanism to resolve risks and take multiple measures to promote the smooth transition of real estate to a new development model.
second, local debt risk. i believe that adjusting the debt structure between the central and local governments, appropriately increasing the central government debt, deepening fiscal and taxation system reform, improving transfer payments, and adjusting the division of responsibilities between the central and local governments are all feasible measures to resolve local debt risks and optimize the relationship between the central and local governments.
the third is the risks of the financial industry itself, especially the risks of small and medium-sized financial institutions. they have small asset scale and weak risk resistance. therefore, it is necessary to strengthen the responsibilities of relevant entities, do a good job in regular risk prevention and mitigation, and continuously improve the ability to resist risks and serve the real economy.
caijing: some people believe that the real estate market has a huge impact on china's macro-economy, and discuss the way to save china's real estate market by analyzing the experience of the us and japanese real estate markets. what do you think of this?
sheng songcheng:china is neither the united states nor japan. we will not follow the path of the united states or japan. our current development path is different from that of japan and the united states in the past. we are transferring more resources to new quality productivity, vigorously developing advanced manufacturing and modern service industries, and catching up with the world's technological innovation trend.
in the past period of time, many people have different views on the previous real estate regulation policies. in fact, before the epidemic, real estate had already excessively absorbed social resources. at the end of 2019, real estate loans accounted for as much as 29.0% of the total loan balance.
in 2023, the per capita gdp (gross domestic product) of the united states will be us$81,000, while that of china will be about us$13,000, less than one-sixth of that of the united states, but the area of personal housing in china has reached two-thirds of that of the united states.
real estate has indeed driven china's rapid economic growth, but past experience cannot be applied dogmatically to the future. if regulation had been delayed by two years, the problem would have been more serious and regulation would have been more difficult. the main task now is to prevent a sharp decline in real estate and achieve a soft landing. this round of real estate regulation may take five to six years.
caijing: at present, the growth rate of real estate, which is an old driving force, has slowed down. you have suggested that china should vigorously develop the productive service industry to cultivate new quality productivity. what is the concept of the productive service industry? what is its relationship with the new quality productivity?
sheng songcheng:the producer service industry can be understood as an intermediate service sector that mainly provides services for the production activities of various market entities. at present, the producer service industry involves 16 national economic industries, including information transmission, software and information technology services, and finance.
in 2023, the added value of china's service industry will account for 54.6% of its gdp, while that of the united states will be 81.6%. of the nearly 30 percentage point gap in the proportion of service industries between china and the united states, about 60% comes from the productive service industry.
while the proportion of the service industry in the united states has increased, it has also maintained a high labor productivity, mainly due to the increase in the proportion of the productive service industry. data shows that from 1977 to 2023, the proportion of the us productive service industry in gdp increased from 39.5% to 47.7%, and its per capita gdp increased from us$30,337 to us$66,755 during the same period.
in recent years, the global production layout has shown a trend of "reshored". chinese enterprises have taken a new round of "going overseas" steps, and they need the producer service industry to "escort" them. enterprises must not only move towards the high end of the global value chain through technological innovation, product innovation and brand building, but also need the support of professional services such as business services, finance and law.
in summary, the service industry plays an indispensable role in the cultivation and development of new productive forces, especially the productive service industry with high added value, which is an important cornerstone for china's service industry to support high-quality economic development in the future.
open to the outside world
need to enhance exchange rate risk hedging capabilities
"finance": the third plenary session of the 20th cpc central committee proposed improving the system and mechanism for high-level opening up to the outside world. what key requirements does this put forward for the opening up of the financial industry?
sheng songcheng:the third plenary session of the 20th cpc central committee has put forward higher requirements for financial opening up, with a focus on promoting the internationalization of the rmb, accelerating the construction of shanghai as an international financial center, consolidating and enhancing hong kong's status as an international financial center, expanding the introduction of foreign financial institutions, and promoting financial market connectivity.
"finance": what obstacles exist in further improving the level of financial openness and how can they be overcome?
sheng songcheng:at present, there are still some obstacles to the opening up of finance, which are mainly reflected in the following aspects:
first, the internationalization of the rmb is not being promoted vigorously enough. there is currently a certain amount of capital outflow pressure, especially since 2023, when foreign investors have been investing in the chinese stock market, and there is also a certain amount of depreciation pressure on the exchange rate. this objectively reduces the attractiveness of the rmb and affects confidence in the internationalization of the rmb.
the overseas use of rmb is mainly concentrated in hong kong, china and singapore. the use of rmb in countries along the belt and road is mainly in the field of trade, while it is not widely used in direct investment, securities investment, trade credit and other fields. therefore, the promotion of rmb internationalization in the belt and road countries needs to be strengthened. due to its strong sensitivity to exchange rate fluctuations, china has chosen an independent monetary policy, a relatively stable exchange rate and a properly controlled capital account in the impossible triangle. the openness of china's capital account is even lower than that of brics countries such as brazil and russia, and is comparable to that of south africa and india. although china has currently relaxed the quota restrictions on channels such as qfii (qualified foreign institutional investors) and rqfii (renminbi qualified foreign institutional investors), the acquisition of qualifications requires approval, which increases transaction costs and reduces the use of rmb in the capital field.
second, there is still room for improvement in the laws and systems in the financial sector, especially in the areas of information disclosure and accounting standards, which are not yet compatible with the prevailing rules of the international financial market, and the predictability and stability of policies still need to be improved. in addition, some financial laws and regulations are relatively backward, and the construction of supporting systems is not in line with the diversified development of the economy.
third, there are deficiencies in the interconnection of domestic and foreign financial markets. this is mainly reflected in the lack of investment freedom, many restrictions on investor qualifications, tradable securities, and transaction limits, and the cumbersome approval process, which increases transaction costs and reduces the attractiveness of capital inflows. in particular, the shortcomings of the opening of the futures market are more prominent, with a lack of products such as rmb foreign exchange futures, insufficient participation of foreign investors, and relatively weak international influence of domestic exchange prices.
"finance": what is the top priority in promoting high-level financial opening-up?
sheng songcheng:first, we should strengthen the institutional construction of domestic financial institutions and enterprises to deal with exchange rate risks, strengthen the monitoring capacity of regulatory authorities on exchange rate risks, guide domestic institutions to adhere to the principle of exchange rate neutrality, and increase the ability to resist exchange rate fluctuation risks. on this basis, the exchange rate fluctuation range is allowed to be appropriately expanded. on the basis that domestic institutions have a strong ability to resist exchange rate risks, we can gradually expand the opening up of capital accounts, steadily relax restrictions on foreign investment in china, increase the capital attractiveness of the rmb, and enable the financial market to better play the role of pricing and resource allocation.
text｜tang jun
editor: zhang wei
(source: mayflower finance)
