South China Morning Post (SCMP):
Recently, there are some concerns that the risk of stagflation is rising in China. What do you make of that?
Yao Jingyuan:
First of all, the concept of stagflation began in the United States in the 1970s. According to the previous economic theory, too much inflation means an economy is overheated. If an economy slows down, there will be no inflation. This, Keynes's general theory, is an old theory. But stagflation swept America and Europe in the 1970s. What does stagflation mean? It means on one hand, the economy is slipping sharply and even retracting. On the other hand, prices will rise rapidly. I don't think that China should worry about it. I have just mentioned that many people showed concerns over possible inflation in the end of last year and the beginning of this year. However, the problem we are facing now is to stabilize food prices. Take pork prices as an example. It was 80 yuan per kilogram two year ago, but it is 18 yuan per kilogram now. If pork prices continue to drop, the pig farming industry will suffer. Therefore, efforts should be made in strengthening government stockpiling to stabilize prices. This will counter the risk of high inflation, particularly hyperinflation, in China. Moreover, from the principles of economics, inflation is basically a kind of monetary phenomenon, meaning more money chasing less products. I believe that from a monetary policy perspective, the deposit-reserve ratio can be lowered appropriately and one point down will release 1 trillion yuan in financial liquidity. I found during my investigation at the grassroots level that, generally, business liquidity is sort of under pressure.
And for China's economy, internal driving forces have worked well. For example, people's top worry now is whether the economic growth rate can remain stable in the fourth quarter of this year and the first half of next year. How to gauge these predictions? The key is the "three horses of troika" for economic growth, namely export, consumption, and investment. I don't know if you have noticed, but the Central Economic Work Conference added a phrase for each item. Export plays a role in "driving" economic growth, which means it drives the troika forward. I think there is no problem with this in regard to the fourth quarter. Consumption plays a "basic" role in economic growth. At present, consumption was hit hardest by the COVID-19 outbreak. Due to epidemic prevention and control, many consumer-intensive means of consumption such as the tourism, catering, and film industries have been heavily impacted. Therefore, consumption activities will gradually recover with our effective epidemic-control efforts. Now, data for September is better than August, and consumption and recovery are expected to continue. According to the Central Economic Work Conference, investment plays a "key" role in stimulating growth. I believe that the decline in economic growth is directly related to investment. As we all know, investment is divided into three parts: industrial investment, property investment, and infrastructure investment. In the first three quarters, the country's investment grew by 7.3% year-on-year, while the slowest sector — infrastructure investment — was up by 1.5% year-on-year, an average two-year growth of 0.4%. Infrastructure investment has increased rapidly over the past few decades and is now falling back to 1.5%, so this is a big problem. I think in the fourth quarter, and next year, we should give full play to the key role of investment in stabilizing growth, with infrastructure investment as its decisive factor. Then what can we do? As Mr. Xu mentioned in the beginning, the 14th Five-Year Plan laid out plans for 102 major projects during the period, which had undergone sufficient assessment. All these projects should start work as soon as possible in the fourth quarter and next year to form a real physical workload, which will greatly boost investment. In my point of view, some projects should come into operation earlier if possible.
In addition, Mr. Xu just pointed out that special local government bonds worth 1.8 trillion yuan were issued as of August, accounting for only half of the annual issuance quota of 3.65 trillion yuan. By this time in previous years, the proportion had almost reached 90%. Thus, we need to speed up the issuance of the remaining 1 trillion yuan-plus worth of bonds so that the construction of major projects in local areas will begin, and the real physical workload can be formed, all of which will significantly promote economic development.
In terms of prices, the CPI rose by an average of just 0.6% between January and September, with an estimated annual increase of about 1%. The low and stable price increase has given room for monetary policy. On the other hand, fiscal policy also has a lot of room. From January to August, the national general public budget revenue increased by 18.4%, while the general public budget expenditure increased by 3.6%, indicating that there is still considerable room between fiscal revenue and expenditure. We can therefore increase fiscal expenditure and adjust and improve its composition to strengthen areas of weakness. For instance, the auto industry's current weakness is its chip shortage, and for the shipping industry is the lack of containers. In fact, China has advantages in those respects — the world's largest container manufacturers are here. As a result, the fiscal policy can give more assistance to these weak links. From this point of view, we can reinforce our confidence in the internal drivers of China's economy and our capability to cope with this downward pressure.
Regarding macro regulation, we should sum up the past experience. Actually, we have the ability to step on this "gas pedal" to accelerate it. From the Asian financial crisis in 1998 to the world financial crisis in 2008, until now, we have learned lessons from a wealth of historical experiences. According to the data released by the National Bureau of Statistics today and the introduction of Mr. Fu Linghui this morning, we can see the general condition of the Chinese economy. Of course, we also need to be aware of the problems and their phased, structural, and cyclical nature. Although the reasons are complex, we have the means and capability to stabilize the economic situation, and give further role of the internal forces driving China's economy. The country's economy will still maintain healthy and better growth and is expected to expand 8% this year, which will certainly rank first among major economies around the world.
Xing Huina:
Thanks to our two experts. If there are no other questions, today's briefing is hereby concluded. Thank you, friends from the media!
Translated and edited by Zhang Liying, Yuan Fang, Zhu Bochen, Yang Xi, Li Huiru, Duan Yaying, Gao Zhan, Chen Xia, Wang Mengru, Liu Sitong, Zhang Junmian, Zhang Rui, Xiang Bin, Zhou Jing, Liu Qiang, Zhang Tingting, Ma Yujia, Zheng Chengqiong, David Ball, Jay Birbeck, and Tom Arnstein. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.
