Shen Jianguang │ Policy support for the economy may be significantly higher than expected
On March 21, the inaugural "Tsinghua PBC School of Finance Chief Economist Forum" was held at the Meng Minwei Concert Hall of Tsinghua University. The Chief Economist Forum is a series of forums organized by the Center for International Finance and Economics Research (CIFER). Positioned as high-level, authoritative, and cutting-edge, the forum integrates situational analysis, policy interpretation, practical suggestions, and academic research, striving to build a comprehensive platform for information exchange, viewpoint sharing, and results presentation for experts from academia and industry. It focuses on new changes in the global economic and financial landscape, explores the development and inherent laws of China's and the world's macroeconomics, and aims to create the most influential and authoritative economic and financial policy forum.
The inaugural forum, co-hosted by the Center for International Finance and Economics Research (CIFER) of the National Institute of Financial Research at Tsinghua University and JD Digits, was themed "2019 China and World Economic Outlook." It invited several chief economists and leading scholars from renowned domestic and international institutions to discuss the development trends and policy directions of the Chinese and world economies.
Dr. Shen Jianguang, Vice President and Chief Economist of JD Digits, hosted the inaugural Tsinghua PBC School of Finance Chief Economist Forum. In the session "2019 China Economic Outlook: Leverage Ratio, Monetary Policy and Growth," he reviewed the Chinese economy in 2018 and made five predictions for 2019. He not only analyzed the Sino-US trade war and the international economic situation, but also suggested that the strengthening of China's policy support may lead to a low-to-high growth in the Chinese economy in the first half of the year.
Shen Jianguang holds a PhD in Economics and is currently the Vice President and Chief Economist of JD Digits, a Visiting Professor at Fudan University's Fanhai International Finance Institute, a member of the China New Supply-Side Economics 50 Forum, and a council member of the China Chief Economist Forum. He completed his postdoctoral studies in Economics at MIT and holds a PhD and Master's degree in Economics from the University of Helsinki. His undergraduate degree was in World Economics at Fudan University. Previously, he was the Chief Economist of Mizuho Securities Asia, a Senior Economist at the European Central Bank, an economist at the International Monetary Fund and the Central Bank of Finland, a Senior Economist at China International Capital Corporation Limited, an advisor to the OECD, and a visiting scholar at the People's Bank of China.
The following is the full text of Dr. Shen Jianguang's speech:
It is an honor to host the first forum. Our first session will focus on a crucial aspect of China's economic outlook: deleveraging, monetary policy, and growth. As the moderator, I would like to offer a preliminary observation.
What I want to talk about is mainly the Chinese economy. Those of us here have been studying the Chinese economy for at least 20 years. Overall, the Chinese economy is indeed very complex. At this juncture, let's look back at 2018. I think that judging the past and reviewing the past is very helpful for judging the economic situation in 2019 and beyond.
2018What happened in 2018? You may remember that at the beginning of 2018, the industry was very optimistic about China's economy. At that time, it was even mentioned that a new cycle of China's economy had arrived, whether it had emerged from the L-shaped pattern and started a new upward cycle. This was at the beginning of 2018, so the stock market also rose, and the government was very confident in the three major battles it proposed at that time. Deleveraging is actually a form of tightening.
Looking back on what happened this year, the most typical statement I think is that it may be the worst year of the past 10 years, but it may also be the best year of the next 10 years. In other words, it didn't go out of the L-shaped curve, but rather it went down the L-shaped curve.
2018The huge difference in economic assessments from the beginning to the end of the year suggests that the primary concern is the US-China relationship. At the beginning of the year, most people were optimistic and believed that a trade war between the two countries was unlikely. This was the prevailing view. However, by the end of the year, around October, many felt that there was no hope left.
That's why I wrote an article called "Don't Miss the Opportunity for the De-escalation of the US-China Trade War" (last October). When I wrote that article, the mainstream view was that the talks were unlikely to succeed, but I felt there was still an opportunity.
Ultimately, both the US and Chinese governments seized this opportunity. Later, it was discussed that the agreement was basically nearing completion. So this was a very important twist and turn. At first, they thought there were no problems, but later the problems became very serious. In the end, it can be said that things took a turn for the better.
