I listened to the report of the Institute of World Economics on Saturday afternoon, and with the consent of Teacher Sun Lijian, I forward his views as follows.
Professor Sun Lijian’s views come from his circle of friends.
The main contents of Teacher Sun Lijian’s report:
1. Financial chaos is endogenous, and it will inevitably bring about the consequences of turning reality into fiction (the characteristics, causes and effects of "excessive currency issuance")
2. The new regulations on asset management have exacerbated the current situation of financial instability and challenged the driving force of economic growth (difficulties in deleveraging and the lack of financial services).
3. The significance and difficulties of revitalizing small and medium-sized enterprises (past practice has brought counterproductive consequences), decentralization, regulation and services are indispensable, and their importance is increasing in sequence (therefore, the institutional design that integrates participation, constraints and incentives with Chinese characteristics, and the construction of a new financial service model in place will be the top priority).
Teacher Sun Lijian’s views summarized:
Thank you to the teachers and friends who are here today. As requested, I would like to summarize the points of my speech:
1. The growth method that stimulates economic recovery, although it avoids the systemic risks (problems such as employment, income, bad debts, etc.) that the financial tsunami may bring to my country's export-oriented economic development model, but the liquidity and even performance continue to decline due to the quality of credit projects, and the government's subsequent stabilization funds (liquidity) have to follow up in large quantities (SLF, MLF, etc.), which in fact creates difficulties in deleveraging (debt Cumulatively triggered), the monetary hyper-excess phenomenon forced social groups to use the funds that supported the real economy (income from their own labor) and chose to invest more in "high-yield" financial businesses in the second round, thereby worsening the costs and benefits of the financial system's corporate business (the loose monetary policy basically failed), and in turn forced financial institutions to significantly increase off-balance sheet (shadow) banking business to make up for their own liquidity consumption and lack of investment income.
2. Moreover, due to the loosening of currency and credit, coupled with competition from private e-commerce and inclusive financial platforms, banks have to use rigid payment business models (to meet the financial needs of corporate channel businesses, outsourced loans, etc., as well as families to resist the pressure of declining purchasing power and have to pursue high-yield investments) to win over customers and reduce the trouble caused by customer disintermediation! And social groups mistakenly regard the "expected return" of financial investment as an investment opportunity that is better than the "real return" of industrial investment! Instead, they believe that giving up financial management opportunities to insist on industrial development will bear greater opportunity costs! Therefore, in today’s environment of over-issuance of money, every economic participant has chosen a way of survival that is beneficial to them, thus allowing shadow banking business to flourish; inclusive finance has also become a cover for the abuse of innovation (leverage), and finally changed the country’s original intention of stimulating the recovery of the real economy and supporting inclusive finance to make up for the shortcomings of China’s large financial system. Instead, it has exacerbated the hidden dangers of systemic financial risks in the entire society! (This is the first part of what I’m talking about today: the intrinsic relationship between stable growth and financial chaos; the conclusion is that turning away from reality and toward virtuality is an inevitable result in China today, an endogenous unstable bad balance!)
3. I don’t have time to elaborate on this part, so I’ll add it here through my circle of friends: It seems that today, due to the deterioration of the operating environment and the in place supervision of cutting overcapacity and deleveraging, small and medium-sized enterprises are encountering great difficulties in their capital turnover! Even if tax cuts become more difficult and credit support keeps up, corporate profitability is still affected by the impact of increased tax enforcement, the intensification of the Sino-US trade war (especially intellectual property protection), the improvement of quality inspection standards, rising business operating costs, and the strengthening of financial supervision, which offset the positive combination of government support. In a word, the fundamental problem of small and medium-sized enterprises is profitability, and lack of money is the result of the problem. The current solutions to the problem are all focused on the costs (or liability side) of financing and tax reductions for small and medium-sized enterprises. The improvement of the viability of small and medium-sized enterprises requires financial institutions and the government to solve the asset-side problem of small and medium-sized enterprises that have difficulty in transformation and profitability due to lack of talents (Four value creation capabilities: high labor productivity brought about by incentive-integrated contracts, high return on capital brought about by business focus, innovative resilience brought about by human capital investment, and improvement in total factor productivity brought about by resource allocation efficiency caused by entrepreneurship), To this end, financial institutions, especially banking institutions, must greatly recruit professionals who understand the business and market of the enterprise. The government must introduce talents for small and medium-sized enterprises and reduce the burden of the indispensable five insurances and one housing fund (pay instead of paying less!). Otherwise, the survival of private enterprises has always been to hide the true information and violate laws and regulations. Therefore, the current service model of banks on the liability side is unwilling to serve small and medium-sized enterprises due to their insufficient mortgage and profitability, as well as the lack of government credit endorsement. If the top-level design is completed as an administrative requirement, due to the lack of value creation services (know your customer model), the non-performing asset rate will increase greatly afterwards! So,It is recommended that we first give small and medium-sized enterprises a chance to make profits (fair competition), relax regulations, break down barriers to entry, and at the same time increase efforts to reduce tax burdens (adjustments will be made appropriately in the future based on information transparency), so that small and medium-sized enterprises can see a bright future in the industry! To this end, the more important task is to strengthen ex-ante supervision, establish a hard constraint system with clear rewards and punishments, penetrate information, and improve the ability to identify systemic risks (individual risks can be completely resolved through the "delegation and management" mechanism, and the parties themselves can resolve them. At this time, the government's help in resolving risks will create artificial moral hazards, making the effect of the policy counterproductive and half the result with twice the effort)!
Finally, and most importantly: although it has been said before, it cannot be emphasized enough! High-quality talents are needed to help small and medium-sized enterprises optimize their profit environment and improve their profitability! Only by improving profitability, the government will give enterprises more opportunities by opening up the market, instead of the consequences of policy failure as it is now, thus hindering the government's reform and opening up process and reducing the willingness to provide financial services! In the end, it repeats (but not intentionally) the same endless cycle of the past. It's finally over. Thank you everyone for your patience.
I forgot to mention that the subtitle of the third part is "Decentralization, Delegation, Delegation, Service and Profitability." Please correct me.
Machine-translated from the Chinese original 别让金融拖后腿 (published 2018-11-26). WeChat original ↗