Article/Xu Zhong, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
Macro regulation should better balance short-term demand management and structural reform, focus more on short-term demand management with reform ideas, stabilize economic growth, stabilize market confidence, and consolidate the foundation of economic development, so as to create conditions for further deepening supply side structural reform.
Since 2015, we have promoted the supply side structural reform according to the changes in the situation. As a medium - and long-term policy measure, the work of "three removal, one reduction and one compensation" has achieved remarkable results: the overcapacity has been gradually resolved, the inventory of real estate has declined in an orderly manner, the macro leverage ratio has stabilized, the comprehensive cost has been steadily reduced, and breakthroughs have been made in key areas and key links, Major risk points have been effectively controlled and resolved.
Recently, the internal and external pressure on China's economy has increased. Externally, the negative impact of Sino US trade friction has gradually emerged, and the division of Sino US business cycle has exacerbated the uncertainty of the external environment; Internally, downward pressure on the economy has increased, and some risk points have gradually emerged. How to stabilize expectations, stabilize domestic aggregate demand, and respond to external uncertainty with domestic certainty needs to grasp the main contradictions of China's economy and balance the relationship between short-term demand management and structural reform. At present, demand management needs to be carried out with reform ideas. Effective demand management also creates an appropriate environment for deepening the supply side structural reform.
Recently, I saw some discussions about China's economy. There is an obvious problem that short-term demand management is confused with structural reform. I would like to start from some basic concepts to analyze the current trend of China's macro-economy and the next macroeconomic policy orientation.
First question: What is demand management? To answer this question, it is necessary for us to return to the basic framework of macroeconomics and see what Keynes, the originator of macroeconomics, said.
On December 31, 1933, Keynes published an Open Letter to President Roosevelt in the New York Times. Keynes said in the article that President Roosevelt "shouldered the dual mission of recovery and reform - recovery from the economic recession, as well as the completion of those things that should have been completed long ago and social reform". However, Keynes put forward a very important point that recovery and reform should not be confused: on the one hand, speed and immediate effect are essential for recovery; On the other hand, even wise and necessary reforms may hinder and complicate the recovery in some aspects, because reforms may disrupt the confidence of the business world and weaken its existing motivation for action. Therefore, Keynes believed that there should be a sequence between recovery and reform measures, and reform measures should not be confused with recovery measures. When effective demand is insufficient, recovery measures should take precedence over reform measures. Keynes clearly put forward in the text that "the policy that should be given priority is to carry out large-scale government expenditure based on borrowing", and he further put forward that "I tend to give priority to those projects that can be operated in a large-scale, rapid and mature manner, such as railway construction. The purpose is to start recovery".
After the current round of international financial crisis, the United States basically followed Keynes' advice and walked out of the crisis through the trilogy of "Relieve, Recover, and Reform". Active fiscal policy and loose monetary policy "went hand in hand", and strong demand management strongly supported the economic recovery, This has created conditions for subsequent reform and rebalancing.
It can be seen that demand management aims to smooth short-term economic fluctuations. When the economic cycle goes down, recovery should take precedence over reform. Only after the economy operates normally can we effectively promote reform. We cannot change for the sake of change. This is like a patient who needs surgery. First, ensure that the patient gets better and has enough physical strength before surgery. Structural reform is economic surgery, while demand management is to maintain economic stability and supplement physical strength, which is the premise of structural reform and surgery.
Second, why are we used to mixing demand management with structural reform? I understand that this is mainly because China, as a transitional country, has not established and improved relevant systems and mechanisms, and macro regulation is extensive. In fact, it has undertaken the task of short-term demand management and structural reform at the same time, and some reforms have even been promoted by administrative means of regulation. The trade-off between short-term demand management and structural reform is manifested in the trade-off between short-term and medium - and long-term objectives of macro-control.
