Sun Lijian: How To Deal With The "Inflation" Pressure?

Recently, the government promulgated the "16 countries," and the people's daily and the national development and Reform Commission successively issued 5 papers for 5 consecutive days in order to stabilize prices. Moreover, six inspectors from the State Council will also go to 18 provinces, regions and municipalities to conduct in-depth investigations and conscientiously check the prices of various regions and the management of government at all levels.

This is an urgent task to tackle inflation and solve the shortage of products. On the one hand, it shows our government's high sensitivity and importance to people's livelihood today.

First of all, one of the main reasons for the continuous price rise in China today is that there is an irreconcilable conflict between the real demand brought about by the investment led economic growth mode and the administrative measures for energy saving and emission reduction, such as sluice restriction, crude oil supply and other restrictions on supply.

For example, part of the current "diesel shortage" phenomenon is caused by the "demand shock" that some enterprises could have avoided by diesel power generation.

The result of consumption of diesel fuel is not only the failure of the government to anticipate the "energy conservation and emission reduction" role, but also the emission of greenhouse gases.

In addition, Sinopec and CNPC's crude oil rationing control practices may lead to market irregularities and bring about a rising market oil price.

This result not only fails to drive production enterprises to reduce the demand for crude oil and refined oil through cost increase or supply control, but also has to upgrade industrial upgrading and energy saving technology pformation. Instead, the cost inflation inflationary burden resulting from it is passed on to the mass consumers who consume the most products.

On the other hand, the burden of this cost has further weakened the power of technological pformation of enterprises.

Therefore, when the consumption ability of Chinese society is so low that it can not eliminate the extra cost of manufacturing green products, the extensive investment pattern of Chinese enterprises can hardly be changed. Moreover, when the world economy is in the doldrums and depression, it is very difficult to rely on flourishing consumption vitality to help enterprises pform.

But if we do not adjust in time, the administrative thinking that controls the supply of resources for production and "forced" business pformation will make the inflation problem more difficult in the future because of the "rigid demand" presented in China's current development stage.

Secondly, the government led financial rescue package, such as the active fiscal policy and the effective implementation of the ultra loose monetary policy, played an undeniable positive role in stabilizing the economy without the "hard landing" problem, but it also brought undeniable sequelae. On the one hand, it caused the overheated investment in some areas and the rising inflation pressure caused by excessive consumption of production resources.

On the other hand, it also led to the "industrial capital" that once flourished in the real economic sector before the crisis, because today it lost the stage that it was good at. (now, the construction of "tie Gong Ji" and the development of central and Western China mainly rely on the strength of state-owned enterprises and central enterprises, while the scale of private enterprises' export to Europe and the United States is shrinking by the financial crisis).

Moreover, they are combined with the massive injection of government funds and the powerful "credit creation" energy generated by the financial system, resulting in the problem of liquidity overflowing.

But because the real economy has not yet seen a substantial improvement trend, coupled with the increasingly intensified rectification measures in the real estate market, we have not seen that a large amount of liquidity in the market today is concentrated in the stock market or in the property market, thus forming a common irrational prosperity.

In search of market liquidity, we will immediately find that the limited number of agricultural products and oil products markets, especially in the international market, are being abducted by a lot of financial capital. This is a manifestation of bad money driving away good money. In particular, it is the overflowing currency and associated financial assets (today become a "bad currency") which are not favored. Instead, a limited number of valuable physical assets, which are widely recognized as "good money" today, are sought and preserved by everyone. This is the distortion of the "wealth preservation" act, which, to a certain extent, further pushed up the overall price level. But if, according to the "thing"

Third, inflation expectations continue to intensify in today's rising market prices, and the long-term trend of the government controlled price system and the "negative interest rate" structure of banks (because now we unilaterally increase interest rates will aggravate the entry of foreign hot money, while the severe deflation of European and American economies in the interest rate hike will take some time), and it will create a golden opportunity for domestic arbitrage and speculation.

As a result, customers who did not need large quantities of refined oil and agricultural products were invested before. Today, they have moved their business deposits or personal deposits out of the banking system into the market that can earn money quickly and quickly. In some areas, many speculators can also take advantage of the loan ability of local banks and their privileges to purchase goods at a low price (official price) to carry out large-scale hoarding and reselling of agricultural products and refined oil, which also accelerates the soaring situation of these products in the domestic market (black market).

Moreover, today we have to see that a quantitative easing monetary policy launched by major developed countries to cope with the deflation situation has released a large amount of hot money overseas, which is mixed with the increasing "idle capital" in our country, resulting in the worsening domestic currency appreciation and the worsening inflation pressure caused by the declining purchasing power.

