On the additional 100 billion the inflationary effects of government bonds

Into the 98 years since China's Economic situation has undergone a series of significant changes, their concentration reflects the national Economic growth rate is down. In response to this situation, the CPC Central Committee and State Council made a resolute decision boldly adopted a proactive fiscal policy, issuing 100 billion government bonds for infrastructure construction, start Economic growth. This important measure is clearly a kind of expansionary fiscal policy, on China's economy will produce exactly what kind of impact? Issuance of treasury bonds will trigger a new round of inflation, so that China's 'soft landing' success does come to naught?
To answer this question, we must be combined when issuing treasury bonds China's Economic situation analysis in order to fully understand its Economic impact.
An overview of China's current economic situation,
As early as the beginning, the new Premier Zhu put forward the need to ensure that the 98-year economic growth rate reached 8% target. The development of this indicator has its scientific basis, it actually contains three important macro-economic goals: as soon as possible to reverse the downward trend in economic growth, maintaining the RMB exchange rate stability, and ease the state-owned enterprises laid off workers and unemployed number of problems. From the prevailing economic situation in view, the success of our national economy has just achieved a 'soft landing', most people believe that a new round of economic growth will soon commence, and the rate of economic growth in 1997 remained as high as 8.8%, 98 8 % achievement of the objectives should not encounter much difficulty. However, the reality is that 98 years ago, two quarters of economic growth are at about 7%, significantly below expectations, but also a serious impact on China's macro-economic goals, and ultimately led to the introduction of the proactive fiscal policy.
Therefore, the analysis of China's proactive fiscal policy, analyzing the economic impact of issuing treasury bonds, we must first of China's economic growth rate continued to fall this phenomenon to have a comprehensive understanding.
Economic theory and economic development, history tells us that the direct impact on economic growth factors are primarily investment, consumption and exports. China's economic growth rate drop is a direct result of weak investment, consumption weak exports, a result of the deep-seated reasons for these phenomena are mainly the following aspects.
First of all, the situation in the domestic market from a seller to a buyer's market is a drop in China's economic growth rate of the major internal factors.
In China since its establishment, the market situation has been a 'tight', and even many basic necessities have to be by virtue ticket supply, and some goods for more than just a certain level of leadership can only enjoy. To 'devolution of power' as the core of the reform and opening up greatly enhance the proactive micro-economic subjects, so that the productivity of our country have long been suppressed has been released, the rapid development of the national economy, the gap between supply and demand also will be shrinking. With the further deepening of economic reform and the market economy gradually improved, the market economy system, the promotion of the role of production has also been fully revealed, the supply exceeded the growth rate of demand growth. The 'volume' changes in the gradual accumulation of the end of 1998 as the ultimate expression of 'quality' of the change, that appeared in most of the major commodity oversupply situation, the advent of a buyer's market. It is undeniable that the formation of such a pattern is a major achievement of China's reform is the implementation of market economic system, rich fruit, indicates that China's economic development has entered a new stage and a new starting point, in the long term will play a positive effect. Mainly reflected a positive role in enhancing market discipline of enterprises, the promotion of enterprises in the competition, constantly improve their economic efficiency, thereby enhancing the operational efficiency of the entire national economy. However, this change in the short term it will inevitably bring certain negative effects. From a stock point of view, the negative impact is mainly reflected in a seller's market for a large number during the construction of enterprises, since they are accustomed to tight market situation, there is no serious strengthen their own management, production efficiency is low, high product costs. These enterprises are bound to appear in the buyer's market in a serious backlog of products facing shutdown or bankruptcy situation. In fact, due to the lack of investment in China over the years should have the benefits of restraint, especially in local governments and various departments blindly setting up shops, on the project, redundant construction is very serious, a large number of such enterprises, their cut-off is bound to bankrupt slow economic growth. From the incremental point of view, the market situation of supply exceeding demand will allow companies to project the expected profits to decline, thus weakening their investment motives, investment will be made to reduce the national economic slowdown. Enterprises are faced with the situation is becoming increasingly critical, will increase the uncertainty of future income residents, so that the residents of the future income is expected to fall, which makes the most of reduced current consumption, exacerbated by the situation of insufficient demand.