Another point is the assessment of the RMB, which is also closely related to monetary policy. Last year, many people were very worried about the RMB exchange rate and the slowdown in the Chinese economy. At that time, I also believed that the RMB had room for appreciation, and this view has now been proven correct. The RMB has now appreciated to 6.7, and I estimate that there is still room for appreciation this year.
Last year, with the economic downturn, we saw that the main focus was on how to implement monetary and fiscal policies, with fiscal policy ultimately taking the lead. The debate centered on whether to increase infrastructure investment or cut taxes. At that time, the discussion was very intense. Finally, I think the government announced the largest tax cut in Chinese history during the Two Sessions this year, with a scale of nearly two trillion yuan, which is unprecedented. All of this reversed the pessimistic atmosphere at the time.
Finally, we saw that the stock market was rising steadily at the beginning of last year and performed very well, but by the end of the year it was actually a big bear market. I feel that there was an excessive pessimism in this. So when I was most pessimistic last year, I wrote an article in November called "Exploring the Reasons for Optimism about the Chinese Economy", in which I mentioned two reasons. I think the Sino-US trade war will ease and 2019 will be much better than 2018 (external situation).
Furthermore, the extent of policy easing may exceed expectations, which could reverse China's economic trajectory and alleviate the pessimistic atmosphere in the stock market. These factors have indeed materialized. Looking ahead to this year, I believe there are five main assessments:
First, I think there is still hope that a trade agreement can be reached between China and the United States.Although negotiations are still ongoing, both sides are very eager to continue. Regardless of what happens, the most important thing for China is that the US has not imposed new tariffs this year, providing at least a stable expectation for our exports. I think this is the most crucial point. Even if it drags on for a long time, it's not necessarily a bad thing, since there are no new tariffs. Therefore, having a stable expectation for our export situation is extremely important.
Second, the global economic slowdownAlthough the US-China trade negotiations may present a relatively optimistic outlook, the global economy is indeed more severe this year than last year. The US economy is declining, the European economy is declining, Italy is already in recession, and with Brexit and France, the situation in Europe is becoming increasingly serious, and global political risks are increasing.
The US economy is slowing down, and some leading indicators have recently declined rapidly, so the Federal Reserve is now changing its monetary policy. We will focus on these issues in the next phase.
Third, China's macroeconomy is characterized by a low start and a high finish.My assessment of this year's economy is that the economic growth rate will be relatively low in the first half of the year, continuing last year's deleveraging efforts. The economy will be weaker in the first half, but the growth rate in the second half will be better. This "low in the first half, high in the second half" judgment is very important. I don't know if anyone has a different opinion; in fact, some people in the market may believe it will be "high in the first half, low in the second half." This judgment has a significant impact on the stock market, financial markets, and policies.
If the trend is low at the beginning and high at the end, then in the second half of the year, many of the loosening monetary and fiscal policies may not be as drastic as in the first half, and interest rates may not be as low as they are now.
Fourth, the reason for the judgment of "low at the beginning and high at the end" is mainly because the stimulus力度 (intensity/strength) and the support for the economy may be significantly higher than expected.The monetary policy has already been implemented. Governor Yi Gang has also stated that the reserve requirement ratio has been lowered three times, and interest rates are already declining. The actual interest rate is 60 basis points lower than last year, which is basically equivalent to two interest rate cuts.
Next, there are various other measures, such as perpetual bonds, to support the real economy. We have also seen tax cuts that far exceeded expectations, including a tax cut of 2 trillion yuan, which was implemented on April 1 and May 1. May 1 is for social security. This unexpected policy may greatly promote economic growth in the second half of the year.
However, I am worried that after this, we need to consider some local debt issues. Will a new round of deleveraging cycle start again in 2020? This is something we need to consider. It may exceed 2019, and the economy may enter another contraction cycle.
Finally, policy-related factors seem to have driven the stock market upward.The saying "every year ending in 9 will see a rise" is quite interesting. So far, it has been very accurate. In the Asian market, no year ending in 9 has seen a decline. So far, the A-share market has risen by 30%, and it will not be easy for it to fall back.
Thank you everyone!