Broadening macro-control. In the report of the 19th National Congress of the Communist Party of China, there is a clear statement about macro regulation: "Innovate and improve macro regulation, give play to the strategic guidance role of national development planning, and improve the coordination mechanism of financial, monetary, industrial, regional and other economic policies." Literally, the four macro regulation policies under the guidance of the planning are very clear. But the profoundness of Chinese is reflected here, because there is a word "wait" in it. As a result, the economic policies formulated and implemented by various departments are more or less, either explicitly or implicitly, included in the middle of the word "etc.". Even some laws, regulations and systems that should have remained stable have been used as means of macro-control. Price policy, land policy, environmental protection policy, regulatory policy, and so on are all endowed with the function of macro-control. For example, the real estate regulation policy that everyone pays close attention to, with the help of administrative intervention means, limits purchase, loan, price, sales and business. It is called "five limits spectrum" in the market, and its power is no less than fiscal policy and monetary policy. In this sense, the extension of macro-control has been expanded indefinitely.
When macro regulation undertakes the goal of structural reform, it must be weighed against the goal of short-term demand management. The key is to accurately grasp the main contradictions. If we focus too much on short-term goals, there will be "flooding" and excessive stimulation. For example, for a period of time, China's excessively loose macro policies led to the "superposition of three periods". However, if we focus too much on the medium and long term reform goals and promote structural reform by administrative regulation, we will "die once we close and lose everything", amplify the short-term pain of reform, increase downward pressure on the economy, weaken market confidence and affect the further progress of reform. To balance the relationship between the two, it is necessary to accurately grasp the main economic contradictions and properly implement policies at a specific stage of economic development.
Third question: What are the main contradictions we are facing? The Political Bureau of the CPC Central Committee held a meeting on October 31 and put forward the important judgment that "the current economic operation is stable and changing", which shows that China's economic operation environment has significantly changed, the downward pressure on the economy has significantly increased, and the lack of effective demand has become the main contradiction at present, and this trend will continue in 2019.
It should be fully recognized that the downward pressure on the economy is due to both the objective factors of economic growth and transformation, and the subjective factors of the inadequate implementation of early policies. From the perspective of objective factors, China has shifted from a stage of rapid growth to a stage of high-quality development, and some factors and conditions supporting economic growth have changed. For example, the demand structure of high growth in the past was supported by wave draining, low-quality and low-cost consumption, but now this demand structure has changed; Another example is that the supply conditions have undergone a turning change, the number of labor force aged 15-59 has begun to decline, and the advantage of low labor costs is weakening. In this context, it is reasonable and inevitable for China's economic growth to slow down. However, we must be soberly aware that a considerable part of the current downward pressure on the economy is the result of inadequate implementation of early policies, and the impact of subjective factors is more significant. In the previous stage, there was a tendency of "one size fits all" in policy regulation. While rectifying the implicit debt of local governments, the capital gap for infrastructure construction was not considered, and the investment in infrastructure construction fell rapidly; Under the pressure of "replenishing inventory" in the real estate market, the speculative demand was hit by restrictive policies, but the reasonable demand for improved housing was also hurt by mistake; Administrative capacity reduction is more about output reduction to improve the profitability of midstream and upstream industries. Sports to strengthen environmental protection increases the burden on enterprises. Many efficient private enterprises have to withdraw from the market. Some macro policies lack coordination and coordination, and the policy effects overlap in the same direction, leading to the "synthesis fallacy". Some policies with good intentions have the opposite effect. In addition, the intensification of Sino US trade frictions and the delay in promoting in-depth reforms such as state-owned enterprises, the fiscal and taxation system, and market access, which resulted in unstable policy expectations and insufficient market confidence.
Therefore, China's current macro-control should better balance short-term goals and medium - and long-term goals, focus more on short-term demand management, stabilize economic growth, stabilize market confidence, consolidate the foundation of economic development, solve problems in development, and create conditions for further promoting supply side structural reform.
Short term demand management with reform ideas should have two meanings. First, we should emphasize reform thinking and accelerate the introduction of reform measures that can stabilize the economy and promote demand. For example, the tax system reform with the effect of tax reduction, the policy measures to replenish capital for financial institutions so as to improve their lending capacity, etc. The second is to improve working methods and strengthen the overall coordination of macro policies and reform measures. Improve the scientificity of policy formulation, fully assess the potential impact of policies, and avoid "one size fits all"; Strengthen policy coordination to avoid policy effects overlapping in the same direction and overexertion; The policy implementation should be incentive compatible to ensure that the policy implementation is not out of shape.
