Analysis on the current Chinese macro-economy (Part I)
- By Zou Pingzuo
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E-mail China.org.cn, August 16, 2015
Secondly, the market is deteriorating. In the past five years, the economy, as well as the financial structure has changed significantly. In 2009, the central government invested 4 trillion yuan to stimulate the economy that proved to be a wrong decision.
A number of newly-founded state-owned enterprises occupy an excessive amount of capital and available loans. In contrast, medium and small enterprises find it hard to attract investment and financing, leading to many bankruptcies, especially in northeast China, Yangtze River Delta and Pearl River Delta. The real economy in China has to accept a 20 percent interest rate, and that's abnormal.
Local governments have become debt-ridden. Due to low efficiency and no means of gaining profit, their debts have increased rapidly. Meanwhile, the problems including corruption and low efficiency have reduced the impact of investment income of state-owned enterprises.
Thirdly, macro-control might be a misguided approach. In China, statistical distortion leads to political failure. Based on distorted statistics, the central government will make mistakes when setting policies. Due to an imperfect market mechanism and inadequate information, market failure is also unavoidable in the Chinese economy. Specifically speaking, the reasons why these two failures have appeared include:
a) China's economic structure is different from other countries'. A lot of internal transactions cover up the reality of the country's GDP.
b) The economy has a low marketization degree. Both GDP and CPI are different from other regular market economy. In the past 30 years, marketization in China has been disrupted several times.
c) The property relationships in China create a range of means of production and livelihood that are nontradable. For example, the land and mines in China all belong to the state, which means they couldn't be transacted in the market. Therefore, China's GDP can't be compared with other countries'.
d) In the past five to six years, the government has produced public goods with a value of 50 trillion yuan, which accounts for a large part of the Chinese economy. However, the production process only has investment, but no consumption, creating imbalance. Thus, the universal standard of GDP doesn't reflect the reality of the Chinese market.
e) Massive government and social spending put pressure on the real industry. The imbalance between income and output GDP, between market and real CPI are not only due to statistical distortion, but also intensify social contradictions, and finally lead to the imbalance between productivity development and economic structure.
f) China's current statistical system originated from the traditional planned economy and can't reflect the real situation of the country's economic change.
Fourthly, structure and efficiency problems also exist in the monetary system. The inverted triangle monetary structure indicates that the country's financial system is not stable, easily triggering financial turbulence and crisis. In the Chinese monetary system, lots of capital features high fluidity and finance doesn't provide enough support for real industry.
And fifthly, China's M2 and GDP ratio is misunderstood. Actually the inverted triangle monetary structure eventually leads to a higher M2/GDP ratio.
(To be continued tomorrow)
The writer is a researcher with the Finance Research Institute of the People's Bank of China.
The article was translated by Lin Liyao. Its original and unabridged version was published in Chinese.
Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.
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