Yu Yongding: China’s problem is not inflation. Fiscal and monetary policies should be more expansionary

Yu Yongding: China's problem is not inflation. Fiscal and monetary policies should be more expansionary

Yu Yongding, member of the academic department of the Chinese Academy of Social Sciences, said a few days ago that China’s current macroeconomic situation is facing quite severe challenges and is far from the stage when it is necessary to withdraw from expansionary fiscal and monetary policies. Moreover, he suggested that more expansionary fiscal and monetary policies be introduced in the second half of the year to restore economic growth to the pre epidemic level.
“As for whether China should withdraw from expansionary fiscal and monetary policy now, I firmly believe that it should not.” Speaking at the “China macroeconomic forum” (CMF) hosted by Renmin University of China on June 26, Yu Yongding said that the most basic problem of China’s macro-economy at present is that the lack of effective demand leads to the lack of power for economic growth.
He said that up to now, the dynamic structure of China’s economic growth is not good, and it is quite far from the real normalization of economic growth. For example, “we’ve been waiting for the so-called retaliatory consumer rebound for more than a year, but we haven’t yet.” Another example is that the growth rate of fixed asset investment did not rebound strongly. We all know that the most important positive role in economic growth is the strong growth of exports.
According to the CMF report of Renmin University of China, China’s GDP in the fourth quarter of this year will grow by 5.5% year-on-year. Yu Yongding said that his team’s forecast of economic growth in the fourth quarter is also 5.5%. This forecast is 0.5 percentage points lower than the 6.0% growth rate of China’s economy in 2019.
“What we need to do is to further improve our economic growth rate through expansionary fiscal and monetary policies, so that our economic growth rate can reach the level of potential economic growth rate.” But the problem now is that the positive fiscal policy is not positive, on the contrary, it is tightening.
“Public revenue was 24.2% in the first quarter, which is a very high growth rate. It is worth considering that a country’s fiscal (revenue) growth rate can be so high when its economy has not recovered, no matter what the reason is. At the same time, the growth rate of our public finance expenditure in the first quarter was only 6.2%, which is quite low. ” He said.
In addition, “whether the fiscal policy is loose or not, and whether it is loose enough, I think depends on the economic growth, especially the growth of fixed asset investment, and more importantly, the growth of infrastructure investment.”
Data from the National Bureau of statistics show that since 2018, China’s infrastructure investment growth has slowed down significantly. In 2018 and 2019, the growth rate of infrastructure investment is 3.8%; 9% in 2020; From January to May this year, infrastructure investment increased by 11.8% year on year, with an average growth of 2.6% in two years.
Yu Yongding pointed out that one of the reasons why the fiscal policy is not active enough is that Chinese economists are very sensitive to inflation and feel very uneasy as soon as the consumer price index (CPI) rises.
“I used to do the same myself. But this tendency is problematic. For example, before the end of 2010, we began to withdraw from the 4 trillion fiscal stimulus. One of the important reasons why we are in a hurry to “exit” is the rising inflation rate. In May 2010, the year-on-year growth rate of PPI reached 7.1% and CPI was 3.1%. We can’t accept more than 3% CPI psychologically. What’s more, since then, CPI has basically been rising all the way. By June 2011, CPI growth exceeded 6.4%. Under such circumstances, can anyone not think that inflation has posed a serious threat to China’s economic stability? ”
Yu Yongding said: in fact, if we look at the levels of various inflation indexes rather than the changes in their growth rates, we will not be so surprised. Over the past decade or so, China’s producer price index (PPI) has been in a negative growth state for most of the time, and CPI has been below 3% for most of the time. Now the growth rate of PPI is rising. If we look at its fixed base index, it is just recovering to the level of 2008.
“China’s problem is not inflation, not too high CPI or too high PPI, but too low growth rate of CPI and PPI in the past 10 years. By the standard of PPI, China was in a state of deflation for quite a long time in the past.” Therefore, what we need to do is to further improve the economic growth rate through the expansionary fiscal and monetary policy, so that the economic growth rate can reach the level of potential economic growth rate, so that the rise of PPI can be transferred to the downstream of the production chain, so that our enterprise profits can be improved.
“The rise of CPI caused by the rise of PPI is a necessary condition and inevitable result for our economic growth to return to the pre epidemic level. We should not be afraid of this situation, but also welcome it. Of course, this is not to say that we should not pay attention to the issue of prices. What we should pay attention to is not to let the price spiral up. The vicious circle of price rise wage rise price rise wage rise is to be stopped. But there is no such trend yet. Once there is such a sign, it is not too late to take measures to curb the rise in prices. ” Yu Yongding said.

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