On June 25th, the 2019 China Credit Outlook Forum, cohosted by China Chengxin International Credit Rating Co., Ltd. (abbreviated as “CCXI”)and China Chengxin (Asia Pacific) Credit Rating Co., Ltd. (abbreviated as“CCXAP”) was held in Hong Kong. The theme of the Forum is “China Credit Market:Economic Reform and Credit Differentiation”. Dr. Mao Zhenhua, Founder and Chairman of China Chengxin Group and the Chief Economist of CCXI, delivered a keynote speech-- “Macro-economic Control should take into account the medium-/long-term economic development goals”. He proposed that although to smooth short-termeconomic fluctuations is the objective of Macro-economic Control, nevertheless,short-term objectives may weigh on medium-/long-term economic development andits sustainability. He suggests that China’s macro-economic control shouldre-analyze the situations and rebalance its priorities to take into account the medium-/long-term economic development goals.
Mao pointed out that, since 2016, China’s macroeconomic policies went through multiple rounds of adjustments, which can be roughly divided into three stages: from the second half of 2016 to 2017, the focus of Macro-economic Control was “risk preventions”; in 2018, as downward pressure increases on China’s economy, the intensified Sino-U.S. trade tensions shifted the priority of China’s Macro-economic Control polices to “stable growth”; in 2019, certain fine tunings appeared, departing from the lasting theme of “steady growth”, and in April, the meeting of the Political Bureau brought up “structural de-leveraging” again.
Mao analyzed that, from the second half of 2016 to2017, the macro-regulations, with the focus on risk prevention and de-leveraging, led to a marginal slowdown in leverage growth, and,consequently, in macro risks. However, de-leveraging policies have downsides.Firstly, de-leveraging came too fast and too strong. Overlapping supervision measures have led to increasing volatility in the financial market. Secondly,credit shrunk significantly, while corporate, especially private enterprise,credit risk exposed at an accelerated speed. Thirdly, de-leveraging and tightening regulation increased downward pressure on the economy, to a certain extent.
Mao also pointed out that, since 2018, the policy has increased its focus on steady growth, which has stabilized the economy.However, steady growth policies also have negative effects. On the one hand,for the time being, the economy was not able to cast off the old formula of“infrastructure + real estate” in its struggle to maintain “steady growth”; in the long-run, they are an opposite force for China’s structural adjustments. Onthe other hand, the recovery of the economy’s fundamentals was partly at the expense of rising debt. According to CCXI research, the increase in leverage inthe first quarter of 2019 is significantly faster than that during 2016-2018.Especially, the leverage ratio of non-financial corporate sectors start to riserather than drop in before, while the leverage ratio of the residential sectorand government departments continued on their path upward.
Mao believed that although to “smooth short-term economic fluctuations” is a major task for Macro-economic Control, nevertheless,short-term policy adjustments should take into account medium-/long-termobjectives. He suggested that a political decision should be made under aproper understanding of the country’s current phase of economic growth, and current phase in the economic cycles.
Against the background of external trade tensions and internal structural risks, macro policies need to rationally deal with Sino-U.S.conflicts and create a relatively stable external environment for the long-termsound development of China's economy. Priority of macro-regulation should be maintaining long-term economic stability and growth. Domestic Macro-economic Control should take a wider and longer perspective, by taking into account medium-/long-term goals, while reducing the frequency of short-term policy adjustments. At the same time, policymakers should be vigilant against systematic risks in the economy, and firmly adapt measures to resolve them systematically. To be more specific, government shall take the following measures: improving the predictability of policy orientation and policy tools; providing more stable policy to support various sectors by maintaining the predictability and continuity of policies;limiting the usage of macro-regulation adjustments in dealing with separate events; and currently, a combination of a stable (toward tight) monetary policy plus a more active fiscal policy is preferable in terms of macroeconomic policy options.