The focus on the annual NPC and CPPCC sessions stems from a number of macro policy signals sent out during the sessions, but some are clear and direct, while others are hidden in seemingly straightforward and unremarkable language. For example, this year’s monetary policy, since the previous Central Economic Work Conference has been very straightforward – to maintain continuity, stability and sustainability, not a sharp turn, this government work report continued this policy guiding ideology, does that mean that there will not be too many changes in monetary policy, do not need to pay too much attention to?
In a conversation with Tencent Atomic Think Ttank, Huang Yiping, a senior professor at the National School of Development at Peking University, said that leaving some room for monetary policy is because you don’t know when something is going to go wrong next time — one of the biggest challenges we will face this year is how monetary policy in the US and Europe will adjust.
Professor Huang Yiping pointed out that the last round, when the Fed started to talk about quantitative easing in 2013 and actually ended quantitative easing and raised interest rates in 2014, had a huge impact on emerging market countries. As the capital from emerging market countries returned to the US, the currencies of these countries began to depreciate, interest rates rose and asset prices fell. Including China, by the second half of 2015, the pressure of currency depreciation was very high. But China is only under certain pressure, such as Turkey, Russia, South Africa, the outbreak of financial crisis.
“That’s what we need to be prepared for the next round: when the Fed suddenly turns on its monetary policy.” ‘The strategies are: first, exchange rate flexibility and tolerance of exchange rate fluctuations,’ Mr. Huang said. Second, as it relates to the overall soundness of the financial system, it may be necessary to take advantage of existing measures to regulate cross-border capital flows.
In addition, Professor Huang Yiping also addresses in detail the concerns related to PBOC’s digital currency: usage scenarios, privacy, security, payment ecology and possible international settlement applications.
Here is the interview:
Having a general target for economic growth helps to coordinate the work of various government departments
Atom Think Tank: Many discussions have mentioned that due to the low base of economic growth last year, the growth rate this year is expected to be relatively high. Some have suggested that the growth rate may be around 8%. However, the government work report has set a growth target of 6%. Could you please explain what consideration and judgment you are based on? Is this figure conservative?
Huang Yiping: In fact, there is not too much easy to interpret. Now everyone feels that 6% might be a little conservative, but a conservative is relatively easy to achieve, and it’s not a bad thing. If one had to interpret it at all, one could guess in two directions.
First, uncertainty about growth this year does exist. For example, it is still unclear how the epidemic will evolve. Some of the policies we adopted last year may have some hangover this year. For example, high leverage and financial risks. There may be new problems this year — and it’s not clear yet. Because of the very aggressive monetary policy that was adopted around the world last year, there was an expectation that it might not be adjusted until the end of next year, because that’s what the chairman of the Federal Reserve said. But now everyone is talking about the risk of inflation, and the US Treasury bonds are also reacting, so if inflation returns quickly, the policy adjustment will be accelerated. Policy adjustment, especially the zero interest rate and quantitative easing policies launched by the Federal Reserve, will have a new impact on countries around the world. Like the last round of easing, money went all over the world; When it starts to tighten, money will flow to the US. This will create new pressures on many emerging market countries — devalued currencies, rising interest rates, downward pressure on policy prices, and so on, due to reduced liquidity.
Second, we have had debates in the past about whether the government should set a target for economic growth and by how much. I am personally inclined to think that the overall goal of economic growth has indeed been overemphasized in the past. This has put great pressure on governments at all levels. Indeed, we have seen that many governments have placed more emphasis on short-term growth than on long-term structural problems of efficiency, and some structural problems have even become more acute.
Is it okay not to have big goals? There are arguments. Many people say that developed countries don’t have specific targets for economic growth. My guess is that the developed economies are relatively mature and their growth ranges are relatively narrow. The United States, for example, had a good growth potential of around 4% before the global crisis. The potential growth rate is relatively stable, so whether the government sets medium to short targets or not, in fact, the difference is not too much, the economy is relatively stable. But our potential is changing, and having a general target is beneficial to the work of various sectors.
On the other hand, because we are not a completely market economy, the market has not been fully formed, and we cannot make a choice entirely based on the market situation. Without a growth target, it may be difficult to coordinate some investment and monetary policies. Therefore, in terms of guiding and guiding the policies of various government departments, it is also necessary to set goals.
Both are justified. If too much emphasis is placed on short-term growth, too much emphasis can cause structural contradictions to become more pronounced. So there are indeed many calls for no targets. I, myself included, have argued in the past that setting economic development goals puts too much emphasis on short-term growth. But the other way around, don’t do it at all, okay? After all, we are a developing country in transition. I think there should be a general goal. It may be helpful for coordination work, but don’t make it too hard.
Prepare for possible monetary policy adjustments in Europe and the United States this year
Atom Think Tank: What is your view on the fiscal and monetary policy targets set in the Government Work Report of this year’s two sessions?
Mr. Huang: fiscal and monetary policy, no anything unexpected, is in the central economic work conference has said very clearly, because of the big crisis may be over the worst moments, so for this year’s macro policy, I should be expected to appear some fine-tuning, last year’s strength is very large, because we met such a worst outbreak, in this year, will certainly be adjusted.
But so far, the rebound in growth has been tentative. The main driver of growth last year, especially exports, was partly the result of factors specific to the outbreak, but these factors cannot be sustained in the long run — of course, there are some negative effects of the epidemic. In our growth last year, investment and consumption were actually just so-so, not as good as exports. But there are some structural problems in investment and consumption, such as investment in infrastructure is strong, in the first half of the year and the time of the year, the real estate investment is also good, but some manufacturing industry is relatively weak, if this continues, behind the recovery to a certain extent, there is a shadow of the government, the rebound is not sustainable in the long run.
If the rebound in growth was largely due to the epidemic and policy factors, would we have been able to maintain such growth this year without those two factors? In the short term, macro policies should continue to give support. On the other hand, policy must take a turn, but in the words of the central policy department, to maintain continuity, stability and sustainability, and not to take a sharp turn. That makes it clear — adjust, but don’t make a sharp turn. Because this year’s economic growth, to a certain extent, still need policy support. On the other hand, if there is no policy support at all this year, it will be difficult to some extent.
article links：How will monetary policy in Europe and the US adjust?
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