Next, I would like to further analyze your concerns from the perspectives of aggregate demand and macroeconomic policies.
2、 Difficulties and key points of demand management
It should be fully recognized that China's economy is resilient, has great potential, has sufficient domestic demand, and has the conditions and foundation to maintain economic stability and deepen reform. First, the growth of domestic consumption volume and structural optimization have become the ballast of economic growth. Second, the industrial chain is complete, and the ability to withstand external shocks is strong. Third, the region is vast, and there are differences in factor endowments, comparative advantages and development levels between different regions. Under the unified domestic market, there is great room for manoeuvre to complement each other's advantages, develop in gradient, and optimize resource allocation. Fourth, there is great potential for reform dividend. Through the supply side structural reform, we will resolve institutional structural contradictions, liberate productivity, improve total factor productivity, and constantly improve the quality of growth. From the perspective of development stage, China's urbanization still has great potential. I want to focus on the real estate investment and infrastructure construction investment in the total demand.
（1） Real estate investment and real estate regulation
The current real estate regulation has been implemented for more than two years, with obvious results. The policy environment in the first and second tier cities is strict, showing a five limit pattern of purchase, loan, sales, price and business restrictions. The rise of house prices has been effectively suppressed, and some speculative demand in the market has been squeezed out, maintaining the basic market positioning of "houses are for living, not speculation". At the same time, the tightening effect of the policy gradually appeared, and the growth rate of real estate investment continued to slow down. In 2018, the market rule of "nine golden years and ten silver years" was broken. In September, the sales area of commercial housing nationwide decreased by 3.6% year on year, and in October, it decreased by 3.1% year on year. In October, the national real estate development investment increased by 7.7% year on year. The growth rate fell for three consecutive months, down nearly half from the 13.2% peak in July.
In the short term, it is reasonable and necessary to maintain tight regulation of the real estate market in the first and second tier cities. At the same time, it is necessary to increase housing supply to better meet the rigid demand for housing. 1、 The population inflow of second tier cities has brought about the natural growth of rigid housing demand. By expanding land supply and guiding developers to increase housing supply, we can not only effectively meet the demand for housing, especially for improved housing, but also ease the pressure of rising house prices. The increase in housing supply will also help real estate developers clear their inventories, stimulate real estate investment, and ease the growth pressure brought by the slowdown in investment growth. First, ease the financing pressure of real estate developers and enhance supply capacity. Second, the development of real estate investment trust funds (REITS) is conducive to developers using long-term funds to promote both leasing and sales.
In the long run, establish and improve a long-term mechanism for the healthy development of the real estate market. First, market-oriented reform and improvement of the land system, the establishment of a nationwide unified market for land pricing and transaction, and the realization of a nationwide balance of land occupation and compensation. The second is to promote the real estate tax pilot. The promotion of small-scale pilot will not have too much impact on the national situation. The real estate tax should become one of the main taxes of local governments to reduce the dependence of local governments on land transfer fees. The third is to promote the implementation of "rent and sale with the same right", and gradually peel off the administrative attributes of real estate and household registration, so that real estate can return to the residential demand. Of course, in order to truly reduce the added value of real estate on the basis of residential demand, reforms in the household registration system, education resource distribution and other related fields need to be coordinated.
