How to View the Package of Incremental Policies

Methods for Analyzing Economic Trends

Let's first discuss the current state of China's macroeconomy.

For me and most economists, the most pressing and concerning issue at the moment is whether the GDP growth rate for 2024 can reach the target of 5%. Achieving this target is of great importance. As we know, the GDP growth rate for the whole year of 2015 was 10.6%, which dropped to 6.1% by 2019, and the average during the three years of the pandemic was approximately 4.7%. Last year was relatively better, with a growth rate of 5.2%. If this year can achieve a 5% economic growth target, it would confirm that the Chinese economy has stabilized, and we can expect the economic growth rate to be slightly higher in the following years.

We recall that in 2016, authoritative sources told us that the development of China's economic situation is in the shape of an L, and it is not possible for the economy to stabilize and rebound within one or two years. This expectation, in turn, affects consumers' consumption decisions and investors' investment decisions. Therefore, it is crucial to reverse this trend this year.

For China's GDP growth rate to reach 5% in 2024, what speeds should the main components of macro variables—consumption, investment, and imports and exports—achieve?

There are different methods to analyze whether an economy can achieve a certain economic growth rate within a year. One can start with the national income identity: it can be calculated using the expenditure approach, the income approach, or the production approach. For China, relatively speaking, it is easier to calculate using the expenditure approach. We all know that a country's economy can generally be divided into three major parts. Final consumption is the first major part, the second part is capital formation, and the third major part is the trade surplus. Generally, we cannot obtain data on capital formation and final consumption in a timely manner. Data for the current year may be delayed for a long time before it is available. Therefore, analysis is quite difficult.

We often use other variables as substitutes to calculate and estimate. At the same time, it is necessary to determine their proportion in GDP, and then consider how much they contribute to this year's economic growth rate, and finally calculate whether these variables can ensure the GDP growth rate for this year.

We estimate that by the end of 2023, final consumption will account for 54.7% of GDP, capital formation will be 42.8%, and the trade surplus will be around 2.5%.At the beginning of the year, we must assume how much the growth rate of final consumption can ultimately achieve this year? According to general economic theory, the growth rate of consumption should roughly be the same as the growth rate of income. Since we assume that the GDP growth rate for 2024 is 5%, we can assume that the growth rate of final consumption for 2024 is also 5%. This is a relatively reasonable assumption. Of course, other assumptions can also be made, but we first choose such an assumption, 5%.

Last year's trade surplus was negative, and I assume that the situation has improved this year, with a trade surplus of zero. Since we have assumed the growth rates of these two items and also know the proportion they accounted for in GDP at the end of 2023, we can calculate how much these two items contribute to GDP growth in 2024. We can calculate that it is 2.73%. That is to say, if you want to achieve a 5% economic growth target, the contribution of final consumption and imports and exports is 2.73 percentage points. The remaining 5 minus 2.73 is 2.27, and this 2.27 should be the contribution of capital formation to GDP growth. Since you have already assumed that the contribution of capital formation to GDP growth should be 2.27, you can then calculate how much the growth rate of capital formation should be in 2024. Our calculation result is that in 2024, the growth rate of capital formation should reach 5.3%. It is difficult to find statistical figures for capital formation, so we have to use fixed asset investment to replace the concept of capital formation. It is gratifying that in recent years, the growth rate of fixed asset investment and the growth rate of capital formation are roughly not much different. Using fixed asset investment to replace capital formation for calculation is still acceptable, but there will definitely be a difference here.

To achieve a growth rate of capital formation of 5.3%, which we have just said. We can roughly estimate how much the growth rate of fixed asset investment is, and we can estimate this. Fixed asset investment has three components: one is manufacturing, one is real estate, and one is infrastructure. There is another item called "other", and we combine "other" with manufacturing. We can calculate that at the end of 2023, the proportion of manufacturing is 50.5%. The proportion of real estate is 20.4%, and the proportion of infrastructure is 29.1%.

