China's real estate market value of 300 trillion is 4 times the total GDP
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The financial regulatory storm became a major theme in China's economic and financial markets in the second quarter. At the same time, financial regulation triggered a broad-spectrum interest rate rise, which brought a tightening effect on the financial market in the short term, and also led to a certain degree of rise in the financing costs of entities. For a time, the criticism of the financial industry is endless, such as financial idling, the volatility of funds, and the efficiency of financial support for the real economy. The following is intended to sort out the logic behind these critical voices.
Finance is the bridge connecting savings and investment At the micro level, the essence of finance is the allocation of resources across time and space under risk conditions. In the sense of macroeconomics, the essence of finance is a bridge connecting savings and investment. There is no need for finance in an era when savings and investment decisions are not separated. For example, in the case of small-scale peasant economy self-sufficiency, a family's saving decision is also his investment decision--this year, he hit 1,000 pounds of grain, and ate 950 pounds that year, leaving 50 pounds to be eaten in the field next year, that 50 Jin is both the savings of this family and his investment. However, after entering the modern economy, savings decisions and investment decisions are increasingly separated, so the demand for finance is also growing.
The essence of savings decisions is that residents spend a period of smoothing on consumption. All savings must be attached to a medium that can be redeemed for consumption in the future. The media to be attached may be banknotes, deposits, stocks, bonds, or real estate, gold, silver, coal, or bitcoin, garlic, red wine, calligraphy and so on. The problem is that when the scale of savings is too large, there will be insufficient media in the economy to attach. Although in theory, money and deposits can increase indefinitely, too much money will lead to inflation. If the deposit is too much, the bank may not be able to find the corresponding high-quality loan investment. If the house is built, the house price may fall. After all, the investment in alternatives such as chicken feathers and red wine paintings is limited. The value of precious metals such as gold and silver is increasingly challenged in the modern economy...
In the macroeconomic sense, investment is the process by which companies and households increase the stock of productive capital. For example, companies expand their plants and update their equipment to produce more or newer products. Another example is the purchase of a home, because the house can "produce" housing services in the future. Investment behavior depends on factors such as marginal capital output, demand, and capital depreciation rate. What needs to be clarified is that the “investment stocks†or “investment wealth management products†that people say in their daily lives are actually savings behaviors rather than investment behaviors in the macroeconomic sense.
China's economic demand structure changes in the financial industry Since finance is the bridge between savings decisions and investment decisions, financial business can be naturally divided into two categories: one is financial services that serve saving behavior, and the other is services. Financial business for investment behavior. At present, the Chinese economy is undergoing a significant change in the demand structure of the financial industry because of the transformation of the macroeconomic structure.
China has long been an economy with relatively insufficient savings. The investment demand is large and the source of funds is relatively insufficient. Under such circumstances, the main task of the financial industry from the beginning is to maximize social savings, mobilize social resources, and then use these savings to build.
However, after decades of development after the reform and opening up, China has now become a relatively surplus economy. The scale of savings is huge and investment opportunities are relatively scarce. Especially after the "four trillion", this pattern change is more prominent. As a result, the main task of the financial industry is to mobilize social savings to manage and allocate these savings resources, how to effectively match investment opportunities, and translate these savings into real investment.
Incremental, the annual savings in the sense of national economic accounting is more than 35 trillion yuan. These savings are not used for two purposes: First, net exports, equivalent to external savings, but China's current share of global exports has reached 13%, 14%, and there is limited room for continued growth in the future. Second, domestic investment, and many domestic industries are facing the problem of overcapacity, and investment demand is limited.
In terms of stocks, by the end of 2016, the balance of national savings deposits was as high as 59.8 trillion yuan, and the balance of wealth management products was nearly 30 trillion yuan. According to the 2017 China Private Wealth Report jointly issued by China Merchants Bank and Bain, the total amount of investable assets held by individuals in China in 2016 reached 165 trillion yuan, more than double the GDP of the year. In addition, some estimates show that the real estate market value is as high as about 300 trillion yuan.
