From experts' point of view, the emphasis
of the future policy should focus on a more decisive easing policy to fight
against risk of deflation, which means implementing easing financial policy
along with several reform measures including de-capacity and tax reduction, and
therefore to improve efficiency and accelerate the recovery of demand.
In the recent two years, deflation has
always been the key work for talking about China's economy. According to the
macro economic data released a few days ago, it is very likely that the
discussions and worries in regard to China's deflation risks would all the way
continue, consequently, how to resolve the risks turns to be the central issue
of the public.
"China's economy is in the deflation,'
emphasized by Yu Yongding, member of the Chinese Academy of Social Sciences
"Deflation is doubtless the biggest risk
that would jeopardize China's economic growth in 2016, for it will constantly
push enterprise financing cost up, damage enterprise profits, aggravate debt
burden, and thus reduce enterprises' intention for investing and expanding,
which would further hinder domestic demand', according to Qu Hongbin, chief
economist of Hong Kong and Shanghai Banking Corporation (HSBC) for Greater
China.
In fact, there were analysis and discussions
among "China has entered the phase of deflation' as early as 2011 or 2012, and
according to Professor Lu Feng, National Development researcher, Peking
University, the disputes arises from the different definition on deflation.
In his interview on People's Daily
(overseas edition), if we follow the mainstream economic perspective that
taking the negative growth of Consumer Price Index (CPI) as the signal of
deflation, China's economy has obviously not entered phase of deflation yet. However,
even though the CPI is still growing, the Producer's Price for Manufactured
Products (PPI) has suffered negative growth for 48th consecutive
months, therefore it is reasonable to say that deflation has already existed in
China's economy.
The CPI of the 12 months in 2015 was all in
the level below 2% with the lowest point of 0.8%, while the PPI was in a
long-term negative growth.
According to Qu, the subentries of the PPI
shows that the most serious deflation lies in bulk commodities, including
minerals and raw materials, among which the year-on-year decrease of prices
were over 10%, while the proportions of these two products to PPI were less
than 20%. Relatively, the deflation of the manufacturing products of downstream
supply chain was near to 6%. For those reasons above, we can see that deflation
exist in almost all areas of China's society.
The issue of overcapacity is also a key
link for discussing China's deflation problems. During the period of the "4 trillion'
investment plan launched by the senior officials in 2008, China's macro
economic problems have been covered up by capitals from the central government;
however, when capitals were running out, serious overcapacity and sharp demand
decline followed one after another.
According to Lu, it is time for adjustment.
On one hand, the once rapidly rising coal price, steel price, and iron ore
price are facing the falling tendency; on the other hand, downstream processing
trade, steel industry and coal industry have already been short of strength in
pushing forward the sustainable economic growth, furthermore, the pressure of
economic structure adjustment would also cause the price decrease. "The low
level of price can be seen as a market mechanism for dissolving overcapacity.'
As for the slightly recovering CPI of
February, according to Yu on symposium of 29th March, it was the
result of the rising of wages and the aging of population. And the recovery was
mainly reflected in the increasing demand on food, entertainment, education,
culture, and health care. The wages increased faster than CPI, which has
squeezed margins of enterprises.
Meanwhile, he pointed out that it is
important to check the changes on the actual debts of enterprises for verifying
whether an economy is in deflation or not.
"According to China's actual situation, the
rise of the CPI mainly came from the service industry for which the debt ratio
has been generally low; while for the state-owned manufacturing enterprises,
the debts have been massive, the PPI of the products is declining, and the
actual debts is rising', said Yu Yongding.
According to statistics of treasury
department, the total debts of China's state-owned enterprises increased by
RMB393 billion to RMB 78.3 trillion which has been well over than the total
GDP.
Facing the increasingly serious deflation,
most of the countries around the globe adopted measure of monetary policy. This
measure is effective in a short term. However, Zhou Xiaochuan, governor of
People's Bank of China, has definitely warned other governments in the G20 held
in Shanghai for finance ministers and central bank governors that there's been
a tendency of excessively depending on the monetary policy all over the world.
Premier Li Keqiang has clearly stated at
the Opening Plenary of Boao Forum for Asia Annual Conference 2016 that China
would not completely rely on monetary policy at present; instead, it will adopt
more financial policies to prevent deflation. This statement was deemed as the
final tone for the future regulation and control.
In experts' opinion, to resist the risk of
deflation, the key point of the future policy making should focus on releasing
decisive easing policies and reform measures of capacity-reduction and
tax-reduction, therefore to improve efficiency and drive the recovery of total
demand.
According to the Government Work Report of
2016 made by Li Keqiang during the two sessions, the financial deficit ratio of
this year will rise to 3%. Although the figure has firstly reached to the
internationally accepted alarm level, it was expected China would take stronger
means in dealing with the increasingly serious domestic economic problems.
According to the research report of Zhu
Haibin, chief economist of JPMorgan in China, China has the capacity to
increase the financial deficit ratio to 4% or even higher in the future years,
as the higher central government deficit would benefit in controlling the debt problems
of local government.
"The present financial deficit of 3% is not
enough, and it will still be in safety if the figure got to 5%. According to
the international experience, most of the rising credits at the moment have
flowed to capital market rather than the real economy. if we solve the capital
problems by the means of financial measures, those problems would be well avoid',
said Yu Yongding at the forum on 29th.
He emphasized that the space for China's infrastructure
investment is extremely huge, and the infrastructure investment would not only
benefit the stable growth but also good for improving economic structure. Meanwhile,
there are some investments have no economic benefits but social benefits, that's
how the country play its role on.
The National Development and Reform
Commission has declared its statement publicly.
In the first month of 2016, the National Development
and Reform Commission examined and approved 21 fixed-asset investment programs
ranged from areas of water conservation and energy. Besides, the commission
will continuously push forward the major water conservancy projects and ensure
the investment scale of more than RMB800 billion on the projects.
"The market is not all-powerful and it
cannot allocate everything, therefore, the government should take the lead
under some circumstances to do some loss-making business, so as to let the
private investment in,' said Yu Yongding.
However, according to some senior
government officials' statement, the massive government investment would not
happen again.
*This article is an edited and translated
version by CCM. The original article comes from Jiemian.com.
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