This book is about China’s economy transformation. Currently, China’s macro-leverage ratio has been effectively controlled, the central market interest rate (one year fixed interest rate) has gone down, and liquidity is now relatively abundant. However, financial institutions are generally reluctant to lend, the local governments are unwilling to act, and the fact that liquidity released by the central bank cannot be effectively transmitted to the real economy is leading to a contraction of credit and higher financing costs for private enterprises. Meanwhile, the downturn in the internal economic cycle has been exacerbated by the external shocks caused by frictions in Sino-US trade, and this set of circumstances has contributed to the polarization of expectations regarding China's real economic prospects and policy trends, as seen, for example, in the questions and discussions about policy trends relevant to the private economy. Indeed, one might claim that the current confusion of expectations even exceeds that of 2008, when the international financial crisis breaks out. From a dialectical perspective, the more pessimistic expectation of economic trend, the easier it is to build consensus on reform, and the more remarkable actual effects of reform, which must be based on a comprehensive understanding of the phased characteristics of China’s economic development.
In this book, based on the experience working in central bank of China, the author argues that China’s policy should focus on internal demand. In the coming period, China needs to persevere in the market orientation, step up reform and opening up, and create a favorable business environment. This book represents the following opinions: First, to reach a common understanding of the medium and high economic growth, and avoid the dream of high growth. Second, to stick to supply-side structural reform, accelerate economic transformation and structural adjustment, and further unleash the reform dividends and growth potential. The long-term and structural problems cannot be attributed to short-term and cyclical problems. Third, the challenges of external shocks could be also regarded as opportunities, which include but not limited to accelerate reform to improve property rights protection, state-owned capital management, corporate governance, income distribution, and social security. Fourth, whenever the trade friction happens, a multilateral framework is always helpful.
Author(s): Zhong Xu
Publisher: Springer
Year: 2020
Language: English
Pages: 266
City: Singapore
Contents
1 China's Economic Transformation
1.1 Current Trends and Characteristics of the Chinese Economy
1.1.1 Long-Term Trend
1.1.2 Medium-Term Policies and Prospects
1.1.3 Short-Term Trend
1.1.4 The High-Quality Growth Model Poses Challenges for the Monetary Policy Framework
1.1.5 Policy Implications
1.2 Estimation of China’s Potential Output
1.2.1 Comparison and Analysis of Potential Output Measurement Methods
1.2.2 Comprehensive Method Design of Potential Output Measurement in China
1.2.3 China's Potential Output and Output Gap (1993–2029)
1.2.4 Trends and Policy Recommendations for China's Potential Output
1.3 China's Economy Has Moved from High-Speed Growth to High-Quality Growth
1.3.1 Background–New Normal, New Development Concept, Supply-Side Structural Reform
1.3.2 Reform is a Combination of Bottom-Up and Top-Down
1.3.3 Modernization of the National Governance System is Key to the Transformation from High-Speed Economic Growth to High-Quality Growth
1.3.4 Development to High Quality Depends on Institutional Competition
2 Transformation of China’s National Governance Framework
2.1 Modernization of China’s National Governance System
2.1.1 Finance Serves the Real Economy
2.1.2 The Financial System and Its Functions Should Be Embedded in the Modernization of the National Governance System
2.1.3 The Construction of a Modern Financial System Should Follow the General Rules of Financial Market Development
2.2 Fiscal Relations Between Central and Local Governments
2.2.1 The Influence of Central-Local Fiscal Relations on Economic Fluctuation
2.2.2 Improve the Financing Mechanism of Urbanization Construction
2.3 Local Financial Management Autonomy
2.3.1 Incentive and Restraint System Framework of Local Financial Management
2.3.2 Central Government Restraint of Local Government Financial Management
2.3.3 Financial Market Restraint on Local Financial Management
2.3.4 The Gap Between China’s Local Fiscal Incentive and Restraint Mechanism and Those of the Major Countries, and Suggestions for Improvement
2.4 Measures to Eliminate Leverage
2.4.1 Leverage Ratio in China
2.4.2 The Relationship Between Leverage Ratio and Financial Risk
2.4.3 Two Major Deleveraging Strategies
2.4.4 Measures to Address Both the Symptoms and the Root Causes
2.5 Market Clearing
2.5.1 Market Clearing and Demand Management
2.5.2 Rethinking Keynesianism
2.5.3 Supply-Side Structural Reform
2.6 State-Owned Capital Management
2.6.1 The True Nature of State-Owned Capital
2.6.2 The Key to State-Owned Assets Management Lies in “Governance” Rather Than “Management”
