Chapter 35 China may be the biggest winner of the "financial tsunami"

In the global financial turmoil caused by the subprime mortgage crisis in the United States, the governments of the United States and European countries frequently took heavy measures to save their fragile banking institutions and fragile market credit.Are these measures hiding new hidden dangers?What pressures and opportunities has the crisis brought to China? ◎Reporter: At present, the governments of the United States, the United Kingdom and other countries have taken measures to rescue their domestic banks and other financial institutions, and they have spent huge sums of money.What new questions might this raise?

Chen Zhiwu: There will definitely be new problems.For example, the public debt of the US government is about 71% of GDP, and the public debt of Western European countries is also about 60%.The governments of these countries provide all-round guarantees to the banks and inject capital to make them state-owned banks. The bad debts in the banks will turn into national fiscal deficits, and finally may turn into national financial crises.Once the fiscal crisis emerges, the government has little choice, either to increase taxes on a large scale, or to sacrifice future economic construction opportunities to support the fiscal deficit and national debt.In the end, this in turn determines whether the economies of these countries can continue to grow, whether the unemployment rate can be reduced, and other economic issues will hinder the further development of these countries.

It's just that there are fires everywhere now, so put out the fire first. ◎Reporter: Keynes's state intervention policy is on the rise again, and the nationalization trend of financial and other industries will have what consequences will it have on the future economic systems of developed countries in Europe and the United States? Chen Zhiwu: For the United States, buying shares in banks and bailing out the market are only transitional arrangements.This has been done many times in the history of the United States. The most recent one was in 1984. At that time, the seventh largest bank in the United States, the Continental Illinois Bank, had too many bad debts in Texas and other places. As a result, the federal government took over 80% of its shares; during the Great Depression in the 1930s, the U.S. government also took over many banks, the largest of which was the "National Reconstruction Finance Corporation" established by the federal government in 1932 (Reconstruction Finance Corporation), which not only provided loans to financial companies in crisis, but also spent $1.3 billion (equivalent to $200 billion today) to buy shares in nearly 6,000 private banks.

However, the U.S. bailout or private companies controlled by the state have two characteristics: first, the government steps in only when a crisis emerges and other remedies fail. It is not about competing for the interests of the people, nor is it about achieving "equalization of the rich and the poor" through government operations, but only solving the crisis; Fade out of a financial institution or business and resell the shares to a private or private enterprise.The state holding shares caused by this kind of rescue is completely different from the starting point of the nationalization of China and the Soviet Union. It is not for the state to squeeze out private forces from the industry, but to provide assistance to private market forces in times of crisis.

What we see today in the United States and Europe is the reappearance of Keynesianism in the 1930s without any other adjustments. Why is this so?Does this negate the idea of ​​a market economy?surely not.People who do not understand human nature will think that this proves that the planned economy and the state-owned economy are the new choices of human beings. Our previous lessons and the lessons of the Soviet Union have all told us this.However, we must also realize that no one is so naive as to think that there can still be an absolutely free market without the shadow of the government as it did 100 or 200 years ago.In a market centered on villages and local areas in traditional society, due to the small mutual influence of markets in various regions, if there is a problem in one market, even if there is no government intervention, no matter how serious the consequences are, it will not harm the whole society.Regional markets are now integrated, whether within a country or across borders.Especially with the deepening of globalization, the financial market is no longer a segmented market of a region or a country, but a truly internationalized market.At such a time, if a market triggers a crisis of confidence due to excessive information asymmetry and collapses in an all-round way, it will cause unprecedented shocks to the entire world economy and society, which involves too many public interests.