In short, China's financial industry is facing an unprecedented challenge – how to manage and distribute such large-scale social savings and social wealth. This is both a challenge for China's financial industry and a challenge for China's economy. Whether it is horizontal or vertical, the challenge is daunting. In terms of vertical ratio, in any period in history, there is no such large-scale savings and social wealth in the Chinese economy that needs to be managed; in the horizontal direction, China’s current savings are also significantly larger than other countries. Therefore, this challenge is both historical and cosmopolitan.
The criticism of the appearance is easy to misunderstand the target. Nowadays, public opinion has a lot of criticisms on the financial industry, such as the idling of funds, the vain realism, the decline in the efficiency of financial support for the real economy, and so on. Needless to say, these criticisms are not groundless, and there are certain phenomena as the basis. However, in the face of these criticisms, we first need to think: Are these problems really caused by financial innovation and excessive development of the financial industry? Or is it caused by financial reasons or other reasons outside of finance?
Imagine that if there is no rise of the shadow banking system such as private placement, wealth management, and trust after 2011, will the Chinese economy's savings-investment transmission mechanism be smoother? Will the financial services real economy be more efficient? If today's commercial bank loans still account for more than 80% of the social financing scale as in the past, can such a financial system adapt to the new normal of the macroeconomic “three-phase superposition†after 2013? Can you serve the growth of new economic momentum? The answer is obviously no. Without financial innovation, I am afraid that only a more serious resource mismatch will result, and more savings resources will be wasted.
Do not make an appropriate analogy. A person eats too much food every day, but does not exercise, but does not turn into muscle, height does not grow taller, but fat is constantly piled up, puffiness. Seeing this phenomenon, we certainly criticize the metabolic system. It is responsible for why it does not turn food into height and muscle, but accumulates fat and accumulates the risk of high blood pressure. But this kind of criticism is of little significance, because the root cause is that too much is eaten on the entrance, and there is not enough demand for movement on the exit. In fact, his metabolic system is heavier and harder to work than the average person. Just like China's financial industry.
When the Chinese economy is undergoing a dramatic structural transformation, the structure of the real economy is changing, and correspondingly, the demand structure of financial services has also presented more challenges. Putting aside this historical background to criticize the financial industry is unreasonable, and it is easy to cause a misplaced position, and even a wrong target in policy formulation.
Needless to say, the financial innovation process has spawned many problems, such as accumulating financial risks through the addition of leverage and maturity mismatch. But finance is always accompanied by uncertainty and risk. Without uncertainty and risk, there is no finance. What should really be worried about is not financial risk, but the lack of ability of the financial industry to price risk.
Moreover, without financial innovation, will the results be better? How to effectively manage and allocate massive social savings and wealth and turn it into a real economy investment is the root of many of these criticisms, but this problem is not caused by the financial industry. Quite the contrary, the process of financial innovation as a whole is the process of dealing with this challenge. Without financial innovation, the risk does not necessarily fall, because savings-investment conversion efficiency will only be lower. We should not regard the result of insufficient financial development as a reason to criticize the financial industry and limit financial development.
China's financial industry is not over-developed, but underdeveloped. In 2015, the value added of the financial industry in GDP has reached 8.5%, and in 2016 it was 8.35%. It is still more advanced than the developed countries such as the United States and Japan. Be high. This number touched the nerves of many people. Some people believe that China's financial industry has developed too much.
But the truth is the opposite. China's financial industry is not over-developed, but underdeveloped and underdeveloped. The high percentage of 8.5% is just a strong performance of “virtual fireâ€. The “big but not strong†criticism of Chinese manufacturing has also applied to today’s financial industry. The real problem that should be worried at present is not the excessive proportion of the financial industry, the excessive development of the financial industry, but the lack of financial capacity. China should vigorously strengthen its financial capacity building as part of its capacity building in modern countries. (Feng Yuming, Institute of Finance and Economics, Chinese Academy of Social Sciences, Research Fellow, China and World Economic Research Center, Tsinghua University)