Article/Shen Jianguang, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
The current decision makers' judgment on the economic situation and financial risk prevention has changed again. In this context, how to view the early deleveraging policy? Where will the future policies go?
Introduction
The current decision makers' judgment on the economic situation and financial risk prevention has changed again. In this context, how to view the early deleveraging policy? Where will the future policies go? These issues deserve further discussion.
Since this year, in the context of deleveraging and tight fiscal constraints, China's economy has shown a significant downward trend, with low consumption and weak investment. On October 31, the meeting of the Political Bureau for the first time stressed that "downward pressure on the economy has increased" and "profound changes have taken place in the external environment", indicating that measures to stabilize growth in the short term will be put in the first place, without mentioning deleveraging. Yi Gang, President of the People's Bank of China, said recently when talking about the deleveraging policy, "In the early stage, some policies were poorly considered, lack of coordination, implementation deviation, and the superposition of strong regulatory policy effects, leading to a certain credit crunch" 。 The author believes that this indicates a change in the policy signal - the current decision makers' judgment on the economic situation and financial risk prevention has changed again. In this context, how to view the early deleveraging policy? Where will the future policies go? These issues deserve further discussion.
From "deleveraging" to "stabilizing leverage" under the change of main tone
This round of deleveraging started in the financial sector. Since the financial crisis in 2008, China's high economic growth has entered the second half. The release of monetary policy, deregulation, and financial liberalization have all become policy tools for "stable growth". The expanding shadow banking system has continued to provide blood to local financing platforms, state-owned enterprises with overcapacity, and the real estate sector, leading to increased leverage and risk accumulation, and increasing the vulnerability of the financial system, It also leads to the idling of funds in the financial system and the inability to flow into entities. In this context, The 19th National Congress of the Communist Party of China formally listed "preventing and resolving major risks" as one of the three major tasks, and "preventing risks" replaced "stabilizing growth" as the main theme of economic work. A series of deleveraging policies, such as mixed restructuring of state-owned enterprises, debt to equity swap, No. 23 Document of the Ministry of Finance, new asset management regulations, and real estate regulation, have been introduced in succession. Efforts have been made to defuse leverage risks in government, finance, enterprises, and other fields, and deleveraging has gradually extended to the entire economic field.
Under this series of policies, the effect of deleveraging is obvious. President Yi Gang previously said that "the macro leverage ratio has been stabilized". According to the central bank's data, by the end of 2017, China's macro leverage ratio was 248.9%, up only 2 percentage points from 2016. In the past five years, this ratio has increased by 13% annually, and the growth momentum of leverage ratio has slowed down significantly. In addition, since this year, the scale of social finance has continued to shrink, and the scale of off balance sheet loans such as trust loans and entrusted loans has declined significantly.
At present, China's economy is facing the dual pressure of internal and external environment, and the demand for stable growth is urgent. In the third quarter, GDP fell to 6.5%, a new low in ten years, consumption, infrastructure and investment were weak, private economy declined, and exports were faced with greater uncertainty; The capital market also experienced turbulence. The continued decline of A-share index caused a stock pledge crisis, frequent debt defaults, and market confidence was hit. In addition, President Yi Gang previously said that "the macro leverage ratio has been stabilized", and the main tone of the current economic work has shifted again to stabilize growth, from the "deleveraging" stage to the "stabilizing leverage" stage. Accordingly, China's monetary policy ushered in marginal adjustment in the third quarter, and remained loose as a whole. In July and October, the central bank made two targeted RRR reductions, and comprehensively used MLF, refinancing, rediscount and other policy tools to adjust liquidity in financial markets and specific areas.
Main contradictions in this round of deleveraging
The high leverage of the enterprise sector is an important reason for China's high leverage ratio. According to the China Financial Stability Report 2018 recently released by the People's Bank of China, as of the end of 2017, the leverage ratio of China's non-financial enterprise sector was 163.6%, accounting for 65.7% of the macro leverage ratio. In horizontal comparison, the leverage ratio of China's non-financial enterprise sector ranks first among major economies, far higher than 101.6% of the euro area, 103.4% of Japan and 73.5% of the United States, and even higher than emerging market economies such as Russia, India and Brazil. At the end of 2017, the leverage ratio of non-financial enterprise sector was 163.6%, 1.4 percentage points lower than that of 2016, but still at a very high level compared with international comparison.
