Chapter 4 Chapter 3 Economic Recovery: Heal the Scars and Forget the Pain

Economic recovery, is confidence really gold?Regarding the issue of economic recovery, many people question its authenticity. Taking real estate as an example, some researchers have shown that "land kings" are basically speculated by state-owned enterprises or real estate developers with state-owned backgrounds; you also said that China's economic Recovery has been costly.So, what are the criteria for judging whether the economy is recovering? How should the word "recovery" be defined scientifically? Chen Zhiwu: Whether the recovery is judged or not depends more on the official GDP data.Although everyone knows that there is some water behind it, including the local government's pressure from political performance, they continue to inject water into the data and do some tricks.However, judging from some hard indicators, the "4 trillion" stimulus package and the 7 trillion day-to-day loan will definitely be able to generate some GDP in the short term in infrastructure construction and industrial projects.So generally speaking, there are indeed signs of economic recovery.In my opinion, recovery should be measured more from the perspective of GDP increment. As long as its increment is greater than zero and the overall growth no longer becomes negative, it means that it has rebounded from the bottom, which is recovery.Of course, some people may define recovery as returning to the level before the recession, which is a relatively high standard.It now appears that relying on 7 trillion credits to stimulate the economy in the short term will at least pay a huge structural price.One outstanding issue is the whereabouts of the 7 trillion yuan of loans.

A large amount of credit is mainly to support those large and medium-sized state-owned enterprises and large private enterprise groups, and in addition, various "iron public-based" projects of local governments, which will have destructive effects on the entire society, including the income and employment of ordinary people. influences.The market economy itself will also suffer damage, and many private enterprises will wear "red hats" as a result.The most deadly thing is that after the limited domestic resources are invested in the "iron public foundation" project, a large number of small and medium-sized enterprises will inevitably get less funds, and the private (private) economy will further fall into trouble.These small and medium-sized enterprises have contributed more than three-quarters, or about 75%, to China's non-agricultural employment.Therefore, when a large amount of money is invested in these large projects that do not create job opportunities, the creation of job opportunities will be fundamentally damaged.Once the growth of employment opportunities declines, it means that the income of ordinary people has decreased; although the growth of employment opportunities is declining, the demand for employment is still growing, and there are more than 10 million new employment teams every year.This has exacerbated the imbalance between supply and demand in the job market.

We all know the most basic principle of economics, that is, when supply exceeds demand, prices will fall.This means that the rising pressure of labor force prices and rising income will be equal to zero, while the downward pressure will increase.This is why it is said that the excessive easing of credit and the "4 trillion" stimulus package have a very large negative impact.Under the powerful crowding out effect, the "Tie Gong Ji" has not yet had much impact on the currency multiplier effect.The currency multiplier effect relies on the funds borrowed by the private economy, including fiscal expenditures and some credit input from the government, and then produces some amplification effects.However, if the private economy does not receive financial support, the amplification effect it can produce will be very limited.It can now be seen that the amplification effect is rare in the private economy.The most obvious phenomenon is the commercial travel market, hotels and inns for commercial and residential use. In the past six months and even now, the business has been bleak.This further reflects the reality behind it, that is, the economic activities that actually do trade have decreased, indicating that the real economy must have been greatly impacted.

As far as I know, like some foreign-funded enterprises, the sales data released since the financial crisis are all false, because of political pressure, they advocate that confidence is gold.If the real data is released, wouldn't it be a blow to confidence!So this is pretty fun.One of the interesting phenomena is that the data released by foreign-funded enterprises operating in China in the first half of 2009 seems to generally be slower than that of domestic enterprises, especially the growth rate of state-owned enterprises.Behind this also makes me feel that some companies still have a lot of water in their growth. Otherwise, foreign-funded companies and domestic-funded companies are both doing business in China. How can there be such a big difference?Foreign-funded enterprises are experiencing negative growth, while domestic enterprises, especially state-owned enterprises, are experiencing high-speed positive growth.I think, from another aspect, it also reflects the problem of government data.Confidence is gold, provided that it is real confidence, not fake.False confidence is tantamount to exaggerating people's expectations for the future and making some investments and consumption blindly.It's very scary.

