In 2020, the COVID-19 will bring the global economy to a standstill. China took the lead in resuming work and production, becoming the first country to turn its economic growth from negative to positive. Where will China’s economy go in 2021? How will our fiscal policy and monetary policy adjust? Sohu finance – sohu think tank interviewed the director of the institute of finance qing qing friends.
His main points are as follows:
1. In 2021, China’s economic trend will be high before and low after. The annual economic growth rate will be above 7%, the deficit to GDP ratio will be the same as this year, and the fiscal policy will be relatively loose. It is important to note that the easing policy should not be too aggressive, otherwise it will definitely lead to a very serious asset bubble in China.
2. To make up the fiscal deficit, we should first restore the tax source base and provide large-scale subsidies to low – and middle-income groups, vulnerable groups and small and medium-sized enterprises. Tax can not levy is not levied, can return is returned, can subsidize subsidies. China has plenty of room to cut taxes and fees, and should do so more forcefully. Do not cut taxes and fees on the one hand, but impose more taxes on the other, such as a significant rise in personal income tax.
3. China should expand the scale of national debt and classify high-quality assets into the state-owned assets system. For example, moutai was previously assigned to the state-owned assets platform of Guizhou Province, while Laobaigan was assigned to the State-owned Assets Supervision and Administration Commission of Hebei Province, which is also to reduce leverage. As the value of the assets held increases, leverage decreases.
4. In 2021, monetary policy will be relatively restrained and maintain an elastic balance with little inflationary pressure. Neither should the market be starved of money, nor should flooding be allowed.
The following is the full interview:
Sohu finance and economics: how do you judge China’s economic situation in 2021? What is your forecast growth rate?
Guan Qingyou: Based on the “troika” of economic growth and the base issue, I conservatively predict that China’s economy will grow by over 7% in 2021. Some people predict it will be in the teens, I don’t think so.
In 2021, the economic trend will be high and low, opposite to 2020. Due to the incomplete control of the epidemic overseas, overseas countries are more dependent on Chinese manufacturing, and China’s export performance will remain relatively strong in the first half of 2021.
Sohu finance: in 2020, due to the impact of the epidemic, the deficit-to-gdp ratio will exceed 3% for the first time. Will the fiscal deficit be enlarged in 2021?
Guan Qingyou: The fiscal deficit will continue to grow in 2021. China’s economy has not fully recovered, and while listed companies are doing well, a large number of small and medium-sized enterprises are still suffering. Therefore, the fiscal policy in 2021 should be kept relatively loose, neither tight nor loose.
The global economy will recover simultaneously in 2021. The U.S. economy will not recover in the first half of 2021, but it will improve in the second half if the epidemic is contained.
Sohu finance and economics: China’s deficit to GDP ratio will be above 3.6% in 2020. What will be the deficit to GDP ratio in 2021?
Mr. Guan: China’s deficit to GDP ratio in 2021 will be the same as 2020. China’s fiscal policy, monetary policy and Europe and the United States are different, the rhythm, operation mode are different. Europe and the United States have little room for growth, very low growth, low interest rates, zero interest rates, while China’s return on assets is positive growth, so there is no need to follow their policies. After the subprime crisis in 2008, Europe and the US implemented several rounds of big easing policies. If China pursued the same policy, it would create asset bubbles, financial risks and social disparities.
In my opinion, in order to deal with the impact of the epidemic, we can do some hedging, but generally speaking, we still need to recuperate and recover slowly, don’t worry. The policy of easing should not be pushed too hard. The excessively loose policy will certainly bring China a very serious asset bubble, then financial risk, and finally lead to a long period of economic stagnation. We can’t go this way.
Sohu finance and economics: what is the best way for China to finance its fiscal deficit?
Guan Qingyou: There is no good way to make up the deficit in the short term. We should pay more attention to reducing expenditure. Some unnecessary expenditure should be cut. We should provide subsidies to low – and middle-income groups, vulnerable groups, and small and medium-sized enterprises on a large scale, and give preferential policies to people’s wellbeing. Millions of economic cells cannot recover, and the tax base cannot recover quickly.
By 2020, we will have cut taxes and fees by nearly 2.5 trillion yuan, but the overall plan is not big enough. There is plenty of room to cut taxes and fees, and the intensity should be even greater. Don’t put too much pressure on the finance and taxation departments, they should lower their targets. To ensure people’s livelihood and the basic needs.
We need to run fiscal deficits for a few years. We will not collect taxes if we can, give them back if we can, and subsidize them if we can. We will not cut taxes and fees on the one hand and impose more taxes on the other. Tax authorities have stepped up tax inspection and tax collection and administration, which in a disguised way has increased the burden on enterprises. Personal income tax, for example, has risen markedly compared with other taxes. After big data is connected to the Internet, many people have to pay taxes, which is not a good phenomenon.
When it comes to introducing new taxes, the property tax is too complicated and involves everyone’s pocketbook to be introduced so soon. The same is true of the estate tax.
Sohu finance: should we increase the national debt in 2021 to cover the fiscal deficit?
Guan Qingyou: In order to solve the leverage problem, some high-quality assets will be classified as state-owned assets system. For example, Moutai was divided into the state-owned assets platform of Guizhou Province, and Laobaigan was divided into the State-owned assets Supervision and Administration Commission of Hebei Province, which is also to reduce leverage. As the value of the holding increases, the asset expands, and leverage decreases. At the national level, we should appropriately expand the scale of national debt.
Sohu finance: are there any potential inflation risks in 2021?
Guan Qingyou: In the short term, 2021 will be a cloudless day. The economy is recovering and there is not much inflationary pressure. If there is any pressure, it should come from the United States. Moreover, with PPI falling, deflation is out of the question.
China has launched a 9 trillion yuan monetary policy in 2020. Will the RRR be cut in 2021?
Guan Qingyou: It depends on the specific situation. From the perspective of monetary policy implementation, the central government has made it clear that neither the market can run short of money nor flood and flood will be allowed. The overall situation is tight and balanced, and the policy is relatively restrained.
I expect this to happen again in 2021, and I recommend it.
Sohu finance: will 2021 end loose monetary policy?
Guan Qingyou: No. Loose descriptions of the way monetary policy operates today are inherently inaccurate. We have gone through three rounds of major easing in the past. The current monetary policy is neither loose nor tight, and is generally balanced.
China is now taking a breather and buying time for the next round of reforms. Practice has proved that printing money cannot solve the problem. In the end, structural reform on both sides of supply and demand is needed.