（2） Infrastructure construction investment and local government debt
Local government debt tightened too fast, and the growth rate of infrastructure investment fell back more. Since the beginning of this year, the efforts to "block the back door" of local government debt have been greatly strengthened. In March this year, the Ministry of Finance issued the Notice on Issues Related to Regulating the Investment and Financing of Financial Enterprises to Local Governments and State owned Enterprises (CJ [2018] No. 23) in the first half of this year, to restrain financial institutions from providing funds to local governments, state-owned enterprises, PPPs and local financing platforms as investors. In August this year, the central government issued two documents, namely, the Opinions on Preventing and Resolving the Risks of Implicit Debt of Local Governments and the Accountability Measures for Implicit Debt of Local Governments, which effectively curbed the behavior of implicit debt of local governments. At the same time of blocking the back door, the "opening the front door" of local government debt is too small, leading to a large drop in the growth rate of infrastructure investment and increasing downward pressure on the economy. The scale of government bond issuance arranged in the financial budget is far below the reasonable demand in reality. According to the estimation of the International Monetary Fund (IMF), China's "expanded deficit (real deficit ratio)" in 2018 is 10.7%. Even if local special bonds are included in the calculation, the nominal deficit rate of the 2018 budget arrangement is only 4%. A large investment gap has emerged in some infrastructure projects that need to address weaknesses. In October 2018, the cumulative growth rate of infrastructure investment excluding power dropped to 3.7%. The growth rate of infrastructure investment fell back a lot, which is one of the main reasons for the slowdown of the overall investment growth.
The risk of local government debt is controllable, so we should be alert to the risk of risk disposal. To analyze the sustainability of local government debt, the core should be net assets rather than debt scale. In the process of "right hand" borrowing by local governments, the "left hand" asset side has also accumulated a considerable amount of high-quality assets. These high-quality assets, such as land and state-owned enterprise equity, can completely cover the existing debt. The net assets are sufficient, but there is no way to realize assets for debt repayment. The IMF also pointed out in its Financial Supervision report in October that the net assets of the Chinese government are sufficient. However, if the pace of clearing local implicit debt is too fast, the downward pressure of the economy will breed downward pressure on the price of local government assets, making local government assets face the danger of "fire sale", leading to the reduction of net assets, which will become the risk of disposal risk.
In the short term, considering the differences in local conditions, the front door should be opened sufficiently, and local governments with conditions and needs should be allowed to borrow money to support infrastructure construction. From the perspective of the current situation of local government debt, the risk situation varies from place to place. Some places have high debts and need to tighten budget constraints. Some places have sufficient net assets and still have room for borrowing, which cannot be generalized. In terms of the demand for infrastructure construction, China's urbanization level is still low, the population is still moving across regions on a large scale, and there is still a large amount of demand and potential for infrastructure investment in regions with population inflow and better economic development, which should not be "one size fits all".
In the long run, the failure to rationalize the relationship between the central and local governments is the institutional root behind the local government debt. We should start with improving the relationship between the central and local governments. First, establish a system of "one level government, one level finance, one level budget, one level tax power, and one level borrowing power". The finance of governments at all levels is relatively independent and self balancing. Relax the administrative constraints of the central government on the amount of debt, increase the amount of local government borrowing, completely open the "front door" for local governments to regulate financing, and avoid "death upon collection". We will straighten out the financial relationship between the central and local governments, actively promote the trials of local taxes such as real estate, and stabilize local financial resources and financial rights. The second is to establish an effective market-oriented constraint mechanism to avoid "letting go of chaos". Improve the governance system, improve the transparency of debt information, and give more play to the constraint role of financial markets. Give play to the binding role of the local people's congresses, and the local people's congresses will independently decide the amount, term and interest rate of bonds issued.
In addition to infrastructure construction, real estate and other traditional fields, China is facing new and rapidly growing demands in green development, 5G technology, education, medical care, old-age care and other fields. To cultivate and develop these fields into new growth points of China's economy, we must create a good environment for them. For example, reduce market access barriers and strengthen supervision during and after the event; Adhere to the "competition neutrality" of state-owned enterprises, and let private enterprises compete fairly with state-owned enterprises; We will further streamline administration and delegate power to lower levels, and reduce administrative intervention in the market.
3、 Deal with the relationship between monetary policy and fiscal policy in demand management with reform ideas
（1） The Short term Response of Monetary Policy and the Reform Direction of Financial System
Fully recognize the limitations of monetary policy on stimulating growth. For the economy, the role of monetary policy is like "rope". The effect of "restraining overheating" is stronger than that of "promoting growth". Monetary policy is a macro policy that directly affects the financial system and transmits to the real economy through the financial system. The transmission path of monetary expansion to the real economy is long and the effect is slow. The stimulus intensity is greatly affected by the risk preference of financial institutions. The effect is uncertain, and it is usually not the first choice for stable growth. At this stage, the focus of monetary policy should be to maintain an appropriate monetary environment.