In the market, the state must assume the responsibility of safeguarding property rights and contract rights, and must establish and maintain the institutional framework required by the market.In addition, governments have a duty to protect the public interest when too many unexpected market events threaten it.Compared with the past, the need for government intervention to restore confidence is indeed much higher. Of course, if the government intervenes to save the market, it will bring a lot of moral hazard, which is also the price.This is why the role and role of the government in modern society is much larger, but while the power has increased a lot, the necessity of monitoring and restricting power has also greatly increased.Hence the emergence of modern constitutional democracy, and these simultaneous developments are not accidental.We must be aware that at critical times, if the government does not bail out the market, there will be great social costs. But bailing out the market has both benefits and moral hazards. Who will weigh the two evils?Who is lighter?Who is to judge?Is the person making the judgment impartial and objective?Is there a reliable institutional framework to ensure its fairness and objectivity?Therefore, the government can play an important role when the market is critical, but it must intervene in the market under the accountability framework.

◎Reporter: How much impact will the global financial turmoil have on Asia?Who is the biggest victim in Asia?What about China, India and other emerging market countries?What about countries that implement open financial markets such as Japan and South Korea? Chen Zhiwu: The overall impact of this financial turmoil on the financial system in Asia is limited. Only a few banks have been impacted, including Japan.The reason for this is mainly because all Asian countries and regions have a bank-based financial system, and the capital market outside the bank, especially the bond market, is underdeveloped, such as corporate bonds and bonds issued by financial companies. Hong Kong, China, Japan, and Singapore are not very developed.Corporate financing is still dominated by bank loans, followed by the stock market.

Because of this, whether it is Asian commercial banks or other financial institutions, it is generally difficult to obtain a high lending leverage ratio, and their financial transaction structure is also very simple, and the complexity of financial transactions is very limited.For example, nearly 90% of the income of China's banking industry is obtained from the interest rate difference between lending and deposits, which shows that they are still basically stuck in the traditional bank deposit and loan business. ◎Reporter: Over the years, Asian emerging market countries have been working hard to integrate into the global financial market.Will the occurrence of this crisis make "financial openness" a doubtful proposition again?

Chen Zhiwu: I don't think so.First of all, why can Asian countries only focus on manufacturing and rely on export markets instead of domestic demand for development?This has a lot to do with the underdevelopment of the financial industry.So far, although Japan and South Korea have excellent manufacturing industries, they have failed to realize the transition from a production-driven to a consumption-driven economic model after the manufacturing industry drives economic growth.The reason for this is that their financial systems are based on the relatively traditional banking industry, rather than the bond market involving personal consumption loans, personal housing loans, and corporate loans, and their financing capabilities and financial transactions are not deep. rise to a high enough level.

One result is that Asian countries generally have high savings rates.Individuals and enterprises cannot avoid future uncertainties and future risks through different financial transactions. Therefore, individuals, families and enterprises cannot consume with confidence and boldly, but only think of savings. In the case of underdeveloped financial markets and various bond markets, almost all Asian countries rely on very high savings rates to engage in manufacturing, providing Western developed countries with a large number of cheap manufactured and consumer goods, while their own consumption is difficult to increase , this model of relying on exports, manufacturing, and production to drive economic growth is the most common model in Asia.