Analysis of a seller must also take into account China's current buyer's market a buyer's market with the Western countries are different, mainly the structural features of our very strong buyer's market is not comprehensive product surplus. Performance that has emerged in the balance between supply and demand situation of oversupply or not to consolidate, and some of the gaps in products and services is still relatively large, as part of the basic goods and infrastructure; there are a number of products were often in volatile state, as some agricultural products; also have oversupply of some products are not absolute, but because manufacturers in the design and manufacture failed to take into account the actual needs of consumers, leading to consumer demand can not be met, such as the rural market is still considerable demand for household appliances , but the current design of home appliances in rural areas can not adapt to the situation. Thus, China's buyer's market is only relative sense of buyer's market, the total imbalance in the economic structure hidden behind the contradictions. The Government's macroeconomic regulation and control must take into account the total adjustment and structural adjustment of two aspects, side is suited to China's current economic situation in a sensible measure.
Second, the Southeast Asian financial crisis on China's impact is gradually revealed, but also affected our economic growth.
After years of reform and opening up, China's economic openness has been at a high level of import and export volume growth year after year. However, China's export industries by the government monopoly or because of the long-term support, leading to low competitiveness of their products, export product mix and geographical structure is not entirely reasonable, is that a large number of export competitiveness is low, species with neighboring countries identical labor-intensive products, exports are also concentrated in the neighboring countries and the U.S.. The Southeast Asian financial crisis in Asia and the world economic situation has brought a serious impact on many of its neighboring countries into a serious crisis, they not only directly reduces imports from China, but also indirectly through erosion of the national currency devaluation of China's export products market share. Economies of many countries outside Asia also suffered a great blow to world economic growth slowed further, making the further deterioration of the situation in China's export growth rate of exports greatly reduced. Inevitably delay the export of production and investment of Chinese enterprises play a negative impact, impact on China's economic growth. As China pursues policy of not devaluing the renminbi exchange rate, export growth to slow down the problem can hardly be resolved in the short term, more realistic way is to expand domestic demand, while exports of industrial restructuring and enterprise reform, strengthen our products in international markets competitiveness, in the long term fundamental solution to the problem.
In addition, currently affecting China's economic growth and other factors that increase people's income is mainly slow: slow progress of state-owned enterprise reform, the phenomenon of state-owned enterprises laid off workers and unemployed increased, slow growth in income levels of workers, some of the income level of workers and even declined slightly; grain marketing institutional adjustment has not yet put in place, the majority of farmers from the agricultural price adjustment in the interest gained is limited;乱收费现象 in rural areas have not been solved, farmers and other low level of real income.
Active fiscal policy, we must put our country's economic situation in this larger context in mind, and thinking in China's economic growth rate slipped further, consumption and export demand showed signs of weakness are the specific effects of issuing more bonds.
China's current monetary supply and demand situation
Money supply is greater than the demand of money in circulation causes of inflation is a direct factor, to analyze the inflationary effects of issuing treasury bonds, it must analyze its impact on monetary supply and demand start. Therefore, China's current money supply and demand conditions can not have a comprehensive understanding and accurate judgments, their focus is on: whether there is deflation in China now?
The so-called deflation, refers to the money supply due to less demand for money, making the overall price level decline. Notes of the history of the most serious deflation occurred in the United States during the Great Depression, the price level in six years, dropped by 20%. Lead to deflation because the United States Government has no right temporary shortage of funds of commercial banks to give adequate support, but a decrease of base money, allowed a large number of banks go bankrupt due to depositors run. Reduction in the basic money supply at the same time, there are a large number of bank failures out of the commercial banking system, coupled with the banks still in business for the purpose of preventing runs automatically increase the rate of excess reserves, resulting in the commercial banking system and currency derivatives to reduce multiple , resulting in a severe shortage of money supply, the U.S. economy year after year of negative growth. China's current economic situation with the United States at the time, there are many similarities, such as the acute shortage of consumer demand, drop in economic growth, especially in China's inflation rate is also first time the emergence of a negative. According to these phenomena, it can be concluded that China's current emergence of deflation? This is not appropriate to determine the nature of deflation appears to be their starting point of the money supply and the demand for money compared to determine whether there is actually less than the money supply the demand for money. Analyzed according to this line of thinking, I believe that our country does not exist the so-called deflation, the reason is very simple: the money supply no less than the demand for money. Reposted elsewhere in the Research Papers Download http://www.hi138.com
First, from the central bank's monetary policy perspective. Central Bank of China since 1996 has taken several measures to expand the money supply, such as the abolition of the mandatory loan scheme, multiple lower interest rates, excess reserves to reduce the statutory rate. Abolition of mandatory loan scheme is actually excess reserves at the statutory rate within the scope permitted by the decentralization of loans to commercial banks, the People's Bank will not conduct any quantitative restrictions; several lower deposit and lending rates, but also to increase the the amount of commercial bank loans; to reduce the statutory reserve ratio, increase the commercial banking system is even more money in multiples derived from a powerful lever. All of this suggests that the current central bank's monetary policy is very loose, the central bank is seeking to increase the money supply.
