Mao Zhenhua: A Decade after the 2008 Financial Crisis: A Reflection on China’s Ten-year Macroeconomic Polices

Publisher:CCXI Time:2018-12-14

    On December 13, the 2019 China Credit Annual Conference hosted by China Chengxin Group was held in Hong Kong. Theme of the year was “the Balance of China’s Economic Policies under Multiple Challenges”. Experts, including Li Xiaojia, CEO of the HKEX Group, and Guan Tao, a well-known expert on RMB exchange rate in China attended the conference. Yabuli Chinese Entrepreneurs Forum Representatives, including Chen Dongsheng, Liang Jinsong, Zhang Wenzhong et al. participated in the discussion as well. Dr. Mao Zhenhua, founder of China Chengxin Group and chief economist of China Chengxin International Credit Rating Co., Ltd,delivered a keynote speech -- "A Decade after the 2008 Financial Crisis: A Reflection on China’s Ten-year Macroeconomic Polices". He points out that the 2008 crisis has had a profound impact on China's economy and policies. In the post-crisis decade, China’s macroeconomic policy objectives shifted dynamically between Steady Growth and Risk Prevention, and market-oriented reform and opening up roadmap was forced to undergo certain adjustments due to the crisis. Mao Zhenhua believes that at a time when a decade has passed since the crisis, it is essential to reflect on China's post-crisis responses through adjustments in economic policies, and to consider re-adjusting policies in order to promote China's economic transition and to restart the course of reform and opening up.

    In his speech, Mao Zhenhua points out that the financial crisis has had an impact on China's macroeconomic policies in multiple ways. On the one hand, China’s macroeconomic policy objectives shifted dynamically between steady growth and risk prevention in the past decade: soon after the crisis, China introduced a series of economic stimulus policies, including a 4 trillion yuan ($585billion) stimulus plan, along with proactive fiscal policy and moderately loose monetary policy. While China's economy stabilized, macroeconomic risks were accumulating. China's macroeconomic policy objective shifted toward risk prevention since the second half of 2016, and gradually formed a policy with dual bottom-line – steady growth and risk prevention. On the other hand, in order to cope with the crisis, China's market-oriented reform roadmap was forced to adjust, with political intervention strengthened in resource allocation process, deviating from the market-oriented reform direction to some extent. What is more, in accompany with changes in the domestic and international economic environment, China's foreign policy also adjusted.

    He further analyzes China’s gains and losses from the last decade adjustments in macroeconomic policy. From a positive perspective, a series of post-crisispolicies played an important role in ensuring China’s stable economic growth in the past decade, and stimulated China to take the lead in  global economic recovery. In 2010, China surpassed Japan to become the second largest economy, and later surpassed the United States as the largest trader of goods in 2013. It turned out that the 2008 financial crisis became a rare window for China’s economic growth, and even to have several crucial big leaps. On the other hand, he also highlights various risks after rounds of economic stimulus. The “debt-investment”-driven economic growth model has led to a constant accumulation of debt risks and financial risks. Although a series of risk-prevention-oriented measures were adopted since the second half of 2016, which relieved the economic risks to some extent, risks still stand out perilously. Particularly, it is worth mentioning that China’s series of adjustments since 2008, either actively or passively, has been misread by the United States and other Western countries, leading to a fundamental change in their perception and attitude toward China, which later became an important factor leading to the Sino-U.S. trade conflictand increasing external uncertainties for China’s economic development.

    He then analyzes China’s current economic environment and policies. He sees that against the background of internal economic downturns and increasing external uncertainties caused by the big power games, China’s economic policy re-adjusted in 2018: “steadygrowth” was once again placed at a vital position, monetary policy got loosen, fiscal policy got strengthened, and “strict regulation” shifted to “steady regulation” in the financial sector. However, he draws attention to the downside of excessive intervention. Unconventional regulative policies, he says, can be helpful in short-term depending on specific economic conditions, but they require proper handling. A return to the old path of “debt-investment”driven model should be prevented.

    Mao Zhenhua says this year coincides adecade of 2008 financial crisis with the fortieth anniversary of China’sinitiation of Reform and Opening-up Policy. At this new start point, it is crucial for China to reflect on its post-crisis policy course, to summarize the gains and losses, and to learn from history in order to re-adjust policies and promote future economic development. He recommends that on foreign policy, besides promoting nation’s core interests, China should rationally respond to changes in external environment, adjust diplomatic strategies accordingly, make strides in opening up, relieve tensions, and cushion the impact of anti-globalization on China’s economy. As to internal policies, China needs to adhere to the market-oriented road of reform and opening up, to increase investment of enterprises and consumption capacity of needy households through polices such as tax cuts, to raise domestic demands, to promote and protect entrepreneurship, and to encourage the development of the private economy in order to enhance the endogenous driving forces of China's economic development.