These three components of fixed asset investment have a proportion in fixed asset investment, and since we have assumed that the growth rate of final consumption should be 5%. Assuming that the growth rates of manufacturing investment and real estate investment remain unchanged, after derivation, we can calculate that the growth rate of infrastructure investment should reach 11.7%.

Due to time constraints, I will not explain in detail. I need to emphasize that such a calculation is very rough, because there is no suitable data, we can only use some other variables to replace it, and we have not explicitly considered the issue of the deflator here. All calculations are rough derivations, not accurate predictions.

The total amount of fixed assets in 2023 is 50 trillion. The proportion of infrastructure investment in investment assumed just now for 2023 is 29.1%, so we can calculate that the total amount of infrastructure investment in 2023 is 14.55 trillion, which is almost 15 trillion. It takes a lot of effort to calculate, and it may not be accurate. But now we have come to a conclusion, that is, the total amount of infrastructure investment in 2023 is 14.55 trillion. It is not accurate, so let's accept this number for the time being.

We also said just now that in order to ensure that the GDP growth rate can reach 5% in 2024, the growth rate of infrastructure investment should be 11.7%. Then, by multiplying 14.55 by 1 plus 11.7%, we can calculate that the infrastructure investment in 2024 is about 16 trillion yuan.

This is what we did at the beginning of the year. I also wrote articles at the beginning of the year and gave lectures in many places. At the beginning of the year, I was relatively optimistic, that is to say, as long as the economy maintains such a speed. We can make the growth rate of consumption around 5%, and the growth rate of fixed asset investment is 5.3%. The growth rate of manufacturing investment and real estate investment remains the same as last year.

Stimulating consumption or investment

There was originally a debate about whether we should focus on structural adjustment or adopt expansionary fiscal and monetary policies? For a considerable period of time, most people believed that China should focus on the structure rather than adopt expansionary fiscal and monetary policies. Because for many years, we often emphasized de-capacity in the government work report, and did not adopt stimulating policies. The proactive fiscal policy and prudent monetary policy we mentioned are actually concepts opposite to expansionary fiscal policy and monetary policy. What we emphasize is neutral, even slightly contractionary. Over the years, the emphasis has been on de-capacity.Over the past year, especially from a macroeconomic perspective, there has been a growing consensus on whether to adopt expansionary fiscal and monetary policies. We should adopt expansionary fiscal and monetary policies. However, there is disagreement on what kind of expansionary macroeconomic policy to adopt. One significant point, or the mainstream view, is that we should stimulate consumption. How to stimulate consumption includes giving out money and various measures to boost residents' consumption. Another view is to emphasize stimulating economic growth by increasing the intensity of infrastructure investment.

By the way, I would like to mention that there is a current debate on whether we are driven by consumption or investment. From the perspective of economic growth methods, I believe that in the short term, when there is insufficient effective demand, increasing consumption can indeed raise the speed of economic growth. What does this mean? It means raising our economic growth rate to a level consistent with the potential economic growth rate. To reiterate, only when there is insufficient effective demand and total demand, can consumption be said to stimulate economic growth. So-called stimulating economic growth means achieving a level of economic growth that is allowed by its potential economic growth rate.

In the long term, there is no issue of consumption-driven growth. If you produce 100 catties of grain and consume 100 catties, there will be no growth the next day. If you produce 100 catties of grain and consume 80, leaving 20 for investment next year, investment leads to your economic output being the same or increased the following year. In the process of economic growth, the driving forces of economic growth are three major areas: capital, labor, and technology. The growth of these three has driven economic growth, and there is no such thing as consumption driving economic growth. Consumption cannot drive economic growth unless your consumption refers to human capital investment. Only in this sense is it possible to drive economic growth, which I mention in passing.

Consumption is a function of income, income expectations, and assets. Income growth is a prerequisite for consumption growth. Do you want to use consumption to drive income growth, or after solving the problem of income growth, do you further increase the growth of consumption? These two issues must be considered clearly.