Secondly, from the commercial banks operating in practice, the existing money supply is also able to meet the demand for money. China's commercial banks this year, the most remarkable feature is that the banks have a high rate of excess excess reserves, 6 the end of state-owned bank excess reserves excess rate of 9.1%, other commercial banks, excess reserves excess rate of 16% . On that basis, that the excess reserves are too high over the commercial banking system must allow multiple decline in the currency derivatives, thereby reducing the money supply, can not meet the demand for money in the economy, leading to deflation. High rate of excess reserves over the issue, we should have a better understanding, it should be noted that the excess of course, excess reserves are too high will reduce the money supply, but will not necessarily make the money supply below the demand for money. At the same time, excess reserves are too high excess demand for money in itself is a major lack of performance.
During the Great Depression, U.S. commercial banks are generally high rate of emergence of excess reserves over the issue, but with our current situation is not comparable, mainly two kinds of cases, lead to excess because excess reserves are too high is very different. The United States during the Great Depression, excess reserves of commercial banks over the rate was high, are motivated by the need to prevent depositor runs, while the depositors runs precisely because of the money supply is also inadequate. Because the United States was not government-guaranteed bank security system did not take active measures to increase the base money supply, so that each bank in order to avoid bankruptcy of the measures taken - to improve the rate of excess excess reserves - have actually increased their risk of bankruptcy. In other words, the absence of sufficient supply of money, the commercial banks to improve their rate of excess behavior of excess reserves exacerbated the shortage of money supply, so that money supply is much lower than the economy's money demand over the same period, resulting in deflation. In China, a high rate of commercial bank excess reserves excess shows just very different reasons. From the deposits of view, the sustained rapid growth of household savings deposits, which depositors run on the background of the money supply and demand just the opposite, reflecting the demand for money of China's current population have been met. From the loan terms, while most companies are reluctant to banks for loans, and banks unwilling to lend too much, that is 'credit crunch'. This phenomenon is unprecedented in our economic life, it is the emergence of China's market economy system has been gradually improved and the current acute shortage of market demand. With the gradual improvement of the market economy system, China's enterprises and banks and effectiveness of market constraints are constantly improving their business objectives became increasingly focused on maximizing the economic benefits, and from this end, according to the market situation, decide on their own business strategy. A serious shortage of market demand in the current economic situation, enterprises and banks unwilling to lend credit crunch, is that they make choices according to their own interests: Enterprise unwilling to lend because of weak demand, it is difficult to ensure the expected return of investment projects, blindly apply for a loan may lead to loss; bank credit crunch for the same reason, the banks also take into account the business in the current economic situation, very difficult to guarantee loans for the project is expected to return, thus affecting the loan debt service, loans can lead to loss of the blind . This has led to high rate of commercial banks in excess of excess reserves, which reflects the business sector's demand for money in relation to commercial banks, money supply capacity has declined significantly, the commercial banks to adapt to this situation is also conscious control of the size of loans . Therefore, the company has been the demand for money is also satisfied.
Taken together, our residents and the business sector's demand for money have been met, there is no shortage of money and therefore there is no deflation, the current price level, it may be a buyer's market in competition to explain the more appropriate .
100 billion national debt will cause inflation
Through this analysis, we right the economic situation in our country already has a basic understanding. A serious shortage in the market demand, economic growth slowed down, but the money supply is not tight budgetary situation, issuing treasury bonds to the money supply and demand, how would that impact? We can separate issuing treasury bonds on the money supply and money demand side analysis of the impact.
