Chapter 2 Chapter 1 Crisis: Internal and external troubles create a "perfect storm"

Export-oriented economies around the world are in trouble.The development of China's economy can be said to have experienced 30 years of rapid growth until 2008.The concern now is: Can this growth miracle continue after 2009? Wei Jie: This question deserves further study.It is not difficult to see that the biggest impact on China in 2008 was the decline in economic growth.In this regard, the majority is attributed to the US subprime mortgage crisis, followed by the "cycle theory". I personally think that it is neither the so-called economic cycle problem nor the subprime mortgage crisis.

Taking the US subprime mortgage crisis as an example, it did not coincide with the decline in China's economic growth rate in terms of timing - the subprime mortgage crisis broke out in September 2008, and the large-scale shutdown of our enterprises actually started from the end of 2007 to the beginning of 2008 . What is the problem in tracing the source of the crisis?Pushing the reason to the United States or the economic cycle is obviously not conducive to our self-examination, so could it be that our strategy is biased? After 1998, China basically relied on exports to drive its economy, and exports contributed more than 40% to GDP!

You must know that export-oriented economies all over the world have problems. Japan in 1987 and Southeast Asia in 1997 are all caused by export-oriented economies. In China, the problems of this export-led growth approach were exposed as early as 2006.At that time, we felt the seriousness of the problem: export orientation must be a double surplus, a trade surplus and a capital surplus. The result of the double surplus is that a large amount of foreign exchange flows into China, and our foreign exchange reserves have risen sharply, forcing the central bank to issue RMB purchases; foreign exchange cannot be circulated in China, and must be purchased by the central bank. The economy is unstable.At the same time, foreign exchange has become a "hot potato" in the hand.Because foreign exchange is a symbol of foreign purchasing power, it can only be invested abroad; but there are problems with foreign investment. Whether it is buying US treasury bonds or buying US corporate bonds, it has finally become an important channel for China's wealth to shrink.Therefore, China's direction is not to engage in a highly export-oriented economy, and must be adjusted.

Ordinarily, it should start domestic demand first, then reduce exports according to the adjustment of domestic demand, and gradually turn to domestic demand-driven, so as to realize the transformation of China's economic growth mode. However, we didn't do that. In 2007, China began to significantly reduce exports, and two major policies had the greatest effect: one was to significantly reduce export tax rebates, which were cut three times on March 1, November 1, and at the end of the year, involving more than 3,000 industrial products. Some have dropped by as much as 80%.However, many domestic enterprises basically survive on export tax rebates.Another policy is to substantially increase export tariffs, such as coke has increased by more than 40%.Therefore, in 2007, we drastically reduced exports without starting domestic demand. As a result, exports were unable to export and domestic demand did not rise. Coupled with the impact of macro policies including monetary tightening, companies reduced production, stopped production, and even went bankrupt. .Therefore, we must pay attention to and summarize the mistakes in the process of shifting from an export-oriented economy to a domestic demand-driven economy.

At the end of 2007, entrepreneurs made money in a daze; at the end of 2008, they did not make any money through hard work.A correct understanding of the current crisis situation is undoubtedly the key to prescribing the right medicine.But this often has a dynamic process from shallow to deep.As an economist who studies macroeconomics, finance and crisis management, what judgment do you focus on on the causes of this crisis? Wei Jianing: There are many judgments about the cause of the current crisis. Let me share my personal opinion. Our National Research Center has an entrepreneur survey system. At the meeting at the end of 2007, many entrepreneurs said that they made money in a daze, which I said was a typical feature of an economic bubble; when the meeting was held again in November 2008, the situation was just the opposite. After hard work, no money is made for some reason, and demand shrinks sharply, which is a typical feature of a bursting bubble.When the bubble bursts, there will be a sudden change from excess liquidity to tight liquidity almost overnight.

The reason why China's economy changed so rapidly in 2008 was that two bubbles burst at the same time: one was the external economic bubble.First, the real estate bubble in the United States began to burst, which ignited the financial bubble in the United States. After the financial crisis, it triggered the real estate bubble in Europe. The other was the bursting of the domestic bubble. In fact, Puer tea was the first to burst. In June 2007, the price of Pu'er tea suddenly plummeted, followed by a sharp plunge in stock market prices, and then real estate prices began to loosen.The "meeting" of the two bubbles at home and abroad led to a sharp shrinkage of demand, especially after September, which caught many people off guard.This is a classic symptom of a bursting economic bubble. After all, the "bubble" is just a phenomenon. There are deeper reasons behind the simultaneous bursting of the two bubbles.

Not long ago, Mr. Wu Jinglian made the deeper reasons very clear at the Beijing International Finance Forum: the United States is a bubble caused by high consumption/low savings; High consumption.Such an unbalanced state eventually led to the bursting of the two bubbles at the same time, causing drastic changes in the current economic situation. Regarding countermeasures, there are currently two opinions in China. One school of opinion advocates adjustment, and believes that the deep-seated problems of China's economy are structural imbalances, including internal and external structural imbalances, structural imbalances between investment and consumption, industrial structure imbalances, and regional structural imbalances.This requires structural adjustments.In the past, when the economy was growing rapidly, there was no adjustment at all. Only when the economy was going downhill, there was the pressure and motivation to adjust.