At the same time, I also want to emphasize that consumption cannot grow without income growth, which is also incorrect. For example, generally speaking, in a society, some social strata have a low propensity to consume, while others have a higher propensity to consume. The rich have a low propensity to consume, while the poor have a high propensity to consume. Therefore, if you can achieve equalization of consumption through some policy, consumption can grow even if the total income does not grow. This increase in consumption can lead to income growth, which is fine. It is necessary to distinguish in what circumstances and through what methods consumption can grow. We can also improve our consumption level through tax policies and by improving social security measures. This increase in the level of consumption can lead to income growth, which is fine. However, there will be some operational issues. The matter of giving out money, whether it can truly lead to the same degree of consumption growth, is a specific issue that can be discussed. Some people say that if you give out money, you give it to the people, and you let them buy things, then the money they save by buying things may still be saved, and they may still not consume.

Is infrastructure investment already saturated?

Speaking of China's current situation, the growth of infrastructure investment is the best starter for economic growth. Why do many economists still oppose promoting economic growth through the growth of infrastructure investment? Their main view is that infrastructure investment is already saturated, infrastructure investment does not produce much economic benefits, there is no return, so we cannot engage in infrastructure investment.

The concept of infrastructure is not only the traditional sense of iron, public, and machinery, but also includes new infrastructure. What is new infrastructure? The Development and Reform Commission has a relatively clear definition, and it also includes public investment. We include all these concepts in infrastructure. What is infrastructure investment? The definition I use is that any investment aimed at providing public products, with low returns or even no commercial returns, unable to generate cash flow, for profit purposes, private enterprises are unwilling to undertake projects, and investments that are essential for national security and socio-economic development, all belong to the scope of infrastructure investment. When you talk about infrastructure investment, you should not overemphasize its commercial return. Not making money, even low efficiency, to put it extremely, what Keynes said at the time, what efficiency does digging and filling holes have, but digging and filling holes, he created income, increased income, and then increased income, it has contributed to economic growth and development. What is the premise? It is insufficient effective demand.

To put it more extremely, many developed countries in the United States, in the 1940s and the late 1930s, were able to get out of the economic crisis and the Great Depression largely because of war. Once the war broke out, all these factories worked around the clock to produce continuously, and their unemployment problem was solved. Of course, this is a very extreme case. What I emphasize is that when we talk about infrastructure investment, we should not overemphasize its commercial return. Of course, I hope it can do as well as possible in terms of commercial return. In fact, in many provinces, their infrastructure investment still has quite a few returns. This is the first point, that is, talking about the concept of infrastructure.

Mr. Jia Kang has repeatedly emphasized that China's infrastructure investment projects are "ubiquitous," and he uses this word. Through my own research, I feel that what Mr. Jia Kang said is not wrong at all. For example, authoritative departments say that the per capita investment in our country's urban flood prevention and drainage facilities is only 1/18 of that in Japan. Just to make up for the shortcomings, the investment demand is as high as hundreds of billions, and I won't mention the specific numbers, but it has to be in the hundreds of billions. Because our tap water is not drinkable, if you want tap water to be drinkable, you probably need this investment.The investment required for the construction of underground pipe networks is enormous, and the funds needed for such projects are extremely substantial. In summary, the demand for infrastructure investment in areas such as urban village renovation, old residential renovation, education, healthcare, elderly care, and the construction of a circular economy is inestimable. I have spoken with individuals from several provinces, and the scale is enormous. Basic research, applied technology research, and related R&D bases, as well as factory laboratories and equipment, all require large-scale investment. Even in the traditional fields of iron, public works, and machinery, the demand for investment is also very large. We still have many incomplete roads to this day. Not long ago, I visited the Hexi Corridor, where there are high-speed rail and incomplete roads. Seaports, last week I was in a coastal city in the south, and they said we need to further improve the seaport facilities, but due to lack of funds, the project has been halted.

Small airports, as we all know, there are tens of thousands of small airports in the United States, probably around 20,000. In China, there are probably no more than 1,000, so the investment demand for small airports is also very large. I recently traveled through the Hexi Corridor, and I felt that there is a lot of room for development there, with a lot of land, and the price of land is very low. In the south, we have virtually no land, and the prices are extremely high. The so-called economies of scale are diminishing, while the Hexi Corridor leads to Central Asia and has significant development value.

