China News Service, Beijing, July 22 (Reporter Yang Chengchen) After the new crown pneumonia epidemic, how will the world respond to the economic challenges brought about by changes in aggregate demand? Zhu Min, dean of the National Institute of Finance of Tsinghua University in Beijing and former vice president of the International Monetary Fund (IMF), emphasized in a video speech on the 22nd that at present, risk sharing and benefit sharing need to form a global consensus. Multilateralism is promoting the epidemic. The only way to post-economic recovery.
The United Hong Kong Foundation "China Lecture Hall" invited Zhu Min to give a lecture on the same day, the topic was "The World and China after the Epidemic: Economy, Finance and Technology".
Live screen screenshot
In the next 2 to 3 years, the main driving force of global economic growth will come from infrastructure investment
When the world economy is showing a downward trend, China's economy will grow by 3.2% in the second quarter of 2020. According to Zhu Min's analysis, from the data point of view, the weaker performance of the Chinese economy in the second quarter is consumption, which shows that residents are still cautious. The behavior and psychological changes of ordinary people have a great impact on consumption. After "September 11", it took five years for the global aviation industry and hotel industry to recover.
He made three suggestions at the same time. First, due to the increase in aggregate demand, countries need to spend a lot of effort on their consumption stimulus policies. The second is the continuous fight against the epidemic. Unlike the SARS period, the new crown pneumonia epidemic has caused most countries in the world to be "half open and half closed", the industrial chain is more or less affected, and trade is difficult to recover in the short term. In the final analysis, countries need to continue to control the epidemic. "If the epidemic is not well controlled, trade will not go up."
The last is investment. Zhu Min predicts that private investment will decline in the next two years, and the number of corporate bankruptcies will rise. Because of the uncertain prospects, corporate investment will not increase. At the same time, due to the low level of interest rates, the period after the epidemic will be the best period for government infrastructure investment. These investments will no longer be traditional investments, but green, technological, and sustainable investments. In the next two to three years, the main driving force of global economic growth will come from this.
China's economic growth of 5% to 6% in the second half of the year can be achieved
Some questioners expressed concern about the recovery of consumption in China and questioned the 3.2% growth rate in the second quarter. Zhu Min responded that the weakness of consumption is an indisputable fact at present, which is related to the psychological changes of residents caused by the epidemic. The so-called retaliatory consumption will not occur. Compared with the whole year of 2019, the three months of consumption lost this year cannot be made up. From the Mainland to Hong Kong, governments everywhere are currently trying to stimulate consumption. There is still much to be done in helping low-income people and disadvantaged groups.
"It is very important for the government to maintain the liquidity of enterprises." He emphasized that only by maintaining infrastructure investment and maintaining aggregate demand to support enterprises, can enterprises see hope. In the crisis, expectations management is particularly important, including economic expectations and consumption expectations, which is the focus of the government's work in the next phase. In the first half of the year, the actual income level of residents has declined slightly. In the second half of the year, China's economy will focus on "guaranteeing employment" and "guaranteeing enterprises."
Zhu Min pointed out that compared with the world, China's fiscal policy is moderate. The fiscal stimulus plan of the United States and other developed countries accounted for more than 10% of GDP, and China's just over 5%, indicating that there is room for it. The use of China's fiscal funds in the first half of the year was only one-third, and the intensity in the second half of the year will be even greater. In particular, the issuance of more than 2 trillion yuan of local bonds can be used in infrastructure construction, and promote production and protect people's livelihood. Through model analysis, China's economic growth of 5% to 6% in the second half of the year is achievable.
Central banks should slowly withdraw from the business sector in the future and maintain economic stability
"This is the biggest problem facing the world." Zhu Min answered when asked about the rise in asset prices and the widening of the gap between the rich and the poor due to quantitative easing monetary policies in many Western countries led by the United States.
