Economists tend to reach consensus on issues other than economics, but there is basically no consensus on economic issues.
In China’s economic circles, this is even more vividly reflected. My feeling is that it is difficult for the Chinese economic community to reach a consensus on most economic issues, and this may be the biggest consensus at present. Take, for example, the recent discussion on debt.
One researcher said that debt was opium, and another immediately said that comparing debt to opium was absurdly wrong.
While arguing fiercely, I also saw the tricks often used by economic circles to belittle the other party, which is to belittle the professionalism of the other party: “Professionals in economic research must keep their bottom line and use research to speak with reasons. It will damage the reputation of all professionals.” I read the articles of both sides, and to be honest, the differences are not that big, and I don’t know what the two sides are arguing about.
Because the debt problem is not only a professional problem, but also a common sense problem.
Moderate borrowing is conducive to economic development. This is common economic sense. Excessive debt will be risky. This is also basic economic common sense.
One researcher expressed that the economy cannot continue to rely on excessive borrowing to develop the economy, while another directly regards the other party as opposing all borrowing behaviors. How can this be discussed? Therefore, I have always felt that the biggest shortcoming of Chinese economic circles is that they have not learned Chinese well. As for some hyped views that go against common sense and sing the praises of debt, it seems that if China does not borrow money, the economy cannot develop, and I will not mention it here.
There is nothing wrong with debt itself, the key lies in a degree, repayment and sustainability.
As far as China’s three major levers are concerned: government leverage, non-financial corporate leverage, and resident leverage, on the surface, the safest government bonds, and non-financial corporate leverage, are the highest in the world. This is a great hidden danger. Thunderstorms in some real estate companies have actually sounded the alarm. Although resident leverage is not the highest in the world, it is the highest in emerging markets, and since 2015, resident leverage has accelerated significantly.
Considering that China’s government debts, especially local debts, are very complex, with both on-book and invisible debts, there is no consensus on the exact amount, and the hidden debt should be around 60 trillion yuan. In the past, these debts were circulated by land finance. It is also true that land finance is unsustainable under the circumstances of the real estate downturn. Many local debts are facing the embarrassment of substantive default. Some places even stated that “it will take 30 years to pay back”.
Under such circumstances, some people go against basic common sense and advocate debt and continue to borrow money. In my past words: land finance is helpless, and advocacy is shameless. It is shameless to advocate that localities continue to borrow excessively. The same is true for non-financial corporate bonds. In an economic downturn, continuing to increase leverage and continue to play with high debt is indeed playing with fire. As for the leverage of residents, most of the money of ordinary people has been tied up in the house, and it will be difficult to have spare money for consumption in the future. At least in the short term, I do not see any clever solution to this dilemma.
In fact, when China’s economy bids farewell to high growth and China’s financial cycle enters a “new financial cycle”, the downturn of the economy itself will inevitably be accompanied by a decline in leverage. Monetary policy is also saying goodbye to the past unlimited expansion, and risk prevention has been improved. to unprecedented heights. In the past, it was possible to borrow excessively ahead of time, because the high speed of the economy brought about high turnover, and the ability to convert debt into assets was strong. It’s clearly different now. If you still use the past thinking to advocate leverage, you are either stupid or bad. Based on this, I fully agree with the general direction of China’s “deleveraging” in the past. The reason why enterprises and local governments resist “deleveraging” is that they are used to the gluttonous feast of credit release.
When I saw a very high debt ratio of a very well-connected real estate company in 2018 and kindly reminded me, the other party directly poured cold water on my opinion: Economists are reminding risks every day, but according to the words of economists, Nothing can be done. Any reminder of risk is, in their view, a pedantic joke.
The crow-mouthed Soros once reminded in 2017 that the biggest risk to the Chinese economy is credit. Many old debts need new credit to maintain them. He pointed out that China is rekindling the fire to stimulate the development of the construction and real estate industries. Although there will be bubbles, it can promote economic growth. But the market will not stand forever, but China believes that this bubble will not burst, which is another reason to use the bubble to stimulate economic growth. Of course, Soros’ words were also ignored by them.
However, I also agree with what a researcher said about the “neck-choking cycle”, that is, in the process of deleveraging, we must proceed step by step and not rush. We cannot directly cut off the financing of enterprises like the “three red lines” in the past, which is tantamount to strangling the neck of the economy and killing the economy. High leverage and high debt are risks, but addressing this risk requires patience.
The risks caused by the hasty deleveraging of real estate are right in front of us, and it is worth learning lessons. The best way to solve China’s debt problem is of course to “raise debt with debt” and solve it slowly, instead of setting a target as in the past and implementing it roughly like a Mongolian doctor, which will really cause problems.
| But remember, unsustainable debt is worse than opium, unsustainable debt is the devil!
Of course economists must stick to their professional bottom line, but being professional does not mean going beyond common sense. So many famous economists around the world are warning about debt risks, and so many crises around the world are caused by unsustainable debt. fact. Debt is not a magic weapon. In the past, it was possible to borrow money for infrastructure construction, and it was possible to use land for financial turnover. Can I continue playing now? The music of real estate and infrastructure has come to an end, are you still fantasizing about the final climax?
Economists can talk nonsense, because there are few people who are responsible for their mistakes. But economic policy and business development must abide by common sense. Common sense is that debts can be borrowed, but excessive debts cannot be borrowed. Debts are only good debts if they are sustainable and repayable. Good debts, otherwise they are evil.
｜Based on this, I would like to make two warnings:
The first point is for Chinese entrepreneurs. Chinese entrepreneurs, especially successful entrepreneurs in the past, must deeply understand the meaning of life and death in the new financial cycle! The success of many entrepreneurs in China not only has their own talents, but also has something to do with the great economic cycle. In the era of credit expansion, as long as they dare to take risks, as long as they are bold, the probability of success will be very high, and the success of this kind of adventure will inspire them to take greater risks and achieve greater success. But such entrepreneurs cling to old thinking as the credit cycle quietly shifts. With the help of the strong wind, he got used to flying, and even had a huge illusion, thinking that he never needed any wind to fly. In this way, tragedy appeared. I have said in the past that many Chinese companies are not dying of difficulty, but are too good, and that is what I mean. Because it is too powerful, it has led to the fact that companies that used to rely on luck to grow big are now relying on ability to survive. On the issue of debt, look at those predecessors who were once prosperous, but are now struggling because of a broken capital chain.
The second point is for everyone, especially economic officials at all levels. China’s financial risks have always been around and have never left. When the economy bids farewell to high growth and land finance is unsustainable, debt development must be moderate. I have always believed that debt rather than real estate is the biggest gray rhinoceros in China’s future. Unsustainable projects and unsustainable debt must not be taken lightly. The current debt risk must be resolved in a timely manner. The practice of many countries in the past has proved that the debt problem cannot be delayed, and must be considered as a priority option. In order to clear the mine for the Chinese economy, in addition to write-offs, debt-to-equity swaps and asset securitization, There should also be a global approach. Otherwise, it is likely to lead to the “balance sheet recession” in Japan that year.
For those who advocate that debt is the magic weapon of China’s economy and the core competitiveness of China’s development, I suggest that they really read Turner’s “Debt and the Devil” carefully, and they can also read Minsky’s views carefully .
Don’t challenge common sense in the name of “professionalism” – unsustainable debt will lead to disaster.
Facts have proved that the current economic theory, especially the macroeconomic theory, has serious flaws. Economists have never predicted the major economic crisis in human beings. I don’t know where the “fatal conceit” comes from?