Economic Form: Continuous "Double Drop" For Steady Growth

Although quantitative easing can stabilize asset prices rapidly in the face of crisis, it will trigger asset price bubbles if quantitative easing is applied to a country which is only in a downward pressure. In contrast, "double down" is more like a proprietary Chinese medicine. "Double down" as a traditional monetary policy tool is used as an appropriate choice for presetting and fine-tuning, and also more in line with the needs of China's long-term and stable growth goals.

Unlike conventional monetary policy, quantitative easing (QE) refers to the central bank's direct injection of liquidity into the market through direct purchases of securities such as government bonds and banks and other financial institutions to intervene in the unconventional policy operation of the economy. After the subprime mortgage crisis, the United States implemented three rounds of QE of about 4 trillion US dollars. Japan implemented QE in 2001, 2010 and 2013 respectively. In 2013, Andouble's "three arrows" directly released about 350 trillion yen to the market. In 2015, the EU began to implement an asset purchase plan of about 1 trillion and 100 billion euros. Developed economies have launched QE in succession, most of which have similar economic backgrounds. Such as the outbreak of systemic financial risks, the serious imbalance of economic structure, the sharp shrinkage of the labor market, the continuous downturn of economic growth, the continuous enlargement of deflation pressure and the exhaustion of liquidity, resulting in the failure of traditional monetary policy tools and the impeding of the normal credit flow of banks. Since the end of last year, China has repeatedly lowered interest rates for several times, whether it is a Chinese version of QE.

With the gradual increase of the rate of interest increase in the United States, the interest rate reduction policy in the future will have to balance the balance between two aspects, that is, to reduce the internal cost of financing cost and control asset price rise and reasonably guide the internal and external balance of capital flows. This shows that China's current policy regulation is only moderate and prudent, and is a prudent operation carried out by conventional tools. There are essential differences between the "double drop" and the QE in terms of policy characteristics. There are significant differences between the US, Japan, Europe QE and China. As an unconventional monetary control means, QE refers to the direct purchase of government bonds by the central bank through the open market, especially the bank financial assets. When the balance sheet of the central bank expands, it leads to the rapid increase of money supply in the market. In view of the central bank's function of issuing currency, theoretically, the central bank's ability to purchase assets directly is unlimited, so its market deterrent effect of easing effect is very large. The essential difference between the quasi cut interest rate and QE is that the QE implementation will significantly expand the central bank's balance sheet, and the policy transmission path is short, which will increase the market liquidity rapidly and directly. The reduction is only to release the funds transferred from the central bank to the banking system after absorbing the deposits, and to change the money multiplier by influencing the credit creation of the banking system, and ultimately to affect the money supply of the whole society. The effect of interest rate cut on market liquidity is more indirect, and it also plays a guiding role in price indices such as market interest rates, etc., and the direct purchase of financial assets by QE leads to a sharp drop in market prices or even a significant upward trend.

China's three quarter economic and financial data show that the current downward pressure on the economy is still relatively large, mainly manifested as "cyclical", "structural" and "exogenous" superposition. In the three quarter, GDP broke 7, the consumer price index and producer price index continued to deviate, and real estate investment continued downhill. Infrastructure investment also fell slightly, which has greatly affected the current fixed asset investment growth. At the same time, monetary policy needs to be regulated from a counter cyclical angle to ensure a relatively loose monetary and financial environment for growth. On the structural side, the profit growth rate of industrial enterprises has declined due to the continuous negative growth of PPI, and the willingness of enterprises to invest is not strong enough. Although the quasi marginal quantitative monetary policy tools have decreased after a lot of use, the marginal stimulus effect of the economy has decreased, but in the short term, it will stimulate the economic stabilization target. Drop accuracy Compared with the reduction of interest rates, there is more room for downward manipulation, and it is still necessary to reduce liquidity and release liquidity comprehensively. Interest rate cuts can lead to further downward financing costs, and gradually improve the level of corporate profits and investment intentions. In terms of exogenous nature, pressure is mainly due to the relative weakening of the current international economic and financial environment, such as the apparent deceleration of exports. To a certain extent, this has increased the pressure of capital outflow and devaluation of RMB in China, and at the same time, it has brought some restrictions to China's further interest rate reduction policy.

From the perspective of the optional range of policy tools, QE is a helpless move from developed countries such as the US, Europe and Japan. In terms of China's current situation, conventional monetary policy tools have relatively large operating space, and the types of tools available are also more flexible. The background of the implementation of QE abroad is that nominal policy interest rates have hit the "zero" lower bound, and the actual interest rate is reduced. interest rate Downward and stimulating economic recovery is almost impossible. Under such circumstances, we have to adopt an unconventional way of directly expanding the balance sheet of the central bank to support the economy. China has not yet faced the constraint of "zero interest rate", and the nominal interest rate is still above zero. Although there is little room to cut interest rates in the future, interest rate cuts can still serve as an alternative to further easing monetary policy over a period of time. In addition, even after several rounds of reduction, the deposit reserve ratio of our current financial institutions is still relatively high since 2007, and at least 2.5% can be reduced. Therefore, when we need to increase the support of monetary policy again, reserve tools and interest rate tools still have the ability to deal with the problem, and the reduction measures will not directly expand the balance sheet of the central bank, nor will they generate a lot of potential risks such as the liquidity risk of the financial system.

from policy In terms of scale and market response, the three rounds of QE implemented by the United States from 2008 to 2014 have expanded its base currency from 1 trillion and 440 billion US dollars in November 2008 (QE1 implementation starting point) to US $4 trillion in October 2014, an expansion of 2.78 times. Considering the influence of money multiplier, the US M2 will increase by about 70 thousand -8 trillion dollars. Obviously, the impact of QE on the size of the money supply is astonishing. By contrast, from the end of last year, our country has implemented five RRMS and six rate cuts, during which the underlying monetary balance has not changed. Even in the two quarter of this year, the underlying monetary balance data showed a decrease of 500 billion yuan compared with the fourth quarter of last year. It can be seen that a large part of the reason for the implementation of the reduction measures in China is to deal with the liquidity gap resulting from the decrease in foreign exchange holdings and meet the normal needs of economic growth and liquidity. Although the foreign exchange market is expected to be stable in the near future, the influence of foreign exchange on liquidity is basically neutral. However, in the future, capital flows are still uncertain due to the import impact of international economic and financial shocks. Therefore, the current double drop is simply a policy choice of "neutral looseness", not a strong stimulus similar to QE.

In short, QE can be said to be a "super stimulant" in the monetary policy system, which can inject liquidity into the market in a short time, and at the same time expanding the balance sheet of the central bank, in fact, it increases the national credit risk. Some countries whose economic development is not very good can be even more trapped if they implement QE to stabilize the economy. Although QE can stabilize asset prices rapidly in the face of crisis, it will trigger asset price bubbles if QE is rashly applied to a country which is only in a downward pressure. In contrast, the "double drop" is more like a proprietary Chinese medicine, and there is a process of efficacy release. Its short-term effect is not as strong as that of QE. The guiding role of interest rate cuts on market financing costs is not achieved overnight. Generally speaking, the rate reduction effect completely reflects the policy digestion period of 2-3 quarters. In particular, there is a clear boundary for double drop tools, which can not be used without restriction. This shows that the "double drop" as a traditional monetary policy tool is used as an appropriate choice for presetting and fine-tuning, and also more in line with the needs of China's long-term and stable growth goals.