GDP Target Growth Around 5.5% Strengths in Fiscal and Monetary Policy

     On March 5, the fifth session of the 13th National People's Congress opened in the Great Hall of the People in Beijing. Premier Li Keqiang delivered a government work report. In the report, the Premier said that China's economy maintained its recovery in 2021. Gross domestic product reached 114 trillion yuan, an increase of 8.1%. National fiscal revenue exceeded 20 trillion yuan, up 10.7 percent. 12.69 million new jobs were created in urban areas, and the urban survey unemployment rate averaged 5.1 percent. Consumer prices rose by 0.9%. The balance of payments was basically balanced.

　　For the economic growth in 2022, the "Government Work Report" revealed that the main expected targets for economic development this year are: GDP growth of about 5.5%; urban employment of more than 11 million people, urban survey unemployment rate controlled at 5.5% or less for the whole year; consumer price increase of about 3% ......

　　Yao Yang, president of the National Development Institute of Peking University, interpreted the "Government Work Report" and believed that the goal of achieving GDP growth of about 5.5%, the advantage is still in fiscal policy and monetary policy, but need to think more on the consumption side.

    One of the most basic macroeconomics is that Keynesian economics works when the economic growth rate does not reach the potential growth rate. Keynes repeatedly stressed that investment depends on expectations, expectations are bad people will not invest.

     That is to say, investment is endogenous, consumption is of course also part of the endogenous, but, there is a large part of consumption in fact Keynes said is the autonomous consumption, you give me more money, I will consume more. In this case, we should mobilize the autonomous consumption. The economy is a closed loop, what is produced in a year is finally either invested or consumed. Investment in turn depends on future production, it is endogenous.

     The best way is to pull up the autonomous consumption piece, and when this piece is pulled up, production will follow, and this is how macroeconomics works in the short term. For more than a hundred years, this is a theory that has been tested in practice.

　　Consumption does not go up, production can not go up, to focus on the s

upply side, in the short term it is a closed loop, which is a constant equation. Of course, you can also consider the import and export, but the proportion of imports and exports is too small, the proportion of imports and exports to GDP is less than 2%, the most important still depends on consumption and investment.

　　Previously, we said that investment and government investment, but now the willingness of local governments to invest is also reduced, the two years many local government investment quota is not used up.

　　There are two reasons. First, there are not many good projects, local governments are becoming more rational and do not want to invest indiscriminately. Second, after the deleveraging in 2018, local governments are required to reduce leverage, and they do not want to go into more debt. Therefore, the pulling effect of local government investment is also declining, and the enthusiasm is not high.

　　This has a lot to do with the debt of local governments. For example, the part of urban investment debt, the money borrowed from banks, the scale is very large. Some data show that last year from the market to raise municipal debt increased by 5.7 trillion yuan, but a large part of the new borrowing to pay off the old, the actual financing of new financing is not much, many places are borrowing new money to pay off the old money, almost to the point of being unable to operate.

      In this case, let the local government to borrow again, he is not willing to borrow ah. The reality of such a contradiction: the central government has been talking about local government debt problems, requiring local governments can no longer borrow, but on the other hand, and then give you some local government bonds, take the money to let the money to invest again. And, generally speaking, the local debt this money is not enough for local governments to spend, it also needs to go to the market to raise money. In this case, its investment incentive is even lower.

　　The hidden risk of local debt has been repeatedly discussed over the past few years, and there is a contradiction between the goal of increasing large-scale local government debt and risk control. The headache is always the head, the foot - now say to maintain growth, local governments are required to invest, after two years to see the local debt is so large, the repayment cycle, how to do? It is necessary to control the debt.

　　This does not work, or to have an idea. First, you can not always use government investment, infrastructure investment as the only means of stimulating the economy. Now it seems to be a bit back to infrastructure investment. Although we have been saying this a lot of times, "iron and public infrastructure" is not good, the critical moment, and often can only take this out. However, the infrastructure is indeed its utility is declining. Local governments understand this better. To slowly change the concept, have to engage in consumption, very difficult. But the concept does not change more can not be done.

　　On the other hand, the scale of local debt issued by the central government can increase some, should let the local government with local debt to do all the work, do not let them take the local debt, the project becomes a "fishing project", he went to the market to raise debt, owe a butt commercial debt. Commercial debt is very troublesome, because the cycle is short, so it needs to keep borrowing to pay off the old, disrupting the financial order.

　　Local debt has an advantage, long term, with government tax revenue to repay, the local government will be more cautious and careful with it.