In terms of enterprise types, compared with private enterprises, the leverage ratio of state-owned enterprises has always been high. However, from the perspective of the implementation of this round of deleveraging policy, although the leverage ratio of state-owned enterprises has dropped at a high level, private enterprises have financial difficulties due to the tight deleveraging efforts, and the leverage ratio has risen instead of falling, highlighting the contradiction in the process of deleveraging.
On the one hand, the high leverage ratio of state-owned enterprises fell slightly. This year, the debt expansion rate of state-owned industrial enterprises dropped to a low level, and the asset liability ratio did gradually decline, but the extent was limited, and the overall level remained at about 60%. The reason is that the state-owned enterprises have inherent advantages in market position, financing channels and other aspects, and there is an obvious lack of enterprise motivation in the process of deleveraging in China. In addition, the China Financial Stability Report 2018 pointed out some problems existing in the current deleveraging of state-owned enterprises, such as the debt to equity swap model is still being explored, the source and investment direction of debt to equity swap funds do not match, and corporate governance is not in place.
On the other hand, private enterprises are under pressure. The asset liability ratio of private industrial enterprises has risen significantly since December 2017. Against the background of deleveraging, the debt expansion has accelerated, which shows that cash flow is tight and the financial situation has deteriorated. With the deleveraging and strict supervision, shadow banks have been greatly restricted. The introduction of the new regulations on equity pledge further tightened the pledge business on and off the market. Private enterprises that could have obtained external financing support through diversified credit channels have more difficult operations. The rise in the leverage ratio of private enterprises interacts with their financing difficulties, highlighting the plight of the private economy.
The author believes that The formulation of the "deleveraging" policy in the early stage lacked policy coordination and consideration of the possible difficulties of the private economy. In addition, the pace was tight and the intensity was large, which led to downward pressure on the economy and new financial risks. Recently, the financial market has been in turmoil. The stock market has been falling all the way, triggering the stock pledge crisis of private listed enterprises. The bond market has also suffered frequent defaults. Financial institutions have tightened their risk preferences, exacerbating the financing difficulties of private enterprises.
In this context, China's top executives have recently called for and intensively introduced rescue policies. In addition to the early policies of private enterprise bond financing support tools, funds, insurance funds, local state-owned assets and other policies, Guo Shuqing, chairman of the Banking and Insurance Regulatory Commission, recently proposed to initially consider the goal of "one two five" for loans to private enterprises, that is, in the new corporate loans, The loan from large banks to private enterprises is no less than 1/3, and that from small and medium-sized banks is no less than 2/3. The increased policy strength fully demonstrates China's high-level determination to stabilize market confidence and support the development of private economy. However, this post event "patching" approach just shows that the relationship between stable growth and risk prevention has not been effectively balanced in the early policy formulation.
"Deleveraging" should be more targeted
Based on the above analysis, the author believes that the focus of the Chinese government's work will shift to stable growth in the short term. At the same time, based on the current reality, the future deleveraging policy should be more targeted. The specific suggestions are as follows:
First, financial deleveraging should grasp the dynamics and rhythm. Strong financial supervision should be well coordinated with monetary policy and fiscal policy, fully evaluate the transmission effect of risks in the financial field to the physical field, and avoid new risks caused by overexertion.
Second, in the process of deleveraging, more attention was paid to resolving structural contradictions. Focusing on the structural characteristics of China's macro leverage, especially the structural problems of the non-financial enterprise sector, we will implement classified policies. For example, in the short term, efforts should be made to solve the development problem of private economy, and short-term "blood transfusion" and long-term mechanism arrangement should be equally emphasized; In the long run, the key areas of deleveraging are still state-owned enterprises and local government debts.
Third, resolve the conflict between incentive mechanism and policy objectives. The state-owned enterprises should not only rely on the assessment and punishment mechanism to force the deleveraging, but should start from the governance structure level, establish a reasonable incentive mechanism, and guide the state-owned enterprises to take the initiative to reduce leverage; There is no incentive problem for local governments to make up for shortcomings in infrastructure investment, but fiscal policies should consider "opening the front door" while "blocking the back door" to avoid conflicting policy objectives.
Fourth, make reasonable arrangements for debt to equity swap. The China Financial Stability Report 2018 pointed out that the current debt equity swap still faces many problems, such as funding sources, corporate governance, restructuring methods, etc. In addition, the author believes that whether this round of debt equity swap can finally achieve the desired effect depends on how to combine with the supply side reform, avoid bailing out state-owned zombie enterprises in the process, and simultaneously handle the relationship between deleveraging and capacity reduction.
(The author of this article introduces: Doctor of Economics, now Vice President and Chief Economist of Jingdong Finance.)