If we want to reduce our dependence on exports, we must encourage financial innovation, including financial openness. ◎Reporter: How much direct benefit will the current "global bailout" have on China's economy in the past one or two years? Chen Zhiwu: The most direct benefit is that the subsequent economies of these countries will not turn into a Great Depression.Therefore, despite the next two years, my country's export growth will definitely be greatly affected.However, because the governments of various countries have united to rescue the market, the growth rate of China's export market will not come to a sudden stop, which of course provides support for the Chinese economy. ◎Reporter: What role should China play?Some people think that we and the United States are tied together by grasshoppers.If U.S. treasury bonds plummet, it will not benefit China, which holds a large amount of U.S. treasury bonds.So, we're going to lend a helping hand, like buying more U.S. Treasuries. Chen Zhiwu: Many people misunderstand this issue.Of China's 2 trillion or so foreign exchange reserves, 600 billion U.S. dollars are various treasury bonds of the US government, and about 400 billion U.S. dollars are housing mortgage bonds of the "Two Fannies".After the U.S. government took over the "two houses", in fact, quite a few of these housing mortgage bonds have become bonds with the same high credit rating as government bonds.Over the past three weeks, U.S. government bonds and those mortgage-backed bonds directly guaranteed by the government have generally appreciated in value.Because after the crisis in the stock market and other securities markets, investors regarded government bonds as a safe haven and transferred money from the stock market to the government bond market.As a result, the price of U.S. government bonds has continued to rise, so that the interest rates on bonds maturing in three months and maturing in five or six months are almost equal to zero. So, so far, many of the media's concerns do not exist. China's foreign exchange reserves invested in US government bonds have not suffered losses on the whole, but have appreciated a lot.In contrast, if the State Administration of Foreign Exchange puts its foreign exchange reserves on gold, oil, or other metals and resources from the beginning of this year, it will suffer a lot in the past few months, and the price of oil and other bulk commodities will fall. more than half. Of course, the fiscal deficit of the U.S. government will definitely increase a lot in the future, and a lot of new public bonds will be issued. It is almost difficult to avoid the downward trend of the prices of these bonds.At this time, China should make some foreign exchange asset portfolios, withdraw some money from US government bonds, and buy some corporate equity in the United States and other countries. Now the stock prices of many companies have fallen miserably, and they have huge long-term investment value. .On the other hand, you can buy some commodity resources such as oil and mineral resources. At this time, the price is very reasonable and the opportunity is rare. ◎Reporter: But Chinese financial institutions are much more cautious now.China's sovereign investment funds have failed to invest overseas, and CIC has lost a lot.If we want to "buy the bottom", what do we need to be particularly vigilant about? Chen Zhiwu: Let's take a look at Buffett. He is now taking this opportunity to buy shares in Goldman Sachs and GE. Not only are the prices low, but he can also make this and that condition.His technique is - when you go to him when you need money the most, he can give you money quickly, but the conditions for you are also very strict, and you must sign the contract according to his requirements. At this time, China can use its foreign exchange reserves to do many things, including purchasing many strategic resources from developed countries in Europe and the United States and emerging market countries, such as Asia, Africa and Latin America.Especially for countries hit hard by the financial crisis and economic crisis this time, the Chinese government can provide them with assistance to buy assets or securities.At the same time, it is necessary to conduct clever negotiations with the governments of these countries like Buffett, asking them to further open up to Chinese products and Chinese companies. Friends in China's financial industry have complained for many years that the United States has not given equal treatment to Chinese banks and financial companies.However, now the United States needs the support of China's foreign exchange reserves.At this time, negotiations should be carried out and new conditions should be put forward, at least requiring the US energy industry and financial industry to further substantially open up to Chinese companies.At this time, China should not only use foreign exchange reserves as financial investment in a simple sense, but should at the same time ask the United States and other countries to make more concessions to China's commodities, capital, and resources. ◎Reporter: According to your analysis, is the current global financial crisis an excellent opportunity for China? Chen Zhiwu: I think that if the Chinese government handles it well and makes very far-sighted decisions, in the long run, China will be the biggest winner from this financial crisis.In the first half of this year and in the past few years, everyone was scratching their heads and worrying-what about China's energy demand in the future?What about resource requirements for further development?This financial crisis has lowered the prices of various commodities and resources by more than half, which is tantamount to sending a big gift to China's next wave of development.Without the current financial crisis, how could the prices of these bulk commodities drop so quickly and by such a large margin? Therefore, although China's export industry may be greatly impacted in the next two