Now the public actually has doubts about these data. In the long run, there will always be some bubbles and negative impacts, and it will also overdraw confidence in the future. China's economy "hopes for it to be good and prepares for it to be bad". As a scholar, although you are on the other side of the ocean, you have such profound observations on the Chinese economy.I don't know if you are optimistic or pessimistic about the basic direction of China's economy? Chen Zhiwu: In the long run, I am quite optimistic about the prospect of China's development.Because I am very interested in the evolution of human history and the history of specific countries, including China.China's future development will be the same as that of developed countries, and it will eventually realize a society ruled by law based on democratic constitutionalism.Looking back at the innovations of the past 30 years, whether it is economic, legal or other institutional reforms, great progress has indeed been made, and the trend of reforms should be affirmed.So, from an incremental perspective, I'm still optimistic.Although in the short term, as we just said, people draw some specious conclusions from similar financial crises, but the long run is not so pessimistic.It is worth mentioning that, perhaps due to human nature, it is basically an attitude of not shedding tears until the coffin is seen, and then some crises have to be needed to prompt the society to carry out some drastic changes in the system.This is why it is said that although the crisis will bring some harm to the society and some individuals, it is helpless that without a crisis society, there will be no pressure for self-correction.

The paradox is that, on the one hand, all scholars and decision-makers hope that society can avoid economic and other crises; but on the other hand, if all crises in society are completely eradicated, it may not be a good thing for human society. good thing.From an objective point of view, it is impossible to completely overcome the crisis. Without a crisis, human beings will become more and more confident, and then become arrogant, which becomes the foreshadowing of the crisis.In this sense, including myself, I also have conflicting psychology as you said: on the one hand, I am also trying to help different countries minimize the probability of crisis; on the other hand, I also know that crises sometimes Not a bad thing, it has its positive side.The only thing I want to add is: after the financial crisis, many people originally had good wishes, thinking that China would use the opportunity of the financial crisis to push forward some fundamental reform measures based on the consideration of long-term economic growth. Especially the democratization reform.But now it seems that the economy has begun to recover, the pressure is getting less and less, and the voice of reform has stagnated, which is a pity.In the long run, unless private ownership reforms are carried out, it will be difficult to realize the desire to rely on the growth of private consumption to stimulate domestic demand and drive the transformation of China's economic growth model.

China's role in global economic recovery is important.In the process of global economic recovery, what role will China play and what role will it play? Stiglitz: I think China will play a very critical role in the recovery of the global economy.First of all, China will maintain its economic growth through appropriate macroeconomic policies, which itself is an important contribution to the world economy; second, through assistance to other developing countries, China will also contribute to a comprehensive and comprehensive recovery of the global economy. contribute.And by participating in the activities of international organizations such as the G20 and the United Nations, China will promote the reforms in them that will be necessary to restore confidence and create a more stable global economy.The international economic recession we are facing now will be very deep and long-term.It is now very clear that this financial crisis will be the worst global financial crisis since the Great Recession of the 20th century.Banks used to do banking business, but now banks are engaged in a lot of business such as gambling, so this has also caused many problems in the banking industry.Six months ago, many people hoped that the economic crisis in the United States and Europe would not affect emerging markets, including China.

At that time, someone put forward such a view that China can be independent, but I disagree with this view. In fact, it is also the case. Now all countries in the world are more or less affected by the economic crisis.This is also the result of globalization. Globalization has brought benefits, but it has also brought many disadvantages.For example, the negative costs brought about by US policies have also had global impacts. The US has exported toxic loans, and now the US has also exported its economic recession.Among them, there is one thing that is worthy of irony, that is, developing countries are often the worst victims.Among the countries that suffer the most from these developing countries, the countries that participate in the most international economic affairs, like China, are also facing the most serious global challenges, even those countries that had relatively good economic policies in the past, including banking and regulatory measures. Those countries that are better, they have also been affected.This financial crisis will have a serious impact on many countries, and it affects all aspects of the economy, including exports, investment, demand and so on.It is also different from the crisis in 1997 and 1998. In the financial crisis more than ten years ago, the global economy recovered very quickly at that time, because many countries quickly recovered their economies through exports, and the economies of various countries still gained relatively developed very well.