He showed the chart produced by him and pointed out that the recent rebound in the stock market is due to the central bank-led liquidity support. The current real economy does not support the stock market rebound. Once the valuation rises, a bubble will arise. The central bank was originally the "lender of last resort", but now it has become the "market maker" to enter the commercial field. For example, buying and selling bills, corporate bonds, etc., transcending its boundaries and taking risks is also a major challenge it faces. The “slowly” and “steady” withdrawal of the central bank will be very important in the future, and the excessive speed will inevitably lead to economic fluctuations. Central banks of various countries also need to revise their positioning and governance mechanisms. This is an important issue that needs to be discussed around the world.
"The problems caused by income distribution may be even greater." Zhu Min believes that large-scale liquidity cannot enter the real economy, but into the stock market. What is happening in the United States is that the household savings rate is rising, and at the same time the number of individuals entering the stock market is rising. "On the one hand, saving money and on the other hand speculating in stocks" makes the income distribution worse. This situation must be comprehensively considered in future tax policy reforms and central bank withdrawal policies. "We currently have a lot of discussions about this, but we have not found a perfect solution."
Speaking of topics related to the significant devaluation of the US dollar, which is currently highly discussed, Zhu Min said that this is a common concern among American academic circles. The U.S. capital market is increasingly becoming a "debt hedging paradise" during the crisis. When the crisis comes, funds will quickly flow back to the United States from emerging markets, and the appreciation of the U.S. dollar will bring about liquidity tension. On the other hand, a more traditional concept believes that if the US fiscal deficit is so large and "so irresponsible", the currency will depreciate. The most frightening thing about the depreciation of the dollar is not how much it depreciates, but a sudden and explosive depreciation. If the market loses confidence in the dollar in an instant, the market will collapse. Therefore, the world is also increasingly discussing the diversification of savings currencies, including the internationalization of the RMB.
U.S. companies are more dependent on the Chinese market than the U.S.
Some Western countries have recently implemented so-called "countermeasures" against Hong Kong due to the Hong Kong National Security Law. When asked about the impact of these actions on Hong Kong's economy, Zhu Min was optimistic. For example, he pointed out that Hong Kong's overall capital inflow in June was more than 10 billion US dollars, the number of IPOs in the stock market was rising, and the banking system was robust. Hong Kong's economic foundation has been laid through the efforts of several generations and will not be overwhelmed by a single incident. Although various claims have emerged, as far as the data is concerned, Hong Kong's economy has not been affected. Hong Kong will continue to maintain its status as an international financial center and continue to play a huge role in China's financing.
He further talked about the current Sino-US economic relations. In his view, the so-called "decoupling of China and the United States" will not become a reality in the short term. American companies sell 270 billion U.S. dollars of goods in mainland China each year, which basically offsets China’s trade surplus with the United States. American companies rely more on the Chinese market than on the U.S. market, and the interdependence between China and the U.S. in economic and trade is still very large. In the field of technology, the world chip market was valued at US$480 billion at the end of 2018, while China’s imports reached US$310 billion. The consequences of losing the Chinese market can be imagined; Huawei’s IP (intellectual property) is paid globally by the US more than China itself. All these prove that Sino-US relations are closely connected.
Zhu Min proposed that the United States and China, as the two largest economies in the world, have the responsibility to maintain the smooth operation of the world economy. Anti-epidemic, vaccine research and development, the development of the World Health Organization (WHO), the reform of the World Trade Organization (WTO), climate change, and support for public health in developing countries, all require cooperation and leadership between the two countries.
He specifically pointed out that China should continue to adhere to multilateralism, which is particularly prominent in the global fight against the epidemic. China has shared its own experience with more than 100 countries and exported a large amount of medical supplies. China should also continue to adhere to reform and opening up, improve the business environment, and protect intellectual property rights. The determination to further open up remains unchanged, which is one of China's important countermeasures to cope with changes in the world.
As the world's largest offshore RMB center, can Hong Kong participate in the development of China's digital currency and play a role? Zhu Min replied that Hong Kong has always been one of China's most important financial windows. In terms of digital currency, the Hong Kong Special Administrative Region Monetary Authority is "ahead." China's central bank digital currency will definitely develop, and Hong Kong will definitely use its own advantages to join it based on the current two-tier structure. Regardless of whether it is for the digitization of international currencies or the digitization of the RMB, Hong Kong will play its role. There is a lot of room for this. (Finish)