■ Zhang Liqun
The Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization (hereinafter referred to as the "Decision"), which was deliberated and adopted at the Third Plenary Session of the 20th Central Committee of the Communist Party of China, pointed out that scientific macroeconomic regulation and control and effective government governance are the inherent requirements for giving full play to the advantages of the socialist market economic system. It is necessary to improve the macroeconomic regulation and control system, promote the reform of key areas such as finance and taxation and finance as a whole, and enhance the consistency of macroeconomic policy orientation. Focusing on cultivating a complete domestic demand system, the "Decision" proposes to establish a long-term mechanism for government investment to support the construction of basic, public welfare and long-term major projects, and improve the system and mechanism for government investment to effectively drive social investment.
The market has many advantages in improving the efficiency and effectiveness of resource allocation, but it also has drawbacks, such as the extent to which it magnifies macroeconomic aggregate imbalances. The practice of economic growth shows that when the market is in short supply, it will strengthen expectations through price increases, promote demand expansion, and eventually form economic overheating and inflation; When the market is oversupplied, it will weaken expectations through falling prices, guide demand contraction, and eventually form a continuous increase in downward pressure on the economy and deflation. Failure to intervene in this market flaw could lead to major fluctuations in economic growth and even severe economic crises (such as the Great Depression of 1929-1933). The "Decision" points out that it is necessary to give better play to the role of the market mechanism, to "let it live" and "manage" it, to better maintain market order, make up for market failures, and smooth the circulation of the national economy. In this regard, the government's scientific and effective macroeconomic regulation and control is shouldering a major responsibility.
Since 2010, the growth rate of aggregate demand in the mainland economy has continued to slow down due to complex factors at home and abroad. From an external point of view, in the face of the complex impact of the great changes in the world unseen in a century, the growth rate of mainland exports fluctuated sharply and declined (in US dollar terms, exports increased by 31.3% year-on-year in 2010 and 4.6% year-on-year in 2023); The problem of unbalanced domestic development, especially the uneven promotion of urbanization, has caused a sharp decline in the growth rate of real estate investment (real estate development investment increased by 33% year-on-year in 2010 and decreased by 9.6% year-on-year in 2023), which in turn led to a sharp decline in the growth rate of manufacturing investment (manufacturing investment increased by 27% year-on-year in 2010 and 6.5% year-on-year in 2023), and also caused a sharp decline in investment growth (fixed asset investment was 23.8% in 2010 and 2.8% in 2023). The decline in the growth rate of exports and investment has caused a slowdown in the growth rate of aggregate demand, constrained the slowdown in economic growth, and reduced the growth rate of income in all aspects, among which the decline in the growth rate of household income has led to a sharp decline in the growth rate of consumer demand (the total retail sales of consumer goods increased by 18.3% in 2010 and 7.2% in 2023). The continuous decline in the three major demands of consumption, investment, and exports has continuously strengthened the constraints on the production activities of enterprises due to insufficient demand, and the downward pressure on the economy has increased.
In view of the problem of insufficient demand, it is necessary to resolutely implement the strategy of expanding domestic demand and achieve remarkable results as soon as possible, but it is difficult to achieve results through market mechanisms. This is because when demand is insufficient and product sales are difficult, despite various policy incentives, enterprises will still carefully arrange production and investment to avoid product backlogs and overcapacity; When residents have poor employment and income expectations, despite various policy supports, they will still carefully arrange their expenditures and strengthen their precautions against possible risks. All these show that in the market environment of insufficient demand, enterprises and residents will not actively expand expenditure and expand demand based on their own survival and development considerations. Therefore, the key to reversing the problem of insufficient demand depends on the government's measures to expand investment. Government investment is generally the construction of public goods (public services) supported by national credit, considering the overall and long-term goals, and related to the common interests of all the people. For example, the construction of basic, public welfare, and long-term major strategic projects, and the construction of inclusive, basic, and comprehensive livelihood security capacity. This characteristic of government investment makes it not constrained by financing in a market environment with insufficient demand (such as declining fiscal and tax revenues, increasing debt burdens, etc., because the country's credit relies on the fundamentals of the long-term economic improvement and has room for large-scale issuance of long-term special treasury bonds); It will not be constrained by the selection of projects (the construction of public goods and public services is not the return on investment brought by the project, but the high-quality use value provided by the project to the people, so it will have public welfare and inclusiveness, and it will not be difficult to choose because of insufficient demand and low rate of return on the project). Therefore, the economic operation period of insufficient demand is not only a critical period for government investment to play a key role in expanding domestic demand in a timely manner, but also an important opportunity period for the overall improvement of the level of public goods such as infrastructure and public services. During this period, giving full play to the key role of government investment can not only significantly increase enterprise orders, but also drive the recovery of enterprise production and investment demand, and drive the recovery of employment and household consumption; It can also significantly improve the level of infrastructure and public services, strongly support the process of new urbanization and urban-rural integration development, and strongly support the process of common prosperity.
At present, in order to effectively reverse the lack of demand, drive the recovery of domestic demand, and release the huge economic growth potential, government investment must reach a large enough scale and high intensity. It should be noted that in the process of slowing down demand growth and economic growth, the growth rate of fiscal and tax revenues of governments at all levels is also slowing down, especially the changes in the real estate investment situation, which have a great impact on local government land revenues. In addition, in the process of continuous slowdown in economic growth, governments at all levels have a great responsibility to protect people's livelihood and enterprises. The difficulty of balancing fiscal revenues and expenditures continues to increase. It can be seen that when the economy is growing rapidly, relying on the sustained and rapid growth of fiscal and tax revenues and land fiscal revenues, local governments generally adopt market-oriented financing methods in terms of investment in public product construction, and the low return on investment of projects mainly depends on the rapid growth and balance of fiscal and tax revenues. When the growth rate of fiscal and tax revenue continues to slow down, the imbalance between revenue and expenditure inherent in the investment model of local public product construction will inevitably be quickly exposed, and the pressure on local debt will inevitably increase rapidly. Therefore, if there is no strong policy support, local governments will inevitably face the problem of having no money to use and powerless to vigorously strengthen investment in public goods.
To solve the above problems, first of all, it is necessary to remove the constraints of local government bonds on local government investment and construction activities. For example, the debts related to local bonds in the banking and financial system should be managed in the special accounts of policy banks, relying on policy funds, organizing special forces to distinguish the situation, and maintaining the operation and gradual resolution of relevant debt revenue and expenditure. Second, the scale of issuance of ultra-long-term special treasury bonds should be significantly expanded, and large-scale investment in the construction of public goods should be supported by governments at all levels through transfer payments. Only in this way can macroeconomic regulation and control achieve remarkable results in expanding domestic demand, and can the conspicuous problem of insufficient demand be reversed as soon as possible.
Recently, following the deployment of the Political Bureau of the CPC Central Committee meeting to "strengthen the launch of incremental policies", the People's Bank of China, the National Development and Reform Commission, the Ministry of Finance and other relevant departments have successively issued specific measures to implement a package of incremental policies. It is believed that with the implementation of the package of incremental policies, the huge growth potential of China's economy will continue to be released, and the trend of economic recovery will be strengthened day by day.
(Author's Affiliation: Development Research Center of the State Council)
Image source of this article: Xinhua News Agency
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