In summary, I believe it is wrong to think that infrastructure investment has reached saturation. Recently, Mr. Liu Shijin proposed issuing special government bonds to form an economic stimulus plan of no less than ten trillion within one or two years. I agree with this guiding principle. As for where to invest, of course, it can be further considered. Government department researchers have proposed a stimulus plan with a considerable amount. Although I have always advocated for increasing infrastructure investment and implementing a stimulus plan, I dare not say ten trillion or more because I do not have more specific materials.

Where does the funding come from?

When we have already affirmed that we need to engage in infrastructure investment, and we know that the funds required for infrastructure investment are very large, we need to consider what? Where does this funding come from.

Local governments want to engage in infrastructure investment, and local governments themselves need to find money. The severity of local government debt is very related to this situation. Now we need to solve such a ideological problem, which is always worried about the deficit ratio being too high and government debt being too high.

Considering the performance from January to August, in order to achieve a 5% economic growth target, the increase in infrastructure investment needs to be higher. The government's funding provided from the fiscal budget this year has different calculation methods, with some institutions calculating it as 8 trillion, and others as 10 trillion, which is the amount of funds available for infrastructure investment. Originally, I calculated it to be no more than 6 trillion, but now it seems that it may exceed 10 trillion. What is the theoretical solution to the gap? The solution is to significantly increase the issuance of special government bonds. To do this, we know that there will be a series of problems legally and in various aspects. We will not discuss these issues now.

Fiscal policy should not be pro-cyclical. In summary, to make up for this gap, it is necessary to increase fiscal expenditure. The result of increasing fiscal expenditure will inevitably be a significant increase in the fiscal deficit. Of course, in the long run, the ratio of government debt to GDP will also increase significantly. Unfortunately, fiscal policy is basically or largely pro-cyclical. Fiscal policy, in addition to what I just mentioned, to help solve the problem of providing funds for infrastructure investment, there are two other major issues. One is how to solve the local government debt, and the other is how to prevent a real estate crisis, to minimize the adverse effects of the decline in real estate investment growth and real estate prices on China's economy, and to stabilize the real estate market as soon as possible.

Basically, there are three major issues. One issue is to support infrastructure construction and increase economic growth, the second is to resolve local government debt, and the third is to stabilize the real estate market. All three aspects require spending money. As I just said, just to achieve a 5% economic growth target to support infrastructure investment, the fiscal expenditure we need is extremely large, possibly ten trillion or more, I will not say more, I cannot give a very affirmative answer, but the basic conclusion is like this. The debt that should be repaid on behalf of local governments should be repaid on behalf of local governments, which is only natural.Local governments prioritize debt repayment first, otherwise they cannot invest in a variety of ways, all of which are pro-cyclical adjustments and are typical examples of fallacious reasoning. This is very detrimental to economic growth and development, and this mindset must change.

I would like to take a little more time here to discuss whether the government needs to be particularly concerned about China's leverage ratio issue? We should not adhere to the so-called Maastricht Treaty rules that the fiscal deficit to GDP ratio should not exceed 3%, and the national debt balance to GDP ratio should not exceed 60%. These rules are unfounded and unsupported by any country. I argue that we should dare to break through the 3% threshold. Theoretically speaking, as long as we can ensure that the economic growth rate is greater than the interest rate, a country's finances are sustainable. The additional production is sufficient to repay your interest. Then, issuing new debt to pay off old debt, continuously rolling over, is a widely accepted situation. New research suggests that the economic growth rate should be slightly higher than the interest rate; as long as this can be achieved, the fiscal situation can be maintained stably and sustainably.

Our ten-year government bond yield, as everyone knows, is only 2.25% or even lower, and the 30-year term is below 2.5%. We fully meet the conditions for fiscal sustainability, and the key is our economic growth rate. Although our economic growth rate has been continuously declining, it is still relatively high. At the same time, we can further lower interest rates, and we have the space to do so. Therefore, there is no need to worry.