2.6.3 Establishing a Layered Management Model of State-Owned Capital
2.6.4 Strengthening the Leadership by the Chinese government and the Protection of Shareholders’ Rights and Interests Through a “Double-Level Arrangement”
2.7 Pension Issues
2.7.1 Excessive Pension Rates Affect the Competitiveness of Enterprises
2.7.2 State-Owned Capital Should Be Allocated to Repay the Historical Debts of the Social Security System Transition
2.7.3 Ensure the Individual Accounts Are Fully Funded
2.7.4 Unbalanced Development in China
2.7.5 Implement the Policy of Transferring State-Owned Capital to the Social Security Fund as Soon as Possible
2.7.6 Improve the Portability of Pensions
2.7.7 Develop Pension Investment and Operations
3 Transformation of China's Financial System
3.1 Reflections on the Financial Crisis
3.1.1 The Causes of the Global Financial Crisis
3.1.2 Reflections on the Response to the Global Financial Crisis
3.1.3 The Implications of the Global Financial Crisis
3.2 Prevention and Control of Systemic Risks
3.3 Incremental Financial Openness
3.3.1 Opening to the Outside World
3.3.2 The Current Main Problem is Insufficient Openness Rather Than Excessive Openness
3.3.3 The Current Problem is a Lack of “Four Confidences”
3.3.4 Adhering to the Opening Up of the Financial Sector is an Important Part of China’s Reform and Opening Up
3.4 Green Finance in China
3.4.1 The Unique Background of China's Green Finance Development
3.4.2 Significant Features of China’s Green Finance Development
3.4.3 Top-Level Design and Grassroots Exploration Should Be Organically Combined
3.4.4 The Top-Level Design and Institutional Arrangements of Green Finance Are Being Continuously Improved
3.4.5 The Green Financial Market is Booming, and the Market Size and Product Structure Are Rapidly Improving
3.4.6 Key Issues in the Development of Green Finance in China
3.4.7 Improving the Business Sustainability of Green Finance is Key
3.4.8 Pilot Reform and Prospect of Green Finance Area
3.5 China's Inclusive Financial Development
3.5.1 Current Progress in the Development of Inclusive Finance in China
3.5.2 China Faces New Tasks and Opportunities in Developing Inclusive Finance
3.5.3 Balance Innovation and Regulation
3.6 Corporate Governance Dilemma
3.6.1 Corporate Governance in China Has Major Flaws
3.6.2 The Absence of Owners and of State-Owned Shareholders’ Rights
3.6.3 Lack of Effective Checks and Balances
3.6.4 Inadequate Information Disclosure
3.6.5 The Institutional Roots of Corporate Governance Abuses in China
3.6.6 Some Suggestions
3.6.7 Strengthen the Party’s Leadership and Strengthen the Protection of Shareholders’ Rights and Interests Through the “Two-Tier Arrangement”
3.6.8 Improve Internal and External Checks and Balances
3.6.9 Improve the Information Disclosure System
4 The Transformation of China’s Monetary Policy Framework
4.1 China’s Practical Experience in Sound Monetary Policy
4.1.1 China’s Monetary Policy Framework
4.1.2 The Development Trend of Macroeconomics and Monetary Policy Theory
4.1.3 Target Framework and Operation Mode of Monetary Policy
4.1.4 Economic Stability, Financial Stability, and Broad Monetary Policy
4.1.5 Monetary Policy Practice Promotes Theoretical Innovation
4.2 Transformation of China’s Monetary Control Mode
4.2.1 Interest Rate Marketization Reform
4.2.2 Monetary Policy Quantity Control and Price Control
4.2.3 Practical Difficulties and Challenges in the Transformation of China’s Monetary Price Control
4.2.4 The Transformation of China’s Monetary Price Control in the Stage of High-Quality Economic Development
4.2.5 Accelerating the Transformation of Monetary Policy Regulation from Quantity to Price
4.3 The Reform Process of Interest Rate Marketization in China
4.3.1 China Has Entered a New Stage of Deepening Interest Rate Marketization Reform
4.3.2 Impact of the Dual-Track System of Hidden Interest Rates on the Market Interest Rate System and Interest Rate Regulation
4.3.3 The Main Factors Restricting the Deepening of Interest Rate Marketization Reform
4.3.4 Suggestions for Deepening the Reform of Interest Rate Marketization
5 The Transformation of China’s Financial Regulation Framework
5.1 Effective Financial Regulation
5.1.1 The Relationship Between Central Banks and Financial Regulation
5.1.2 The Regulation System Must Have Incentive Compatibility
5.1.3 The Balance Between Financial Regulation and Market Mechanism
5.1.4 Regulation Must Balance Financial Innovation and Risk Prevention Effectively
5.2 The Optimal Option: Enriching the Financial Committee with Matrix Management
5.2.1 “Two Transboundary Operations and Four Separations”
5.2.2 Building a Financial Regulation System Compatible with Comprehensive Management
5.2.3 Matrix Management: The Optimal Option for Financial Regulation System Reform
5.2.4 The Reform Achievement of Matrix Management
5.3 Chaotic Phenomena in the Financial Market and the Urgency of Reform
5.3.1 Understanding the Problems of Business Separation and Mixed Operation
5.3.2 Understanding the Problem of the Entry of Private Capital
5.3.3 Understanding the Issue of Illegal Fund-Raising in the Financial Field
References