It is not advisable to expand M2 and social finance blindly. At present, China's economic growth has been mainly driven by domestic demand, and consumption and service industries have gradually become the main driving factors. Compared with investment and manufacturing, China's dependence on capital is low, so the correlation between quantitative indicators such as M2 and social finance and the real economy has significantly declined. The blind pursuit of financing supply measured by M2 and social finance and the failure to find ways to boost the real economy will not only fail to solve the contradiction of insufficient effective demand, but also increase the pressure of rising prices and asset prices. In the long run, the potential GDP growth rate has declined significantly, the inflation environment has become more stable, the interest rate gap has gradually narrowed after deregulation, and payment technology has developed rapidly. The lower M2 growth rate than in the past meets the requirements of high-quality development. Therefore, quantitative indicators should be gradually diluted, and the role of price mechanisms such as interest rates and exchange rates should be further strengthened.
The effect of monetary policy largely depends on the health of financial institutions and regulatory policies. Monetary policy is conducted through financial institutions. The health of financial institutions determines the effectiveness of monetary policy transmission. The regulatory policy directly affects financial institutions, directly affects the balance sheet of financial institutions, and largely determines the transmission effect of monetary policy. Since this year, financial regulatory policies have been strengthened. With the contraction of the shadow banking system and off balance sheet recapitalization, financial institutions' risk appetite has declined significantly, capital adequacy ratio is under pressure, credit supply has slowed significantly, and monetary multiplier has declined, which has a significant impact on monetary policy transmission. From the perspective of the real economy, the formal financial system and the shadow banking system are tightened at the same time.
In the short term, in the context of deleveraging, efforts should be made to ease the capital pressure of financial institutions, restore and strengthen their support for the real economy. First, expand the channels for financial institutions to supplement capital; The second is to ease the capital pressure of financial institutions through asset securitization; Third, guide banks to strengthen financial support for private enterprises, especially small and medium-sized enterprises, and solve the pain point of "difficult and expensive financing".
In the long run, in order to meet the requirements of economic growth transformation, the financial system should shift from mainly supporting state-owned enterprises, infrastructure and real estate investment in the past to increasing financial support for small and micro enterprises. Considering the fact that China's large banks dominate, the small and medium-sized banking system is not perfect, and the proportion of direct financing is still low, the reform and improvement of the financial system can start from the following aspects. First, improve the small and medium-sized banking system, enrich the level of financial supply, and better meet the financial needs of small, medium-sized and micro enterprises. Second, give full play to the role of financial technology to promote the development of inclusive finance. Third, the branches of large commercial banks in some counties and cities where the financial services of small and micro enterprises are well developed can consider transforming into subsidiaries of large commercial banks by introducing private capital and foreign capital, so as to realize the specialized operation of financial services for small and micro enterprises as independent legal persons. The fourth is to explore the "main bank system". The main bank can effectively improve the information production, information processing and information circulation of both financing parties and improve the availability of financing by establishing close links with small and micro enterprises in terms of equity, capital flows, etc.
（2） The space of fiscal policy and the direction of fiscal and tax system reform
For a period of time, the financial department has made great efforts to implement positive fiscal policies, deepen the reform of value-added tax, accelerate the reform of individual income tax, reduce the non tax burden of enterprises, and standardize local government debt. Under the current situation, there are some different views on better implementing the proactive fiscal policy. For example, some people believe that VAT is not actually the burden of enterprises, but is ultimately borne by consumers. Reducing VAT has less impact on enterprises, and tax reduction should focus on reducing corporate income tax and individual marginal tax rates. These problems should be carefully and thoroughly analyzed.
