Liu Yuanchun: High Attention to Regional Financial Risks, An Important Window Period for Deepened Reform and Adjustment

A Correct Understanding of Current Macroeconomic Performance Requires

Multi-dimensional Examination of New Regularities and Issues of Economic Performance

Firstly, for the present we usually use YoY, fixed-base and MoM data to assess economic recovery. However, when the changes of the types of impact give rise to the changes of the driving forces and the structure of the economy, a specific type of data, used alone or collectively, will be hard to correctly identify economic situation.

Secondly, it is necessary to correctly identify the changes arising from major impacts, particularly the changes of the stock factors. After a pandemic or major war, the estimation of potential growth rate will be quite different from before. Current pandemic causes heavy losses to the stock of human and physical capital. When the base is significantly changed as a result of demand and supply loss, how to estimate potential growth rate and how to connect the increment to the stock will become particularly important.

Thirdly, to have a clear understanding of the present economic situation, when interpreting data, it is necessary to: 1. coordinate YoY, MoM and fixed-base data; 2. align with microeconomic data; 3. distinguish exogenous impacts from endogenous ones; 4. identify the effect of different impacts on the stock and the increment.

Key Issues for Q3 Macroeconomic Performance

Firstly, the pandemic prevention and control in China will be under serious test in Q3 if the United States rapidly rolls out the vaccination and implements full opening.

Secondly, China and the United States will re-contact, re-assess and re-position the bilateral relationship that may remain unsettled until Q3.

Thirdly, the Politburo continues to be highly concerned with regional financial issues, and high-risk institutions in particular. In the future, individual risk events are very likely to trigger regional, systematic risks. Under triple pressure from local governments’ hidden debts, local investment and finance platforms’ debts as well as local SOEs’ debts, local SOE reform and financial institution restructuring will have an important window period. For the present, with endogenous power already formed for economic growth and policy consistency, macroeconomic performance is starting a period of steady growth and low pressure. This means a new strategic opportunity for SOEs reform and financial adjustment. Missing this opportunity, it will be hard to truly adjust market structure and fully restore private businesses’ investment expectation.

Fourthly, attention needs to be paid to the employment of the youth aged from 16 to 24. Considering over 9 million new college graduates in this year, plus those not employed in last year and the year before last, overall employment is under heavy pressure. In spite of its outperformance when compared with the rest of the world, Chinese economy is still under pressure and not yet normalized.