Propose a $10T Economic Stimulus Plan
It is suggested that the focus of this plan should be to address the shortcomings in basic public services, shifting the emphasis of investment from physical capital investment represented by infrastructure construction to human capital investment in education, healthcare, and social security.
"The main method of raising funds is to issue ultra-long-term government bonds, aiming to form an economic stimulus scale of no less than 10 trillion yuan within one to two years."
On September 21, at the quarterly forum of the China Macroeconomic Forum (CMF) held by Renmin University of China (2024 third quarter), Liu Shijin, former deputy director of the Development Research Center of the State Council, proposed a comprehensive economic stimulus and reform plan to substantially expand domestic demand.
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Liu Shijin stated that China's GDP (Gross Domestic Product) deflator has been in negative growth for seven consecutive quarters, and the economy is facing increasing pressure from the decline in total demand.
To this end, he suggested launching a comprehensive economic stimulus and reform plan to bring the economy back to an expansionary growth track.
This includes a stimulus scale of 10 trillion yuan, two breakthroughs, and one important goal.
Liu Shijin believes that unlike the 4 trillion yuan stimulus plan in 2008, the focus of this plan is to address the shortcomings in basic public services, shifting the emphasis of investment from physical capital investment represented by infrastructure construction to human capital investment in education, healthcare, and social security.
In this process, there are two breakthroughs or two key areas: one is to significantly improve the basic public service level for new citizens, mainly migrant workers moving to cities; the second is to accelerate the construction of small and medium-sized cities within the scope of urban agglomerations, driving China's second round of urbanization.
"An important goal is to take this economic stimulus plan as an opportunity to strive to double the size of the middle-income group within about ten years, increasing from the current 400 million to 800 million to 900 million people."
Liu Shijin said, "Proposing and promoting the realization of this goal is of fundamental significance for extending China's medium-speed growth period as much as possible and breaking the adverse impact of demand constraints on economic growth."
Insufficient demand is related to income structure.
According to the CMF quarterly macro report released at the forum, in the first three quarters of 2024, China's economic total continued to recover moderately, but the problem of insufficient total demand is prominent.
Data shows that in the first eight months, the total growth rate of fixed asset investment was 3.4% year-on-year, 0.5 percentage points lower than the growth rate in the first half of the year, among which the total growth rate of real estate investment fell to -10.2% year-on-year; in terms of consumption, in the first eight months, the total growth rate of the total retail sales of consumer goods was 6.9% year-on-year, 0.3 percentage points lower than the growth rate in the first half of the year.
Looking at prices, since January 2023, the Consumer Price Index (CPI) has generally been declining.
In August 2024, the CPI growth rate was 0.6%, and the core CPI growth rate, excluding food and energy, was 0.3%, lower than the same period in 2019.
Producer prices (PPI) have been contracting continuously since October 2022, with the PPI growth rate in August 2024 being -1.8%, and it has been in a negative growth range for 23 consecutive months.
"In general, the year-on-year growth rate of consumer-side price indexes has fallen to near 0, and the production-side prices are sluggish, reflecting the weak consumer demand in 2024; at the same time, the demand on the production side is also suppressed by the sluggish real estate, private investment, and foreign investment."
The aforementioned report stated, "The overall sluggishness of upstream and downstream prices reflects the obvious situation of insufficient total demand, and economic recovery is obviously affected by insufficient total demand."
"China's economy has shifted from supply constraints to demand constraints."
Liu Shijin said that since the first quarter of 2010, after China's economic growth rate reached a peak, it began to slow down, gradually shifting from high-speed growth to medium-speed growth.
"China is currently in the middle and late stage of medium-speed growth.
We have experienced about 12 to 13 years of medium-speed growth, and optimistically, there will be another 5 to 10 years of medium-speed growth in the future, with the economic growth rate expected to be between 4% and 5%."
Liu Shijin said that in this process of speed conversion, two important concepts are involved, one is the historical peak of demand, and the other is the demand structure.
The so-called historical peak of demand mainly refers to the point or range where demand growth is the fastest or the demand volume is the largest during the process of industrialization and urbanization.
After reaching this point or range, economic growth begins to switch from the high-speed stage to the medium-speed stage, and the main constraint on economic growth also shifts from supply insufficiency to demand insufficiency.
Behind the demand structure is the income structure, which is simply the distribution structure of middle and high-income groups and low-income groups.
When an economy shifts from high-speed growth to medium-speed growth, the demand structure determines the time it can maintain medium-speed growth.
"From the international experience, economies that maintain a relatively long period of medium-speed growth generally have a Gini coefficient of less than 0.4, and the income gap is relatively small."