I have been to Japan many times and have talked with officials from the Ministry of Finance each time. This has been the case from the 1990s to the 2000s, over two to three decades, so I am quite clear about their thoughts on fiscal policy. I believe their professional level is very high, but later I found that they also made many mistakes. Due to time constraints, I will not elaborate further, but I will share my views on Japan's fiscal policy in the future when I have the opportunity. These are some of my reflections gained from long-term contact with a large number of officials over more than 20 years.

The second formula I want to mention now is that when you look at a country's finances, you should not only look at its current fiscal situation. The present is important, but not crucial. For example, if my current debt to GDP ratio is already high, it does not matter; this is just the initial condition of a micro-equation. The key is to look at the dynamic path of the debt to GDP ratio. If it tends towards infinity, it is definitely unsustainable; it may gradually decrease. What we should be concerned about is its dynamic path, its equilibrium value, and what its stable value is? The stable value is determined by the fiscal deficit to GDP ratio divided by the economic growth rate.

If the fiscal deficit to GDP ratio is 5%, and the economic growth rate is also 5%, these two ratios are a hundred percent, this hundred percent. What does this mean? Over time, its fiscal, its national debt stock to GDP ratio will reach 100%. 100% is not a very high number because the United States, Japan, Singapore, all exceed this number, with Japan at 240% and the United States at 100%. As long as we can control the fiscal deficit to GDP ratio and not let it be too high, for example, not allowing it to exceed 5%, and at the same time, we can maintain a relatively high economic growth rate, over time, the debt to GDP ratio will stabilize at an acceptable level.

The problem is that if the economic growth rate slows down, even if we significantly reduce the fiscal deficit and cut the national debt to GDP ratio, it will eventually rise. According to my formula [(Fiscal Deficit/GDP)/n], if n is zero, the theoretical national debt balance to GDP ratio will eventually be infinite. In this case, economic growth rate is the most critical. The focus should be on increasing the economic growth rate, not on debt reduction.

As we all know, in the 2000s, China had a lot of non-performing assets, and there was a debate at the time about whether China should adopt an expansionary fiscal policy. For example, we are now considering so-called hidden debts, and China's national debt to GDP ratio is very high, so we cannot implement an expansionary fiscal policy. We studied Japan's experience and advocated for stimulating economic growth; it's okay to issue more debt. According to China's situation at the time, if your fiscal deficit rate is 3% and the economic growth rate is 8%, no matter what the initial conditions are, in the end, the national debt to GDP will tend towards 37%. In summary, I don't think we need to be particularly worried about whether our finances are sustainable; what you should worry about is maintaining economic growth.This is the experience of Europe. Why did the European debt crisis occur? The essence of the European debt crisis lies in what? People are unwilling to buy debt, no one wants to buy debt. If no one is willing to buy government bonds, the yield on government bonds will suddenly rise, which is the cause of the outbreak of the European debt crisis. If a country cannot sell bonds, and if it wants to sell debt, it must offer a very high interest rate, and its government bond yield is very high, then the country will experience a sovereign debt crisis. This is the period when the sovereign debt crisis occurs, and its government bond yield, which is for a ten-year term, is 16% for Greek government bonds. Ours is below 2.25% for a ten-year term, and theirs is 16%. They have a crisis, and we cannot have a crisis.

Moreover, how was the European debt crisis resolved? To put it exaggeratedly, it was a single sentence from Draghi. He said, "You all come to buy European debt. If you don't buy, the European Central Bank will buy." Once this was said, everyone went to buy, and as soon as they bought, the yield on government bonds went down, and the crisis was gone.

Everyone should have a very clear understanding of finance and should not view it in a traditional way, because countries can print money, but households cannot. There is an essential difference here; macroeconomics and microeconomics are not the same. Macroeconomics is not the sum of microeconomics, and their behavioral characteristics are very different.

From quantity control to "price" control: the interest rate regulation system.