Fourth, in the supply chain of products, the upstream resources industry is a monopolized market of a few state-owned enterprises and central enterprises. Although it seems that they do not deliberately "pull up" domestic prices like the high price that international financial capital abduces the crude oil market, it is the supply structure of monopolistic resources lacking "downward elasticity of price" in China, which has pushed up the long-term purchase cost of the middle and downstream industries, resulting in the loss of their ability to "dynamically stabilize" the price fluctuation in the international market.

As a result, when the price of international resources is soaring and the price of refined oil and final consumer goods is managed by the state, it is easy to see the price phenomenon of "wholesale and reverse".

Of course, in this situation, the market is prone to "supply shortage" phenomenon, because no businessman will pay their own money to subsidize customers.

On the contrary, what we see is that the supply is quite ample in the black market, and the black market price will soar along with international prices.

A more serious problem is that when the production costs of enterprises rise, the average consumer goods prices of ordinary people will naturally be greatly increased.

Fifth, the privileged enterprises with the import and export of resource products will take advantage of the excess capacity of domestic refined oil production and the advantages of their own low price (official controlled price) to get the risk-free returns brought about by the "price difference" between the oil and commodity prices pushed up by international financial capital and domestic prices controlled by the government.

Here, even from the price of refined oil itself, the gap between international prices and domestic monopoly prices is not very obvious after deducting exchange rate factors. However, considering the obvious high taxes and fees of domestic fuel tax and other factors, the "arbitrage" behavior of internal and external spreads is still ten points obvious.

This will further exacerbate the shortage of resources and products in the domestic market.

Sixth, the phenomenon of "wholesale and retail upside down" caused by price control can not only inhibit inflation from the source, but will encourage more middle and lower reaches enterprises to "withdraw" from the market controlled by the government. This will lead to a serious shrinkage in the supply capacity of related products in the domestic market, and further aggravate the inflationary pressure caused by the "insufficient supply" problem.

On the other hand, this kind of middle and downstream enterprises will also enter their own industrial capital into the tight market of government price control, and carry out regulatory arbitrage, resulting in a sharp increase in demand there, thereby increasing the inflationary pressure caused by "excessive demand".

No matter what causes, the price level of the society will be pushed up in the government's price regulation.

Even if the government wants to impose more stringent management on the prices of all products and commodities, it is also because of rising regulatory costs that will lead to more corruption and rampant black market.

This has taught us a lesson in the history of China's economic and social development.

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In the face of the above three factors, which are from the "demand" (the first three factors) and the "supply" (the latter three factors), how should we take measures to deal with the rising prices? At least from now on, the measures adopted by the state and the waiting time of the Chinese people have created a "gap of understanding" which can not be ignored. If the decision making departments do not attach great importance to this problem, the government's measures to curb inflation will get twice the result with half the effort.

For example, when the inflation expectations of the people are strengthened, a large number of bullish consumer goods will be hoarded. This "excessive demand" will also cause inflation or commodity shortages to become more common.

Specifically, the effective measures that should be taken by governments, enterprises and nationals to curb prices have not reached a consensus today. The reasons come mainly from three aspects:

First, the trade-off between "breaking monopoly" and "people's livelihood safety".

For example, breaking the monopoly or freeing trade restrictions are all conducive to the formation of the "equilibrium price" mechanism in China's factor market, avoiding speculative speculation in the spread of price arbitrage and the corruption of seeking rent by relying on privileges and monopolies.

Of course, we can not deny that when the market mechanism is forming a balanced price, it can not guarantee that financial capital can be excluded from the short-term speculative behavior of kidnapping commodities and agricultural products, and the resulting excessive high equilibrium price.

In particular, the price of resources related to people's livelihood will threaten social stability and harmony if it rises sharply.

Therefore, the state often applies market access control to resource industries to prevent vicious competition or profit driven control of supply and price monopolies.

However, the public thinks that they have not enjoyed the benefits of the supply of resources that should have been out of the public interest. Many developed countries still have many similar "subsidies" until now. Instead, they feel that the upstream resources enterprises are using their privileges and monopoly status to make use of the external environment that the national price surges to seek their own business profits.

The two is the trade-off between "deregulation" and "industrial policy".

For example, government tax cuts and deregulation are important means to enhance market vitality.

If the result of administrative measures is to increase the cost of enterprises, it is likely that the price of consumer goods will eventually be pushed up because the enterprises have the ability to pfer costs.

Of course, even if the market demand is not fully saturated, even the extensive investment enterprises have room for survival and expansion.

If you pull the power off, it will also rush to buy diesel and generate electricity by yourself to seek opportunities ahead.

Unless the market itself has developed into a "destructive innovation" stage, there will be an impulse of voluntary structural adjustment.

In addition to a new breakthrough in the technological innovation of the supply side, the formation of this stage depends on the acceptance of the demand facing the supply side results.

However, at present, the government may think more about the importance and urgency of upgrading the industrial structure from the perspective of supply side. This ignores the mass purchasing power and the ability of human capital investment determined by China's current development stage, and ignores the strong demand of wealth accumulation in China today.

