RDX : 在WSJA和FEER上看了兩遍 最后決定轉過來 這篇問題很多 最主要的就是缺乏堅實的說服力 其中關于deeper slowdown之類的假設也有著嚴重問題 但是總體還是有所價值
by Stephen Green
Posted Sept. 5, 2008
As China’s economy slows, all manner of folk are going to start calling, loudly, for a big fiscal stimulus package from Beijing. Those who worry about unemployment will argue that it will create jobs. Those who work with low-income groups will ask for more subsidies. Those who run big infrastructure projects will jump on board looking for some nice, big, juicy contracts. And others, with U.S. Bush Administration’s rebate checks in mind, will think they can stimulate private consumption with tax rebates and will talk that idea up too. Assuming we are heading for 8% to 9% GDP growth next year, and perhaps slower after, fiscal policy is going to become a huge issue for Beijing and everyone near it. Already, proposals are floating around Beijing for tax cuts and extra spending.
So, to prepare you for the onslaught of the fiscal debate, here are four things you need to know. First, it is too early for a fiscal stimulus package. Economic growth is certainly weakening in China, but it is not collapsing, and inflationary pressures remain. Moreover, one should be responsible about calling for a fiscal package; it has a cost. Second, if one is worried about the state of the economy, then monetary policy is the first thing to change. Bank loans are still being controlled—the first thing to do to stimulate investment and even consumption would be to free them up. Third, when the time is ripe, the government is in a healthy position as far as its fiscal position is concerned—it has been running surpluses in recent years and has a low debt to GDP ratio. Finally, the style of stimulus is very important—a massive set of infrastructure projects, like the late 1990s fiscal package, would have limited use. Moves to boost consumption are key now, although this will not be easy. Before explaining these statements, here is the current state of the debate in Beijing.
Where We Are Now
Talks of an imminent fiscal stimulus package in recent weeks, involving tax cuts and new spending, have exaggerated the imminence of that package, and mischaracterised the intention of the policies involved.
First, on the revenue side, we are likely to see a series of tax cuts being rolled out over the next few months. However, these have been known about for a while and they are all much more to do with achieving long-term social goals, rather than short-term stimulus. For instance, the value-added tax experiment currently underway in several provinces, which changes the point in the production process where the tax is levied from investment to the retail level, will be nationalised. The Ministry of Finance reckons this could lead to reduced vat revenues in the order of 100-200 billion yuan ($14.7-29.3 billion). This reform has long been planned and would bring China in line with most other countries. Second, the starting level for personal income will likely be raised again, from the current 2,000 yuan ($293) a month, taking more low-income wage earners out of the tax base. This is part of trying to control post-tax income inequality. But given that many low-income wage earners do not pay tax anyway, the number of folk actually affected is unknown. Measures for small and medium sized enterprise are also rumoured, including those to increase the number of firms that pay lower rates of vat, as are additional vat tax rebates for exporters. Textile exporters have already got some. All these will likely happen and will have a mildly stimulative effect, but that is not their intention.
Then there are the proposals for new spending. These are much more controversial and are uncertain. Some are calling the proposal a stimulus package designed to reflate a slowing economy. Looking through the proposal as it has been reported, however, I prefer to view it as a collection of measures that push “surplus” revenues towards various priority areas. The reported proposal is an additional spending package of 220 billion yuan ($32.2 billion) for the second half of the year, equivalent to 0.7% of GDP, which is undoubtedly significant, and would mean the budget would likely come in roughly balanced for the year.
The money is reportedly to be spread out over a number of areas, including social security transfers and agriculture supports, money which will likely be saved, rather than spent. The portion aimed at infrastructure, 35 billion yuan ($5.1 billion), is a drop in the investment bucket—it is less than 0.5% of total fixed asset investment last year. And a chunk of money is also going to science and technology, hardly a big job creator. Certainly the net effect will be stimulative, but not that much. In sum, the net effect of this extra spending on the economy, if approved, will be somewhere in the region of 0.5% of GDP, but is likely to be spread out beyond 2008.
Will the package pass? It is not clear it will. The Ministry of Finance, as conservative as any finance department anywhere in the world, is worried about falling tax revenues, as well as the unexpected costs of the snowstorms and Sichuan earthquake. Some would like to retain the fiscal ammunition for later, a position I support, as explained below. Others, including the central bank, are still concerned with inflation, which such a package would exacerbate. At the same time, folk in Beijing are clearly worried about the slowdown, and so at some point something like this, or a more overtly stimulative-style package will pass. But one would say 2009 or even 2010, not this year. Here is what we think:
It is too early for a fiscal stimulus package. Back in the mid-to-late 1990s, China faced the Asian FinancialCrisis as well as serious home-grown problems, including the mass restructuring of the state-owned enterprise sector. Premier Zhu Rongji cut interest rates, but that did not seem to work. So out went monetary policy, and in came fiscal policy. Government bond issuance was ramped up, to 2.7% of GDP in 2000 from 0.7% of GDP in 1997 (net), large infrastructure programmes were designed and, by our numbers, the total government deficit plunged to 2.2% of GDP in 2000, as the chart nearby shows. What was probably even more important was the mass of bank loans issued to projects backed by local governments. Economic growth picked up again in the early 2000s, the fiscal programme was scaled back (net issuance was only 1.6% of GDP by 2005) and the budget eventually swung into surplus. Given that it apparently worked last time, many economists will reach for the fiscal tap this time too.