Another school of opinion advocates expanding domestic demand.The main reason is that they are worried that excessive adjustment will cause the economic growth rate to decline too fast, and worry that "it is easy to brake but difficult to start". I am the third opinion, advocating structural adjustment on the one hand and expansion of domestic demand on the other hand. However, whether it is structural adjustment or expansion of domestic demand, we need to rely on reform. Wall Street is drunk, who sent the wine?Most of them are sent from China.We know that since the beginning of this century, the global economy has continued high growth for many years until the beginning of 2008 marked by the US financial crisis a major turning point.Western mainstream economists have many explanations for the root cause of this crisis, such as greed on Wall Street, weak regulation, and high leverage ratio.

Xia Bin: Although these reasons are important, they are all technical and secondary.I think the root cause of this crisis is that in the current round of economic globalization, the U.S. government has misjudged the situation. In the process of actively promoting globalization, it has made mistakes in macro decision-making, desperately expanding credit, stimulating real estate market bubbles, and expanding consumption. In order to maintain and promote high economic growth.So from the subjective point of view of the US government, it is due to policy mistakes.If the U.S. policy mistakes can cause such a big thing, can the macro policy mistakes of the United Kingdom, Germany, the European Central Bank, and China also have such a big thing?impossible.This shows that there are profound institutional reasons behind the crisis.That is, there is a problem with the dollar-dominated international monetary system.

When the crisis broke out in 2007, Bush Jr. once criticized "Wall Street is drunk." I would like to add what Bush Jr. said: Wall Street is drunk, who gave the wine?Most of them are sent from China.Now that Wall Street stops drinking, we have to drink it ourselves, and we need to expand domestic demand and consumption.It turns out that Wall Street drinks XO, which we Chinese generally don't drink.People in Beijing drink Erguotou, and people in the south drink Huadiao, so we need to adjust the structure of industries and products.Therefore, under the current circumstances, the two major "engines" of the world economy, one is the United States and the other is China, are both facing major structural adjustments, and the United States may have more difficulties than China.Obama is pushing for health insurance reform.Some congressmen in the United States said that there has been a confrontation among ordinary people in the United States that has never been seen since he entered politics. Some people even painted Obama as Hitler, calling him an anti-white nationalist.Moreover, the White House of the United States just announced some time ago that the fiscal deficit in the next 10 years will reach 9 trillion US dollars.

Therefore, while the United States is promoting medical insurance reform, it also needs to speed up structural adjustment and stimulate the economy. It is nothing more than more exports and more investment. It can no longer focus more resources on finance and services as before. .What will be the result?There will inevitably be a depreciation of the dollar.Therefore, there are many uncertainties in the future situation of the US economy. I think that without the active promotion and participation of the US government, we should not have too much hope for the reform of the international monetary system.Of course, as an economist, there is no doubt that we can discuss back and forth, and it is possible to promote some changes in the details of the international monetary system, but it is not easy to fundamentally solve the instability of the current world monetary system.So, can we start from the point of view, just like China's thinking on energy conservation, emission reduction and low-carbon economy?Therefore, the most important thing is to slightly change the procedure for formulating the rules of the game of the international monetary system. For example, in the International Monetary Fund (IMF), the 17% voting rights of the United States can be slightly reduced.The United States should proceed from the perspective of long-term sustainable stability of the international economy and have a posture.I believe that the Chinese government will definitely take a stance on the issue of low-carbon economy from a global perspective and from the perspective of bilateral consultations.Then, on the issue of the international monetary system, the U.S. government should start bit by bit, right in front of us, as it did with the low-carbon economy. What changes will occur in the structure of the world capital market in the next five or ten years?What do you think about the world economic recovery, especially the structural adjustment of China and the United States in the economic recovery? Xia Bin: I think China's structural imbalance is relatively easy to solve, and there are conditions to solve it. The key is the government's decision-making, which depends on the determination and timing of the decision-making.This is my basic judgment, so I won't go into details.From the perspective of the United States, I think the United States is more difficult.There are currently two major problems in American society, one is the economic problem, and the other is, as President Obama himself said, the most difficult problem since he took office. It is not an economic problem, but a medical insurance reform problem.Obama is also determined to solve this problem at the cost of not being re-elected as president.The future risk of China's economy is the problem of declining growth, while the risk of the United States is not limited to this problem. Because when formulating a large deficit budget, I believed in official US economists and policy think tanks. The underlying thinking was that I wanted to get through the current difficulties first. After I finished, I still wanted to restore the historical experience, first depreciate, and then appreciate, through capital market financing. Here, we should have a new thinking about the changes in the structure of the world capital market in the next five or ten years.Don't plan your future budget simply by following what has been successful in history.I think it's dangerous to do so.Because under the guidance of such a strategy, it is possible to lead the United States, the economic and military hegemony, to a faster decline.That is to say, after this round of financial crisis, American economists have to pay attention to the views of other countries on the structure of the world capital market and their tendency to "de-dollarization".From a long-term perspective, when you appreciate again, whether the global funds will return to the United States in large quantities as it has been performed in the past history is a question mark.Regardless of whether it is South America, Russia, or the Middle East, they are all thinking of using less US dollars and using local currency for settlement and investment.Including we are also thinking about the issue of RMB internationalization.Since all countries have seen the problems of the current international monetary system, the United States should pay attention to the emergence of new situations when formulating fiscal and financial policies.