years, and the entire economy will also be hit, but in general, first, the price of bulk commodities and resource commodities will fall, which will bring China The cost of economic growth has been cut down a lot; second, in the long run, due to the recession of the global economy, China must change its economic growth model from an export-dependent model to a domestic demand-driven model, and domestic consumption will drive the future economy. increase.The global economic recession will definitely bring new pressure to China's reform in the next two years. In the long run, the pressure to transform China's economic growth model is not a bad thing. If there is no pressure, there may be no fundamental change.If the government can make a series of key reforms, after two or three years, the internal structure of the Chinese economy can get some benign adjustments. ◎Reporter: Now, China's economy is facing the problems of declining exports, stock market crash, and economic growth slowdown. How should we save our own "market"? Chen Zhiwu: In the past, the usual way to stimulate the economy was for the government to invest more in infrastructure and large-scale industrial projects to stimulate China's economic growth.However, China's infrastructure, especially industrial capacity, is seriously overcapacitated, and spending a lot of money on infrastructure and industrial projects is not worth the candle. China has a fiscal surplus of 1.2 trillion in the first half of this year, and there are still so many state-owned enterprise profits, such a large appreciation of state-owned assets, especially so much state-owned land transfer fees, a considerable part should be given or returned to the common people, especially in various forms This way subsidizes the medical expenses, educational expenses and basic living expenses of low- and middle-income earners.In this way, China's GDP growth can continue despite the plight of the global economic recession next year and the year after. From a longer-term perspective, the introduction of these reforms such as the circulation of land use rights is very good, and the ability of the Chinese economy to cope with the global economic recession will also be greatly improved due to this reform.At the same time, if the remaining state-owned assets can be distributed to the 1.3 billion people through the shares of the National Equity Fund, it will be even more possible to shift China's economy from the current export-oriented to the domestic-demand-driven track. ◎Reporter: Stimulating domestic demand has always been a difficult problem for China's economy.Under the current situation, Chinese people are even more afraid to consume. Chen Zhiwu: This issue should be viewed from a relative perspective.Now, the income of ordinary people only accounts for a small part of the income of the whole Chinese society. More income, including property income, is in the hands of the state, and fiscal revenue is increasing at a high speed.Under such a system arrangement, the common people will certainly feel that they do not have enough money on hand.When thinking about the protection of medical care, pensions and accidents in the future, of course people dare not spend money, and their consumption intentions must be very low. Indeed, with the deterioration of the economic situation, ordinary people are even more afraid to consume.However, on this basis, if you can increase your income by 1,000 yuan or 10,000 yuan, then the percentage of the newly increased income that you are willing to spend will be a little higher than the previous income.Therefore, if the government can reduce taxes for enterprises and individuals, and at the same time take part of the fiscal revenue and profits of state-owned enterprises to low- and middle-income families, and distribute dividends to ordinary owners under the system of ownership by the whole people, the effect of such a "send charcoal in the snow" will be obvious and will drive The growth of private consumption will not only help China's economy get out of the downturn, but also promote the transformation of the growth model. ◎Reporter: Land reform is even more difficult. The Third Plenary Session of the 17th CPC Central Committee, which was discussed a lot before, finally made a resolution on land reform that did not meet people's expectations. Chen Zhiwu: The biggest challenge comes from ideology, from such deep-rooted obstacles.These ideologies are not based on real scientific methods, not on historical facts and experiences of other countries. After joining the WTO in 2001, China's foreign trade exports have been very successful, and the global market share of many manufactured products has increased so much that it is difficult to grow any more.Now that the WTO dividend is running out, it will become increasingly difficult for China to continue to increase its market share in the global manufactured goods market.Originally, this export-driven growth model had almost come to an end last year, but just at this time, there was a financial crisis again, and global consumer demand will decline in an all-round way.All factors are tangled together, and the economic model of our country has reached the moment when it has to be changed. ◎Reporter: Transformation is usually extremely difficult. How do you stay optimistic about it? Chen Zhiwu: In a sense, I am quite optimistic.Although the final version of the land use rights reform that came out at the Third Plenary Session of the 17th Central Committee may be different from what everyone expected, it is a big step in the right direction anyway, which is positive.This shows us that China's decision-makers are very pragmatic.As long as there are some reform measures that will allow China's economy to continue to grow for 10 or 20 years, I believe that key policymakers will eventually make that reform choice. Chinese policy makers have generally been very pragmatic over the past 30 years, and I believe reforms will continue.