First, by international comparison, China's macro tax burden is not high, mainly because of the heavy burden of social security payment. In the discussion of macro tax burden, with GDP as the denominator, the numerator usually has three dimensions. First, "narrow tax burden" only includes the tax itself. In 2017, China's narrow tax burden rate was 17.5%, 8.7 percentage points lower than the average level of 26.2% in OECD countries. Second, "medium tax burden", including tax revenue, non tax revenue and social security burden. In 2017, China's medium-sized tax burden rate was 27.9%, 8.1 percentage points lower than the OECD average of 36%. The third is "large caliber tax burden", including tax revenue, non tax revenue, social security payment revenue, land transfer fees and other state-owned assets disposal revenue. In 2017, China's large-scale macro tax burden rate was 37.3%, 5.1 percentage points lower than the average level of 42.4% in OECD countries.
At present, the total of five social insurance contributions in China has reached 39.25% of the total wages of enterprises. According to the calculation of the World Bank, China's "total tax rate" in 2016 was 68%, of which the social security contribution accounted for 48.8 percentage points, the heaviest burden. Historically, the introduction of the social security pension system in China coincided with the reform of state-owned enterprises in the late 1990s. At that time, the pay as you go system was adopted, that is, the current workers' contributions were used to pay the current retirees' pensions. The retirees who first applied the new method to receive pensions did not pay pensions during their working period, and the financial burden of the "deemed contribution" policy was completely transferred to the in-service staff after the implementation of the new system. The transformation of the old and new systems has resulted in a huge historical debt, and the government has not borne the cost of system transformation. In order to meet the demand for pension payment, higher rates have to be set for the working population, which makes it difficult to reduce the pension rate.
In the short term, the social insurance rate still has room for further decline. Social insurance payment is the heaviest part of enterprises' broad tax burden at present. Reducing social insurance rate has a significant impact on enterprises' "cost reduction". In the long run, in order to adapt to the development trend of population aging, we should change the pension financing model from the pay as you go system to the fund accumulation system, make the personal pension account real, make the account property rights clearer, realize the positive incentive of "more pay more", and mobilize the enthusiasm of individuals to participate in social security. At the same time, we will strengthen the transfer of state-owned capital to social security, make up for the historical arrears of pension funds, and ensure the sustainability of social security funds in the context of population aging. Holding the equity of state-owned enterprises with pension funds is conducive to improving the corporate governance of state-owned enterprises, and can also avoid a few countries' accusations against China on issues related to state-owned enterprises.
Second, VAT does not theoretically constitute a burden on enterprises, but China's VAT tax system is distorted, resulting in a heavy sense of tax burden on enterprises. Under the real VAT system, VAT is ostensibly paid by enterprises, but enterprises can transfer the tax burden to the final consumers through commodity pricing. Therefore, the World Bank does not include VAT when calculating the "total tax rate" indicators of countries. In China's VAT collection and management practice, the VAT deduction chain has not been fully opened, the input tax deduction is insufficient, and enterprises cannot fully transfer it. For example, after the full implementation of replacing business tax with VAT in May 2016, the financial industry has been included in the scope of VAT collection, but the input tax cannot be deducted from the loan interest, and the downstream manufacturing enterprises still cannot deduct the VAT contained in the loan interest. For another example, the collection and management of business tax has certain flexibility, but the collection and management of value-added tax has a cross comparison and balance mechanism between upstream and downstream enterprises, and the management is more strict. Previously, some small and micro enterprises did not pay taxes, but now they must pay VAT, otherwise they cannot issue VAT deduction vouchers to the demander, and their business will be affected. The final result is a tax reduction for large and medium-sized state-owned enterprises and an increase in the tax burden for small and micro enterprises.
Therefore, in the short term, the reduction of VAT still has a substantial impact on the tax burden of enterprises, and it is necessary to reduce it. In the long run, we should promote the improvement of the value-added tax deduction chain, reduce the distortion effect in the tax system, and make value-added tax truly "neutral" to enterprises.