The crisis that started last year is a global financial crisis and economic crisis.Although the U.S. economy developed very well in the past ten years and its exports were also very strong, U.S. exports have also been severely affected now.Now it is facing a series of crises, including the reduction of employment rate.Some experts pointed out that in the next few years in the United States and China, tens of millions of people will lose their jobs due to the reverse flow of rural population from cities to rural areas.This is a global financial crisis, so the response must also be global.Everyone knows that the policies of one country will also affect other countries, which is why the stimulus policies introduced by many countries are not enough.Because the economic policies of these countries often pay too much attention to domestic effects and lack of attention to international effects, which is why I think the global economic recovery will not be particularly fast.We all learn Keynesian economics, and some people have always opposed Keynesian economics.Now it is very important that these stimulus measures have a global impact, because there is a very important difference between domestic economic stimulus measures and international economic stimulus measures.

There will always be some money in the stimulus that is not invested within a country, and some of the investment will also have an impact on neighboring countries, which is why we say that stimulus in one country often has an impact on neighboring countries or globally.Too many countries now pay too much attention to domestic supply and demand, but do not take much care of international supply and demand.When carrying out these stimulus measures, we must have a long-term vision and focus on long-term needs, we must balance demand, we must seek balance on the balance sheet, and we must ensure that efforts to pursue balance sheet balance are not weakened.Because we usually focus too much on the liabilities instead of focusing on the balance of the entire balance sheet.Stimulus measures must also focus on long-term needs, rather than building a financial or economic system that has proven to have failed in the past. This must be considered when formulating economic stimulus measures.In addition, there must be some follow-up economic measures, and at the same time must be very sensitive to the micro economy, creating jobs where jobs are lost.If there is a good standard for judging stimulus measures, the stimulus measures in the United States are not particularly good, too little, too late, and most of them come in the form of tax cuts, which will not have much impact on the stimulus of the economy.

