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谢国忠

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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choice cuts / 謝國忠  

2008-09-05 22:39:39|  分类: 言论 |  标签: |举报 |字号 订阅

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Choice cuts  / 謝國忠

谢国忠搜狐证券博客 http://xieguozhong.blog.sohu.com/


This article is for South China Morning Post

As growth slows, Beijing must boost efficiency rather than support falling stock and property prices

Updated on Sep 05, 2008



China'seconomy is facing unprecedented challenges. An asset bubble bursting athome and contracting global demand abroad are working together to sloweconomic growth. Exports and property have directly contributed to halfthe growth in this cycle. These sectors will probably stagnate or evencontract over the next 12 months. Obviously the slowdown will besignificant.



Many businesses, local governments andpundits are advocating ditching macro tightening (that is, lending moremoney) and intervening directly to prop up property and stock prices,or bail out distressed businesses. But this won't work and would bedestabilising. Despite a 60 per cent decline from the peak, China'sstocks are not undervalued. The problem with property is that pricesare too high for buyers. The solution is lower prices.



Macrotightening, despite the rhetoric, hasn't been that strong. According tothe central bank, lending by financial institutions increased by 3.1trillion yuan (HK$3.5 trillion) in the first seven months of this year,up from 2.9 trillion yuan last year. The nominal gross domestic productexpanded by 20 per cent in the first half of 2008 from last year'sfigure and, hence, all else being equal, the debt appetite should be 20per cent higher.



Further, companies raised 640billion yuan last year, or 53.4 billion a month, on Hong Kong andShanghai markets, compared with 16.8 billion yuan a month so far thisyear.



Adjusting for the economic base effect and stock market conditions, incremental funding is 13 per cent tighter this year.



Isthis reduction too much? The GDP deflator - the broadest inflationgauge - rose 9.6 per cent, and the consumer price index by 7.1 per centin the first half of this year. Even by the loosest standards, China isexperiencing broad-based inflation. From labour and food to energy,inflationary pressure remains intense. Unless financial conditionstighten, China could experience runaway inflation. So, a 13 per centcut in incremental funding may not be sufficient to reverse theinflationary tide. The 15.5 per cent credit growth rate in the firstseven months of the year, though slower than in previous years, isstill higher than the long-term growth target for nominal GDP. If thelong-term sustainable growth rate for real GDP is 9 per cent, and theinflation target is 3 per cent, the long-term credit growth rate shouldbe 12 per cent.



The scope for credit to grow fasterthan GDP is limited, as the current ratio of credit to GDP is alreadyhigh. Hence, while the current credit growth rate is tight, relative tothe current nominal GDP growth rate of 20 per cent, it is still toohigh for long-term stability. For a soft landing, it is desirable totighten gradually - that is, cut the credit growth rate gradually.Chances are, China's credit growth rate will slow for several years.There is no case for turning on the credit tap.



Atthe micro level, as well, a bailout cannot be justified. The problemwith the property sector is plummeting sales due to poor affordability.Lending more money to developers just gives them more funds to holdinventory. While it diminishes the pressure on property prices in theshort term, it leads to bigger problems later. High volumes can only besupported by low prices in the long run. The sustainable property priceis probably 30 per cent to 50 per cent below the current levels.Preventing a price adjustment only leads to a dysfunctional propertymarket.



Small and medium-sized enterprises (SMEs)employ a large proportion of the labour force. Their healthydevelopment is vital for a good labour market. However, bailouts won'tlead to a healthy SME sector. Healthy businesses must thrive throughcompetition. China's SMEs depend excessively on price competition forsurvival. As China enters an era of inflation and rising costs, thisstrategy won't work; enterprises have to adapt, and increase theirtechnology and quality.



Many SMEs won't be able toupgrade. Their demise will be a good thing for the economy, creatingroom for new entrepreneurs. This is how a market economy handleschange. Government bailouts won't solve the problems.



Also,when so many earthquake victims are still living in tents, peasantscan't afford to send their children to school and the sick can't affordhospital bills, how could the government justify spending money onbailing out failing businesses?



The case forloosening fiscal policy is stronger. Government-sector revenue could betwice as high as the prevailing level among developing countries, andcomparable with that among developed welfare states in Europe. However,China's welfare expenditure is small by international standards. So,what's the case for such a big government?



Meanwhile,talk of stimulating consumption will remain just talk; China'shousehold income is too low for consumption to carry the economy.



Beijingshould commit to shrinking the government-sector revenue to a quarterof GDP, from about 40 per cent now. It should begin by cutting fees andtaxes. For example, mortgage payments, tuition, health and lifeinsurance should be tax exempt. Value-added tax, at 17 per cent, andthe 40 per cent top income tax rate are also too high.



Chinamust boost efficiency, not bail out failing businesses or target assetprices. Efficiency is the foundation for sustainable prosperity.Artificially inflating asset prices is like using opium: it deliversshort-term pleasure but causes long-term pain. More opium onlypostpones the pain, but makes it worse when it finally arrives.

谢国忠搜狐证券博客 http://xieguozhong.blog.sohu.com/

Andy Xie is an independent economist


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