Liu Shijin said that such economies usually have a large middle-income group, which can release a large scale and long-term demand, thereby providing long-term support for medium-speed growth.
Currently, China's middle-income group is about 400 million people, accounting for one-third, the low-income group is about 900 million people, accounting for two-thirds, and the number of high-income groups is relatively small.
"In recent years, China's Gini coefficient announced is above 0.4, and some studies believe it is at a level of 0.45 or even higher."
Liu Shijin summarized, "The current insufficient demand is related to this demand structure."
Expanding consumer demand to grasp the two pain points.
In this context, how to expand effective demand?
Liu Shijin believes that China has basically solved the problem of residents' food and clothing, and the growth space for survival consumption represented by food and clothing is limited.
The further expansion of the total consumption is mainly reflected in structural upgrading, that is, driven by the growth of consumption in education, health care, housing security, social security, culture, sports, entertainment, financial services, transportation, and communication.
Among them, survival consumption is mainly individual consumption, while development consumption mostly adopts collective consumption or public service methods.
For example, medical insurance and social security adopt mutual aid methods, and school education is a collective learning method, which is directly related to the level of equalization of basic public services provided by the government.
"Expanding development consumption is not enough by individual efforts alone, it requires the government to build platforms, establish systems, and provide funds, which is a combination of government consumption expenditure and resident consumption expenditure."
Liu Shijin said that in the past years, China has faced a practical situation where the level of equalization of government public services is relatively lagging, directly dragging down the growth of development consumption.
Among them, the basic public service debt owed to nearly 300 million migrant workers and nearly 200 million migrant workers moving to cities is more prominent.
In Liu Shijin's view, the current expansion of consumer demand needs to grasp two pain points: one is development consumption based on basic public services; the other is the middle and low-income class with migrant workers as the focus.
To this end, Liu Shijin suggested that a comprehensive economic stimulus and reform plan can be launched to bring the economy back to an expansionary growth track, implement the reform measures for the integrated development of urban and rural areas from the third plenary session of the 20th Central Committee, mainly with fiscal policy, closely coordinated with demand-side structural reforms, thus forming a comprehensive effect of expanding consumption, stabilizing growth, and preventing risks.
The specific content includes a stimulus scale of 10 trillion yuan, two breakthroughs, and one important goal.
In 2023, China's GDP reached 126 trillion yuan.
Liu Shijin believes that it is possible to determine the scale of the stimulus plan according to 10% of the total GDP.
Different from the 4 trillion yuan stimulus plan in 2008, this time the focus is on making up for the shortcomings in basic public services, shifting the focus of investment from the past material capital to human capital.
And promoting development consumption is human capital investment.
The two breakthroughs are two key areas: one is to significantly improve the basic public service level of new citizens, mainly migrant workers moving to cities, in terms of housing security, education, medical care, social security, and pensions.
The short-term focus is for the government to purchase unsold housing and convert it into housing security, providing it to new citizens.
According to the "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" reviewed and adopted by the third plenary session of the 20th Central Committee, it is necessary to implement a basic public service system provided by the place of residence registration, promote the social insurance, housing security, and compulsory education of migrant children with the same rights as the population with household registration in the place of migration, and accelerate the urbanization of the agricultural transfer population.
The second is to accelerate the construction of small and medium-sized cities within the scope of urban agglomerations, driving China's second round of urbanization.
Form a high-quality sustainable modern urban system based on the integrated development of urban and rural areas.
"From the international experience, the core cities within the scope of urban agglomerations and metropolitan areas usually account for about 30% of the urban population, and there is still a huge development space for small and medium-sized towns outside the core cities, which can accommodate more than 60% of the urban population, including both the original city population and the influx of population from rural areas and other cities."
Liu Shijin said.
An important goal is to take the implementation of this economic stimulus plan as an opportunity to strive to double the size of the middle-income group within about ten years, increasing the middle-income group from the current 400 million to 800 million to 900 million people.
"Proposing and promoting the realization of this goal is of fundamental significance for extending the medium-speed growth period as much as possible and breaking the adverse impact of demand constraints on economic growth."
Liu Shijin said.
It is worth noting that Liu Shijin emphasized that China should not simply imitate the quantitative easing policy of developed countries.
Developed economies have usually entered a low-speed growth stage, and macro policies have a greater impact on economic growth, while China's economy is still in the medium-speed growth stage, and the economic growth rate largely depends on structural potential, and the importance of macro policies lies in maintaining stability and balance in the economic operation process.
"To what extent the structural potential is released depends on whether it has a suitable institutional policy environment, and reform is to create such an environment."
Liu Shijin said, "Reform is to open rights, increase new transaction opportunities, correspondingly expand the demand for money, expand credit, and thereby substantially expand demand and supply.
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