I will now turn to talk about monetary policy. We walk on two legs. One leg of monetary policy is to control M2, which is the so-called quantity control. The other is what we have been changing recently, hoping to shift from quantity control to price control. In Western countries, in the United States, in Europe, in Japan, there is no such thing as quantity control; they all use price, which is to adjust interest rates. Of course, how to adjust interest rates is more complex, and due to time constraints, we can hold a special lecture on this topic, but today we cannot discuss it in detail.

Now, this is a diagram of China's interest rate regulation system. It is divided into three major parts. The first part is the central bank's policy interest rate. The central bank's policy interest rate must be directly controllable by the central bank, with absolute authority, which is called the central bank's policy interest rate.

There is also a market benchmark interest rate, which is the market. The central bank can have a strong influence, but it cannot directly control it; this is the market interest rate. The market's benchmark interest rate affects the entire market, all kinds of markets. The money market, credit market, bond market, etc. This diagram is universally used worldwide and is also the interest rate system that our country is currently transitioning towards.

It is important to note that if you use the interest rate system for regulation, it will ultimately affect the money supply. This money supply may not be what you originally envisioned. What does this mean? If you control with this system, you do not simultaneously determine the results that another system can achieve. If you use this so-called quantity control and control the growth rate of M2, the increase in loans, then you cannot simultaneously and accurately control the interest rate. These two things are contradictory. Western countries choose one of the two, while we take both into account. Sometimes we emphasize quantity control, sometimes we emphasize price control, and now we are gradually adjusting towards price control, which sometimes creates some contradictions. Now let's look at the central bank's policy interest rate, mainly the seven-day repurchase rate, which is the so-called OMO. This is something the central bank can set, and it is what it says it is. This is the medium-term lending facility carried out monthly.

The medium-term lending facility is a horizontal line, indicating that it is a policy interest rate, and it can be whatever it wants to be. The concept corresponding to it is the yield on ten-year government bonds, which is influenced by it but has its own inherent patterns of change. This is a medium to long-term interest rate, and we manage this one. There is also the seven-day repurchase rate of OMO, which is a horizontal line. The latest within seven days is 1.5%, which is relatively low. Is there room for interest rate cuts? I think there is, but is the timing right, or is it necessary?Central banks control both short-term and medium to long-term policy interest rates, which indeed have the ability to influence our money and credit market interest rates. The United States controls the federal funds rate or the federal effective rate, and it is controlled quite precisely, with a much narrower fluctuation range compared to China. Currently, the central bank is lowering the policy interest rate, and I believe the direction is completely correct; it should indeed be lowered. Whether it should be further reduced depends on further changes in the situation.

The reserve requirement ratio is now at 6.6%. The United States and many Western countries have a reserve requirement ratio of 0%. After March 2020, the United States decided to set the reserve requirement rate to 0%. What does a zero reserve requirement rate indicate? It completely abandons quantity control and influences quantity through price, but does not control through quantity. As everyone knows, in our traditional so-called money formula, this 'm' is the money multiplier multiplied by high-powered money. One of the important factors of this 'm' is the reserve requirement ratio. If you lower the reserve requirement ratio, the money multiplier will increase. With a given amount of high-powered money, the base money will increase.

People will ask, what is the significance of lowering the reserve requirement rate now? I believe it is significant, and its significance is mainly what? It is a declaration. Our monetary policy needs to be further relaxed, but in reality, its effect may not be significant. Why do you want to maintain a certain reserve requirement ratio? It is to control the loan interest rates of commercial banks. The lower the reserve requirement interest rate, the more funds commercial banks can automatically use, which can increase loans. The current problem is asset scarcity. No matter how low the reserve requirement rate is, if enterprises do not borrow from you, and you cannot find good projects to lend to, in such a situation, an increase in the money supply will at most increase M2. You cannot increase M1, because an increase in M1 means an increase in transaction demand, which is closely related to economic growth.

Is there room to lower the reserve requirement ratio? Of course, you can lower it, but how much effect it can have is a question mark in China's current situation. The reason for this is what I have been emphasizing recently, our macroeconomic policy should be mainly fiscal policy, with monetary policy as a supplement. In a situation of deflation or quasi-deflation, or in Keynesian terms, in a liquidity trap, monetary policy can only play a limited role. The central bank itself uses supportive monetary policy. The term 'supportive monetary policy' may sound a bit awkward to everyone because in the past, we talked about prudent monetary policy. What is supportive monetary policy? Who does it support? It supports fiscal policy.

