What Should We Do To Avoid Fiscal Policy Dominated Restructuring?

"China macro economic forum 2016 (first quarter)" was held in Beijing in February 27th.

Cao Yuanzheng, senior research fellow of the national development and Strategic Research Institute of Renmin University of China, on behalf of the research group, released the forum's main report "challenges and Reflections on China's macroeconomic policy framework under the new normal".

The report points out that in China's existing macroeconomic policy framework, growth and employment are the primary objectives. Price stability and balance of payments are secondary objectives. In order to achieve growth and employment targets, macro policy regulation is mainly aimed at exports and investment, stimulating investment growth by encouraging export growth, or directly promoting investment growth; in order to stimulate export growth and investment growth more effectively, the policy level tends to replace market mechanism or distort market mechanism. In policy mix, fiscal policy is often dominated by non marketable and structural effects, and as a supplementary monetary policy, it is also dominated by non market-based quantitative tools.

Secondly, the importance of price stability and financial stability in China's macroeconomic regulation and control is highlighted.

Third, China's macro-economic policy should be changed from production oriented and long-term oriented to consumption oriented and short-term oriented, and the dynamic balance of macro-economy should be influenced more by consumption channels.

Fourth, because of its strong structural effect and market distorting effect, fiscal policy should avoid direct intervention or even lead the process of structural adjustment, but deal with the short-term labor pains that inevitably arise in the path of market structure adjustment. Macroeconomic and financial stability problems should rely more on monetary policy means, and monetary policy operations should be shifted from non market-based quantitative tools to price based instruments.

Special attention should be paid to the new changes in China's balance of payments in 2015, which indicates that the balance of payments in China will be profoundly adjusted.

The balance of payments has shifted from the past official reserve deficit to the private sector surplus to the pattern of private investment surplus and other private sector deficits.

Such a new and sustainable balance of payments model relies on the continuous improvement of the depth, breadth, efficiency and mobility of domestic financial markets.

Secondly, this balance mode exposes China's macroeconomic and financial exposure.

Volatility and variability.

This requires the implementation of an active and market-oriented macroeconomic policy for the balance of payments.

At the policy level, short-term issues are often more urgent and important.

If the short-term problem can not be solved, the medium and long term adjustment will become meaningless; if the solution to the short-term problem is unreasonable, the medium and long term adjustment will be unsustainable.

Therefore, at present, we should not only actively respond to short-term macroeconomic and financial risks, but also choose a solution that meets the long-term adjustment direction.

The biggest risk of macroeconomic fluctuations in China is the interaction between productivity and deleveraging.

Therefore, the policy level needs to avoid excessive leverage in the process of promoting capacity development.

To this end, government departments need to increase leverage, that is, raising the level of fiscal deficits.

In the case of a relatively low level of fiscal deficits, this has

。

The key question is how to operate in order to avoid interference and obstruction in the medium and long term adjustment process.

At present and for some time to come, the strategic orientation of China's macroeconomic policy framework adjustment should include three levels: short term, medium term and long term.

The first level is to enhance and strengthen the ability to maintain macroeconomic and financial stability in view of the macroeconomic and financial risks that have emerged in the short term.

The second level is aimed at the medium-term problems, especially in the long run, such as structural adjustment, inventory elimination, capacity production and deleveraging, so as to enhance the possible negative impact of these problems and to cope with the "creative destruction effect" brought about by the big adjustment, big change and big opening.

The third level is to build an efficient, sustainable and dynamic macroeconomic regulation mode and policy framework for the long-term, balanced, open and market-oriented economic system.

In terms of specific adjustments, the first is the relocation of growth, employment, macroeconomic and financial stability, balance of payments and other related objectives.

Price stability, financial stability and balance of payments should become the explicit goal of macroeconomic policy.

Second is the reconsideration of policy tools and their matching and combination principles.

Fiscal policy should reduce direct intervention in the path of market led structural adjustment, focus more on short-term labor pains that are inevitable in the structural adjustment period, and provide a bottom line for social welfare; the realization of macroeconomic and financial stability should rely more on monetary policy.

The third is the reconstruction of policy operation mode and pmission mechanism.

Macroeconomic policies should follow the market-oriented and predictable mode of operation to avoid becoming the source of macroeconomic and financial fluctuations. Macroeconomic policies should be focused on.

The direction of action is to pmit its intention and influence.

A feasible breakthrough is to promote the great development and opening up of the bond market by changing the mode and mode of issuing treasury bonds.

First of all, this can provide a sustainable financing model for the fiscal deficit.

Second, it helps to improve operational efficiency and pmission efficiency of price based monetary policy instruments.

Third, it will help to solve the problem of the imbalance of the currency structure of the balance sheet of the central bank and its restrictions on the operation of monetary policy.

Fourth, it helps to enhance the status of RMB assets as security and liquidity assets in the international scope, thereby breaking the parity relationship between interest rate and exchange rate and its restriction on China's monetary policy.

Fifth, it has created the most critical condition for our country to attract and manage non FDI private capital flows.