Third, the tax burden structure of individual income tax is unreasonable, and the tax burden of low - and middle-income groups is too heavy. Individual income tax is a powerful tool to adjust income distribution. In theory, it should mainly target the middle and high income groups and exclude the middle and low income groups as far as possible. For example, the proportion of individual income tax in the total tax revenue in the United States reached 39.3%, far higher than that in China, which accounted for 8%, but 45% of the people did not pay individual income tax at all. In the Netherlands, only 20% of the population has to pay personal income tax. The situation in China is that in 2016, the number of taxpayers has accounted for 82% of the number of urban employees, and the low - and middle-income wage earners have become the main taxpayers, with a heavy tax burden. On the contrary, some high-income groups failed to do a good job in tax collection and management, and the taxes that should be collected were confiscated. In order to ensure tax revenue, the threshold applicable to low and middle-income groups is too low and the tax rate is too high.
Therefore, in the short term, the individual income tax rate can be reduced and the threshold can be raised. In the long run, we should constantly strengthen tax collection and management for high-income groups, increase penalties and deterrence, and better safeguard social equity.
Fourth, a proactive fiscal policy should be more proactive. At present, we should learn from the lessons learned from the European economic recovery. After the international financial crisis, the euro area's financial system was flawed, and the demand management fiscal policy was not strong enough to drag down the economic recovery. Now, after the recovery, the economic growth momentum is unstable. Fiscal policy directly affects the real economy, with short transmission path, quick effect and strong strength, which can effectively support economic growth. At present, China's fiscal policy space is sufficient. The strength of fiscal policy is mainly constrained by the low arrangement of the central fiscal deficit. The central fiscal deficit still has room for expansion. We should improve the transfer payment system and improve the efficiency of the use of financial funds. At present, some local governments have left the central special transfer payment funds idle due to insufficient funding, which urgently needs to revitalize several trillion yuan of national treasury funds. At the same time, there is room for improvement in the fragmented use of financial funds and how to focus on major issues and address weaknesses.
In the short term, the proactive fiscal policy needs to focus on the infrastructure sector, highlight weaknesses, maintain effective investment, and promote the expansion of domestic demand. Of course, a positive fiscal policy cannot follow the old path of "flooding". Instead, it should take the reform thinking, from the perspective of supply side structural reform, and be committed to reinforcing weaknesses and expanding domestic demand.
In the long run, we need to accelerate the transformation from constructive finance to public finance. We will continue to optimize the structure of financial expenditure, reduce the expenditure on marketable infrastructure projects, increase the expenditure on education, medical care, old-age care, environmental protection, poverty alleviation and other public areas, provide efficient and satisfying public services, and enhance the "sense of gain" of the people. It is worth noting that there is a process in China's economic growth transformation. It also needs a process for fiscal expenditure to shift from supporting infrastructure and other construction fields to providing public services and public goods. In the short term, there is still room and potential for China's infrastructure construction. We should not "cut across the board" in infrastructure construction to address weaknesses. We should allow a steady and gradual transformation of the fiscal expenditure structure, and provide a stable environment for the transformation and upgrading of the economic structure and the switching between the old and the new growth drivers.
In short, China can implement a more proactive fiscal policy without so-called resource constraints. From the extension of Keynes theorem, demand creates supply. Fiscal expenditure will not only increase investment, but also increase savings, which is not restricted by the current savings level. Of course, under the realistic condition of insufficient effective demand, how to fully finance financial expenditure, how to effectively issue financial bonds, and how to safely control financial risk prevention, these technical issues should also be studied in depth. However, in accounting for large accounts, fiscal expenditure has the function of "self financing", and there is no problem of saving resources constraining fiscal space.
To sum up, I believe that the main contradiction of China's economy at present is insufficient effective demand. We should adhere to the principle of "giving play to the decisive role of the market in resource allocation and giving better play to the role of the government". Macro regulation should better balance short-term demand management and structural reform, and focus more on short-term demand management with reform ideas to stabilize economic growth Stabilizing market confidence and consolidating the foundation of economic development can create conditions for further deepening the supply side structural reform. Of course, it is also necessary to strengthen the overall coordination of macro policies, avoid uncoordinated policies and overlapping effects, and advance various macro policies and reforms in an orderly manner.
This is the author's speech at Caixin Summit
(About the author: Xu Zhong, Director of the Research Bureau of the People's Bank of China)