For example, if there is an increase in bond issuance, then interest rates can rise. After the interest rate rises, because the supply of government bonds has increased, in any case where supply increases, what will it lead to? It will lead to a decline in government bond prices. In other words, government bond yields will rise. An increase in government bond yields will have an impact on interest rates across the entire financial system. At this time, the central bank needs to increase open market operations, buying government bonds, not selling but buying government bonds. You issue more, and I buy them, which can maintain the government bond yield unchanged. If you buy more, the government bond yield may even decrease. At this time, the central bank truly plays its supportive role. I want to support you, I can only support when you go out. This is an interesting phenomenon we are facing now.

In summary, Governor Pan Gongsheng recently proposed a series of measures, mainly to reduce reserves and interest rates, and to lower the down payment for existing housing loans. This should be considered realistic. For those who bought houses in the past, the current mortgage interest rates are also decreasing, which is beneficial for them to alleviate economic pressure, etc.

China's mortgage regulations are not the same as those in the West. For example, in Western countries, they cannot repay loans early, but China can. The seven-day reverse repo interest rate has been lowered, which will definitely be beneficial to the economy, but as I just mentioned, in the context of asset scarcity, how much effect the interest rate cut will have is still worth considering?

In addition, everyone has also noticed the reduction in the medium-term lending facility (MLF) interest rate. What I want to emphasize now is that on the one hand, the measures he has taken have a very positive signaling effect, and on the other hand, how much effect they have still needs to be observed. Moreover, his actions are limited. If the central bank wants to further reduce the MLF, that is, the medium-term lending facility interest rate, it must consider the issue of the bank's lending and deposit interest rate spread. Because the interest rate of the bank's loans is formed by adding points on the basis of MLF, that is, the loan market报价利率, that is, the LPR, which determines the loans of commercial banks. It's not that commercial banks want borrowers to give me how much interest, it is first the central bank determines this MLF, and then adds points on the basis of MLF to form LPR. This LPR is not arbitrarily added by anyone, it must be based on MLF, and the加点 is also controlled by the central bank. So he determines the loans of commercial banks.

If I want to reduce MLF and lower loan interest rates, then you must consider the issue of the deposit-loan spread. My deposit interest is given, and my loan interest rate further decreases. In this case, your deposit-loan spread is very unfavorable to banks. The interest I charge for lending money is less than the interest I borrow from others, then I am at a loss. But there is a limit, this limit is that the loan interest rate compared to the deposit interest rate should be 1.7%, which is the Chinese tradition. No matter what, further interest rate cuts will cause great difficulties for banks, and may even lead to losses.

When the central bank considers reducing the medium-term loan interest rate, it must consider its impact on commercial banks and must consider the social consequences. Ordinary people have worked hard to save money in the bank, and the interest is already low. If it is lowered further, it will cause social consequences. In short, there are many constraints.With only three months left until the end of the year, it is clearly impossible to issue 10 or 20 trillion yuan worth of government bonds all at once. To achieve the target of 5% economic growth, fiscal policy must be significantly expanded. We must remember the lessons from the 4 trillion yuan experience; the 4 trillion yuan was deployed quickly, and at that time, there was a great sense of urgency. It quickly reversed the downward trend of the economy, achieving a V-shaped recovery, but it also produced many side effects. This time, we must learn from the past. You can't rush into office; what should be done? I believe that in addition to actively preparing projects and mobilizing local enthusiasm, it is necessary to correct some past policies. One very important and necessary thing that can be done now is to announce a package of policies, including a fiscal investment plan. Fully utilize the so-called announcement effect to boost the market and increase the confidence of investors and the public. Pan Gongsheng's speech is actually an announcement effect. The policy mix he announced exceeded market expectations, so it immediately boosted the confidence of investors and the market.