The current financial crisis will be an opportunity for China. The vision set in the Eleventh Five-Year Plan is to build a harmonious society, but the premise is to reduce China's dependence on exports. In this regard, China has made great progress. progress.In addition, an environment-friendly and sustainable development model should be established. What is the key to China's economic recovery? Stiglitz: During the financial crisis in 1997 and 1998, China was a country that used Keynesian economics very well. I said at the time that if they could learn economics well, they might get 8 % economic growth.China conducted a good study of Keynesian economics at that time, which laid a very good foundation for the rapid economic growth in the next ten years.China's economic stimulus plan has various aspects, and many factors included are very good.However, there are still a few issues to be aware of.First of all, its factor is good, but is its ratio good?As an academic, I always wish I could put more money into education.Education will be very important to an innovative economy.In addition, the investment in medical care is very good, but its basis is very low.So, I think there should be more input on that.The biggest problem is the adjustment of industry.Adjustments in some industries may harm competition and lead to further imbalances between supply and demand.Some experts also believe that the development of small and medium-sized enterprises should be encouraged more. In many countries, including China, small and medium-sized enterprises are very important providers of employment.The financing environment for small and medium-sized enterprises should be improved, which also requires major adjustments to the entire financial system.Also, it is necessary to vigorously increase consumption.Now the economy is facing problems, but it is still necessary to promote consumption in such a very difficult period. One thing that impresses me very much is that the Chinese people are very confident in these government measures, despite the severe external situation.We should also remember that even if the growth rate is slightly lower than the predetermined target, we can still achieve some real development.Because the economic environment may deteriorate further, the real question is whether the momentum of economic development can be maintained.In addition, short-term stimulus plans should be combined with long-term needs.Again, that is how to increase China's demand.This is a very strange question for Americans, whose savings rate is next to zero.There have been economic crises in the United States, and some economic crises have slightly increased the savings rate in the United States by 2% to 5%, or even higher, but it has not changed the way Americans consume.I wish there was a better way.So, here is a question, why is China's savings rate so high?Many people talk about residents' savings on this issue, but the savings of Chinese residents is only slightly high.And if the social security system can be further improved, residents' savings can still be reduced.Moreover, improving the social security system will have the effect of directly and indirectly promoting consumption.In addition, the financing environment for SMEs is not good, especially for small businesses.Many small businesses must save money to expand their business.If their financing environment is better, the savings rate of residents will be lower. What's very interesting for China is that it's not just the savings of the residents, because the savings of the residents are only slightly high, not very high; and the paradox is that the corporate sector income is too high, their profits are too high, and the corporate savings rate Too high, resulting in low wages.So, how to raise workers' wages?How to increase residents' income?One of the ways is to increase the number of small and medium-sized enterprises, improve the financing environment of small and medium-sized enterprises, and improve the situation of workers by helping them form more active unions so that they can have more voice.China's traditional development model has promoted the development of China's economy, but we must consider what the future will look like?In the future, China's high profit rate will make China's investment very high, but it will bring about a problem that the growth of supply and demand will be out of balance, and the export will also be further out of balance.It is more difficult to deal with this problem now, because if these problems are solved now, it may bring a series of problems, including deflation and corresponding macroeconomic dangers.There are two other factors, both of which are interrelated, particularly with regard to market distortions. One of them is that the pricing of natural resources is too low. If the pricing is raised, more public investment funds can be won; the second factor is monopolistic and highly profitable industries. In a competitive world, this phenomenon is unreasonable.I said that the most critical issue is China's economic transformation. To develop a market-based economy, China's market economy should be made more harmonious and sustainable.I think China will get through this crisis in its own way. Stiglitz, do you think China cannot survive the economic crisis alone? Stiglitz: In such a severe economic recession, China will inevitably be affected by it, but China may withstand the worst impact of the crisis.China's economic stimulus plan is huge, and some very powerful measures are being taken.I think these may mitigate the negative impact of the crisis, but not completely avoid it.In the economic crisis in Southeast Asia, China's economic growth slowed down, but China launched an economic stimulus plan, which effectively controlled the slowdown.I think it's the same thing now, except this time the recession is much worse, so the slowdown in China is much more pronounced. I think China will get through this crisis in its own way.China will take measures to alleviate the negative impact of export difficulties.But 20 million migrant workers in China are unemployed, and it is impossible to create 20 million job opportunities overnight.Therefore, I think it is unrealistic to think that China can completely solve the economic crisis in a very short period of time.China's biggest challenge at present, first of all, is to maintain the vitality of the economy and provide social security for the unemployed.But the real challenge is to use the fiscal expenditure for economic recovery to promote economic readjustment. For example, as proposed in the 11th Five-Year Plan, strive to create an economy with a more stable social environment, a creative economy, and reduce foreign trade. Dependence on exports changes the structure of the economy.I think this is the most challenging task for the future.Some people believe that the second wave of the economic crisis has arrived, and that the worst stage has passed.I think the situation is likely to develop in a worse direction.The U.S. economic recession continues, and the stimulus plan is not enough to help the U.S. out of the crisis, so the economic downturn may continue.That means there will be limited demand for imports from China, but I'm optimistic about some of China's exports. Some commodities are only temporarily stockpiled. After the inventory is reduced, people will start to consume again. Maybe the consumption capacity will not be very high, but the rapid economic downturn will be contained, and then some growth will resume and recovery will be realized.Bernanke said that the Federal Reserve will purchase long-term US treasury bonds. Do you think this will have a negative impact on China's foreign exchange reserves? Stiglitz: The Fed has expanded its balance sheet and injected liquidity into the economy. There is currently no direct risk of inflation, because demand is very low, so the risk is deflation.But at some point in the future, after the economy recovers, so much liquidity will quickly increase inflationary pressures.The Fed wants people to believe that they're going to get it right in this situation, that they're going to be very careful about getting those assets and liquidity out, and the economy is going to run smoothly.Although their previous performance was not satisfactory, and the assets they bought were less liquid than the short-term Treasury bonds they used to buy, it may be more difficult to reverse the trend, so there will be potential inflation and exchange rates risks of.If people are very worried about these risks, the government may issue more inflation-indexed bonds.People who are worried about this problem can hedge the risk by buying indexed bonds.