Huang Da's Collected Works (Continuation) (1999-2004)

Author: Huang Da / Country: Mainland China
Publisher:
Publish Date: 2005-03-01
Features: Expanding Domestic Demand
1. Development of Connotation
When the decision-making body recognized insufficient demand-driven growth in the economy, it proposed countermeasures to expand domestic demand: using expansionary domestic demand to address the shortcomings of demand-driven growth. When the Southeast Asian financial crisis directly slowed down export growth, it proposed expanding domestic demand to compensate for the shortcomings of "external demand," which was entirely logical. Thus, the task of expanding domestic demand shifted from one to two. When the task was a single one, it was even possible to expect that expanding exports would provide assistance. However, the contradiction now to be resolved is insufficient domestic demand combined with insufficient external demand.
2. Can It Be Successful?
Can the countermeasure of expanding domestic demand successfully address the shortcomings of demand-driven growth? This question may seem meaningless, as there are no other alternatives. Therefore, raising this question is merely to emphasize the arduousness of the task and remind people not to have overly high expectations (such as overly rapid development speed).
3. Macro Policies
① In expanding domestic demand, fiscal policy finally came into play: The decision was made in June, and implementation occurred in late August: the proposal by the Fourth Session of the Ninth National People's Congress to issue 100 billion yuan in additional bonds; the emergence of the term "active fiscal policy."
1) Role: Through fiscal investment in infrastructure, the role in increasing domestic demand is very obvious. However, the chain of demand driven by infrastructure is relatively short, making it suitable as a temporary main force, but relying on it solely in the long term is insufficient. Currently, it appears at least one to two more years will be needed.
2) Evaluation: The decision-making body's recognition that fiscal policy must be utilized under conditions of insufficient demand is a major achievement and a significant advancement in the use of macro policies. Between 1997 and 1998, this was still a call from a minority; before that, it was merely a discussion within the academic community.
3) The concept of compensating for past fiscal debts with fiscal measures has been somewhat realized. Collection agencies (experiences from Northeast China); 270 billion yuan; Lou Jiwei's eight measures.
② In expanding domestic demand, monetary policy (financial policy): Initially (between 1997 and 1998), monetary policy was still regarded as the primary means to overcome insufficient demand, even the only means: The banking system expressed willingness to expand credit and lowered interest rates three times (March, July, December). Clearly, this did not produce the desired effects (banks were reluctant to lend, borrowers were unwilling to borrow, suitable projects could not be proposed, and projects could not be found). (After the "active fiscal policy" was introduced, the emphasis on coordination between the two policies remained the old approach: banks providing [matching funds].) In 1998, "scale management" was abolished, the reserve requirement ratio was lowered, and active financing for small and medium-sized enterprises was encouraged, as well as research on the development of investment banks. However, the impact of these measures seemed relatively insignificant. Additionally, as centralized decision-making was continuously strengthened, some authority was moderately delegated to grassroots banks, but the relaxation and tightening offset each other—relaxation rather than tightening, and so on. In March 1999, the People's Bank of China issued "Guidelines on Conducting Consumer Credit Business," urging relevant financial institutions to actively and steadily develop consumer credit business. Prior to this, there had been extensive promotion, but it had not been effectively implemented (lack of supporting infrastructure). Evaluation of positive factors:
① The notion that finance is all-powerful and monetary policy is all-powerful began to be reversed. Of course, theoretical resolution is not a one-day process. Under weak economic conditions, the role of monetary policy is limited—this is a basic principle, common knowledge in economics. Further, it should be understood from the perspective of the relationship between nominal (monetary) and real (actual) aspects.
② Some financial market concepts were accepted, such as consumer credit.
③ Changes in the terminology of monetary policy: Moderately tight; appropriate (Economic Work Conference, end of last year); stable (March, National People's Congress).
4. It Has Become an International Slogan
The IMF Executive Board (April 27, 1999) called for Japan and Eurozone countries to stimulate domestic demand. (Taiwan Province proposed this slogan simultaneously with the mainland last year.) P4-5