As a result, how to overcome the high cost of rising costs and falling wealth is a factor that will not be overlooked in the formulation of forward-looking industrial policies in the future.

The three is the balance between the advantages and disadvantages of the government's "increase interest and profit margin" and the "free riding" problem of international capital.

For example, under the condition of high inflation, it is generally believed that the loss of national wealth, especially the wealth of most impoverished groups, should be reduced through timely means of raising interest rates.

There are also many private entrepreneurs who think that the way of "government profits" should be adopted, such as tax cuts, to alleviate the problem of the decline in competitiveness caused by the high cost burden of enterprises.

However, the government's policy-making department is concerned that in today's very complicated internal and external situation, interest rate increases actually bear the market risks and even the second bottom economic risks caused by the quantitative easing monetary policy of the US and European countries.

Because excessive inflow of hot money will spawn the appreciation of the currency, inflation and asset bubbles, leading to the hollow characteristics of domestic industries and the "Japanese disease" characteristics of financial bubbles. Therefore, once a reverse situation occurs outside the market, for example, the US interest rate increase, such as the outbreak of geographical disputes, it is very likely that these hot money will suddenly leave. Today, the depth of RMB internationalization and the convertibility of local currency and foreign currency under current account has changed qualitatively compared with the situation before joining the WTO.

Therefore, raising interest rates will not only reduce the negative interest rate phenomenon, but also lead to a more vigorous rise in prices because of the further flooding of liquidity.

On the other hand, giving profits to export oriented domestic enterprises, the state is worried that it will cause the trouble of trade friction, and even when negotiating with foreign businessmen, let others use their pricing power to ride the Chinese government's "subsidized" free ride.

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For this reason, I would like to mention some policy proposals to curb inflation. Although the above multiple factors have been taken into consideration, we need further scientific argumentation, and some other measures need further supporting measures to be implemented together. There is no reason to go to this stage with suspicion. Only tightening monetary policy is far from enough. It is a complex systematic project. It is necessary for the policy-making departments to find a balance point of the combined boxing and the best timing and reasonable implementation of the policy introduction.

These policies and measures are mainly composed of the following aspects:

1., we should carry out the industrial policy of structural pformation in a different way, replace the administrative control measures that are now applied to all enterprises, and adopt a combination of voluntary and government support to control the goal of energy conservation and emission reduction.

From the premise of never increasing the extra burden of enterprises, we can first let large state-owned enterprises and central enterprises carry out the technological pformation of energy saving and emission reduction and the rational trading mode of carbon emissions right.

Under the guidance of effective government support and expired successes, private enterprises have gradually completed the task of carbon emissions.

One thing we should all be aware of is that only a new round of growth in the real economy will bring about a substantial improvement in market vigour. So then, whether it is China's inflation pressure or the issue of deflation in the United States, it will probably be solved.

2., efforts should be made to ensure supply channels, and timely use strategic reserves to increase market supply and combat financial capital's kidnapping of resource commodities.

Through effective price control, we can alleviate people's expectation of inflation.

For recent surging prices of commodities and agricultural products caused by the turbulence of the US dollar dominated international monetary system, we should appeal to the international regulatory authorities and relevant national regulatory authorities to invest in a timely investigation and impose severe sanctions against speculative speculation.

3., we should encourage private capital to enter the financing platform for enterprise innovation through vigorous policy support and tax system guidance.

It is necessary to give support to the charitable acts that shoulder social responsibility without regard to risks.

On the one hand, it will reduce the cost of new products and replace the "high price" commodities in monopoly or speculative state through technological innovation and economies of scale and scope.

4. the upstream resources monopoly enterprises should give the obligation to the public to explain the price formation mechanism and accept the objective supervision of the third party on behalf of the interests of the masses.

In principle, it should reflect the trend of market price fluctuation, but the effect of fluctuation can be alleviated by the "smooth" management principle of prior price (two way and not unilateral adjustment) or post targeted loss "subsidy" measures, especially the industries supported by the state and the industries that are adequate for people's livelihood.

5. set a "price difference" switch for the import and export of resource products.

When the price difference between below and outside is below a critical value, it is necessary to restrict exports and ensure domestic supply, so as not to affect the livelihood of the Chinese society because of the unlimited profit seeking behavior of resource free products.

Of course, when we set the threshold value, we should emphasize the relative price level after the exchange rate and the tax adjustment.

6., for the resources related industries of the people's livelihood, when conditions are ripe, on the one hand, we should strengthen the pattern of free competition in the whole industrial chain. On the other hand, we should invite all enterprises engaged in this industry to join a "safety insurance" to prevent profit seeking initiative exit.

Once the supply shocks result in enterprises' insolvency, they can use the insurance money to tide over the difficulties after the confirmation of the third party professional bodies, so as to ensure the stable supply ability of the market.