But patience is advised. Domestic demand growth is still there, even if it is slowing. Equipment imports look solid and there is still strong demand for bank loans, suggesting that the investment slowdown is caused more by the unwillingness of banks to lend, rather than any lack of investment appetite from corporate China. While export growth has slowed, it has not collapsed. Consumption growth is likely weakening a bit with slower real income growth, though it fails to show up in the retail sales data, but again it is nowhere near the U.S. nightmare’s level. The official income data is awful, but wage pressures appear to still exist in manufacturing, a signal that employment is still growing. In sum, given 9.9% real GDP growth this year and an 8.6% forecast for next, China’s economy has no need for stimulus at this point.
A large stimulus package now would, more importantly, waste fiscal ammunition that may well be needed in the future. When (or if) a serious slowdown appears—and here we are talking about growth heading below 8% at speed—then will be the time to seriously consider fiscal stimulus as an option. As Japan discovered in the 1990s, several stimulus packages rolled out over a few years can quickly do enormous harm to one’s overall fiscal position. It is not a cost-free policy choice.
Monetary policy is still useful. In the second halves of 2008 and 2009, monetary policy can still be used to provide some stimulus. It should be the first thing to reach for. Complete relaxation of the loan quota will likely lead to a significant upswing in bank lending in 2009. Moreover, allowing the liquidity that has built up on the People’s Bank’s balance sheet to leak back into the commercial financial system will mean ample low-cost capital is available. Even if the dreaded “hot” money starts to leave, it is difficult to imagine a liquidity crunch resulting in China’s banking sector. Of course, at some point demand for those loans may dry up, and monetary policy may suffer the “pushing on a string” problem (i.e., banks want to lend but no one wants to borrow). Then it is time for fiscal policy. But for the moment, monetary policy still has some juice.
The government is in a strong fiscal position. China’s total official outstanding debt is low, an estimated 15.7% of GDP at year end 2007, and has been fairly stable at this level, despite large fiscal surpluses. This affords Beijing considerable scope to boost debt issuance. As far as external debt goes, China had $374 billion outstanding at year end 2007, but the vast majority of that was owed by corporates, and most of it was short-term trade-related debt, which is not too much to worry about. Only $153 billion was long-term debt, and only $35 billion of that was official Ministry of Finance paper (the rest of the long-term debt was issued by China’s banks), just 1% of GDP. Global markets would be very keen to welcome more official China debt.
At the same time, the recent budget figures are very healthy. Officially, China ran a 2007 budget surplus of 0.7% of GDP. Assuming no stimulus package gets rolled out this year, it is likely that the Ministry of Finance will run a similar overall surplus this year too, instead of the official forecast of a 0.8% of GDP deficit. This is because, despite recent concerns about total tax growth slowing, during January to June 2008, the official budget balance was 1.19 trillion yuan ($174.4 billion) in surplus, still up 45% year-on-year compared to that period in 2007.
Add in social insurance receipts and spending and the surplus for 2007 rises to 1.9% of GDP. There are now total accumulated social funds of 1.17 trillion yuan ($171.4 billion) at the end of 2007, some 4.6% of GDP. This is an important development, as it puts some meat to the government’s promise of putting a long-term, reliable system of social supports in place. However, the scale is still limited and public trust in these systems is still low.
Support consumption as much as you can. As much as possible one hopes that this round of fiscal stimulus, when it comes, can be channelled into supporting consumption, rather than big infrastructure projects. The easiest thing in the world would be to build more roads. But given the huge investment growth that has occurred in recent years, there will be diminishing returns to infrastructure investment in the next few years.
Of course, some areas, such as railways, are clearly still in need of public investment. But as much attention as possible should be given to ensuring the fiscal package is oriented towards supporting the shift in the growth model, away from investment, towards consumption. Much of any support given to the social welfare system will free up private income to be consumed rather than saved. What is needed is a “harmonious” fiscal stimulus package, as it were.
Unsurprisingly, making sure the money is intelligently spent will not be easy. But there are some obvious starting points. Schools and hospitals in many areas would benefit from new facilities and refurbishment. One could increase teacher and doctor salaries—and indeed they should be raised. A newly minted doctor in Shanghai only earns around 18,000 yuan ($2,637) a year, a pitiable amount, which puts off talented students from training. One could throw money at training courses for both professions. As noted above, it may also be worth expanding payments and the scope of the unemployment insurance system, as well as transfers to the dibao (low income household) system, which remain low, at 28 billion yuan ($4.1 billion) in 2007. As in the U.S., the more that tax breaks and transfers go to those with a greater marginal propensity to consume, the bigger the economic boost. But at the same time, the lessons learned from the rise of a dependency culture in the U.S. and Europe in the 1970s-80s need to be taken account of.
That said, the major need of the health sector probably lies not so much in more money, though that would help, but new institutions. Introducing regulated competition into the healthcare sector is key, for instance, though it is unclear to what degree the imminent new national healthcare plan will achieve this. If both the institutions and the money can be got right, though, the combination would be powerful. Given that we have some time, folk are strongly recommended to consider best how to structure the stimulus package to maximise its support to the social side.
Mr. Green is based in Shanghai as Standard Chartered Bank’s Head of China Research.
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