This time, the additional 100 billion national debt, is issued to the commercial banks. Under normal circumstances, commercial banks, to subscribe for bonds to reduce the size of loans is bound to the premise, so the Government to obtain revenue bonds would decline in money supply, the Government expenditure for the use of bond revenues will expand the money supply. Money supply at the time showed up after the first drop in government revenue over all bonds are used for the case of expenditures, down the increase in the magnitude and the same. However, the reality is that China's commercial banking system has excess reserves over a large number of commercial banks do not suffer from these funds to invest in a sound, not to create profits, they subscribe treasury bonds, the excess must be based on these excess reserves to carry out subscription. Commercial bank excess reserves in order to over-subscription bonds, do not need to reduce the size of their loans, and thus not reduce the money supply. The Government, after obtaining the bond revenue would increase government spending by way of use of them. Through government spending, businesses and individuals made monetary income, equivalent to the central bank increased the base money, which directly increases the money supply. However, if businesses and individuals to these currencies deposited in a bank after another into a bank's excess excess reserves, the increase in money supply results will be very obvious, while the banks to expand their loan depends on the decisions of both banks and enterprises. If the Government to expand spending in the economic situation for the better, investment projects, the expected profits will be relatively high, companies be willing to apply for loans, banks lend only dared. From here, we can see that the implementation of government's macroeconomic policy effects, and micro-economic response to the main body of this policy is closely related to. The issuance of additional treasury bonds at issue, not reduce the money supply, when in the use of revenue bonds will increase the money supply, therefore, its money supply is necessarily play a catalytic role. Promote the role of size, depends on the Government to use debt to revenue results.
Issuing treasury bonds may affect the demand for money mechanism is more complicated. Excess reserves by commercial banks to over-subscription bonds, the demand for money does not exist in any way. However, the Government with the expenditure of bond revenues will effectively increase the demand for money. First of all, government spending itself is a form of money, and will directly increase the demand for money. Of course, this is only one aspect of the role of government spending, government spending expanded more pronounced effect of the demand for money reflected in the increase in government spending through direct needs of the community, bringing an increase in wages and profits and stimulate private consumption and business investment and stimulate related industries, indirectly increasing social demand.
At the same time, through the issuance of treasury bonds to be financed. And issuing bonds is only part of the social capital the right to use the temporary transfer of purchasing power is dispersed within a certain period of time concentrated state. However, the additional bonds eventually be able to really stimulate the effective demand, the effect of re-start the economy, but also on the end to invest in government bonds and their economic impact.
The current government the additional 100 billion national debt is issued to commercial banks. The face of commercial banks to issue bonds, the great potential for government funding, and it is in line with our status quo. Given China's current assets of commercial banks increased prevalence of the phenomenon of non-profit for commercial banks to issue treasury bonds will help to improve operating conditions of banks and defuse financial risks. Will obviously benefit from the commercial banks. The same time, government revenue has also been increased.
Fourth Session of the Ninth NPC Standing Committee adopted a resolution, the additional 100 billion national debt will be used for national budgets, investment in infrastructure-building special. Specifically, the funds will be directed to agriculture, forestry, water conservancy, transportation, telecommunications, urban infrastructure, urban and rural power grid construction and transformation of the central grain depot directly under the savings, the economy in the construction of affordable housing 6. This is not only an increase in direct investment, stimulate domestic demand, but also through additional infrastructure projects and increasing capital, to create conditions for banks to expand lending. In addition, currently facing our country can solve the structural imbalance. Adjust the distribution of productive forces, optimize the industrial structure is to reduce our country and the world level of economic development gap between developed countries, the fundamental choice. Infrastructure could also solve the labor force and state-owned enterprises in urban areas re-employment of laid-off workers, and thereby improve people's living standards, stimulate domestic demand.
Thus, as long as the issuance of revenue bonds used for expenditures targeted, inputs to the right, the current urgent need to address the economic projects, to prevent blind investment and duplicated construction, and improve investment efficiency, ensure the quality of investment, then this 100 billion national debt must will achieve encouraging economic results.
Overall, the issuance of bonds must have inflationary effects, but considering the prices continued to slide, the current economic realities, but would not necessarily lead to inflation. Reposted elsewhere in the Research Papers Download http://www.hi138.com