Beijing's lingering concerns for Washington's macroeconomic policy
Xi told Biden recently, so did other key Chinese voices in the past year
With inflation high in the United States and Jerome Powell nomination to stay as the U.S. Federal Reserve Chair, one line from President Xi Jinping’s reported remarks to President Joe Biden, which so far caught little attention in English, stands out to your Pekingnologist:
中美有必要保持宏观经济政策沟通，支持世界经济复苏和防范经济金融风险。美方应该重视国内宏观政策外溢效应，采取负责任的宏观经济政策。
It is necessary for China and the U.S. to maintain communication about macroeconomic policy, support the recovery of the world economy, and prevent economic and financial risks. The U.S. should pay attention to the spillover effect of domestic macroeconomic policies and adopt responsible macroeconomic policies.
Not sure how that communication has been going on behind the scenes, but in the past year or so, key Chinese officials, former officials, and scholars in economics have publicly highlighted their concerns for Washington's macroeconomic policies.
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中国人民银行党委书记、中国银行保险监督管理委员会主席郭树清
Guo Shuqing, Party Secretary of China’s central bank and Chairman of China’s banking regulator
On Seeking Truth, the Party’s theoretical journal, on August 16, 2020
当前，国际上许多国家特别是最发达国家，采取了强刺激做法。有的国家实行无限量化宽松政策，财政货币双管齐下，向市场释放大量流动性，向个人和企业直接融资或提供担保。短期看，这一做法有利于稳定经济与金融，但是中长期效果则存在很大不确定性。世界上没有免费的午餐，天下也没有不散的筵席。在以美元为主导的国际货币体系中，当前美国这种前所未有的无限量化宽松政策，实际上也消耗着美元的信用，侵蚀着全球金融稳定的基础，会产生难以想象的负面影响。新兴经济体可能面临输入性通胀、外币资产缩水、汇率和资本市场震荡等多重压力。更严重的是，世界可能再次走到全球金融危机的边缘。
Many countries in the world, especially the most developed countries, currently adopt strong stimulus practices. Some countries implement unlimited quantitative easing (QE). As a result of the fiscal and monetary measures, abundant liquidity is available for the market, and direct financing or guarantees are provided for individuals and companies. In the short term, this approach helps stabilize the economy and finance but brings greater uncertainties in the mid-and long term. There is no free lunch in the world, and all good things come to an end. In the international monetary system dominated by the U.S. dollar, the unlimited QE, which is unprecedented, actually undermines the credibility of the U.S. dollar, erodes the foundation of global financial stability, and will result in unimaginable negative effects. Emerging economies may face multiple difficulties such as imported inflation, dwindling foreign currency assets, exchange rate and capital market volatility. What’s worse, the world may again be pushed to the brink of a global financial crisis.
March 2, 2021, press conference of the State Council Information Office
欧美发达国家、疫情严重的国家和一些发展中国家，都采取了积极的财政政策和极度宽松的货币政策，我们都能理解，因为毕竟要把经济稳下来，宏观政策必须采取这些措施。但是力度上、后果上可能要考虑的更多一些，因为毕竟还会产生一些副作用，现在看这些副作用已经逐步显现。一是金融市场，欧美发达国家金融市场高位运行，和实体经济严重背道而驰。金融市场应该反映实体经济的状况，如果和实体经济差别太大，就会产生问题，迟早会被迫调整，所以我们很担心金融市场，特别国外金融资产泡沫哪一天会破裂。Developed countries including European countries and the U.S., countries hard hit by COVID-19, and some developing countries have adopted proactive fiscal policies and extremely loose monetary policies. It is understandable that these measures must be adopted in macroeconomic policies to stabilize the economy. However, more considerations must be given in terms of intensity and implications, because there will be some side effects. These side effects are have gradually appeared. Take financial markets as an example. The financial markets of developed countries in Europe and the U.S. are running high, which is in serious contradiction to the real economy. The financial market should mirror the situation of the real economy. If there is too great a gap between the two, problems will occur, and adjustment is required sooner or later. Therefore, we are highly worried about when the financial market, especially the foreign financial asset bubble, will burst.
2020年中国经济实现正增长，促进了周边国家和主要贸易伙伴的经济复苏，阻止了世界经济陷入更大萎缩。中国在相当一段时期内供应了全球一半左右最终产品，而且总体上没有提高出口离岸价格，为全球疫情防控和经济恢复奠定了坚实基础。如果说最发达国家大量印发的货币形成了拉动全球通胀的动力源，那么，中国数亿劳动者生产的商品就是稳定全球通胀的千钧锚。
In 2020, China registered positive economic growth, which promoted the economic recovery in neighboring countries and its major trading partners and prevented the world economy from sliding towards a greater economic downturn. China has supplied about half of the world’s final products for a long period of time, without increasing the FOB prices for exports overall. This has laid a firm foundation for the world’s fight against the pandemic and economic recovery. If we say the big flux of currency issued by the most developed countries are the driving force for global inflation – if that is the case – then the commodities made by numerous workers in China are the anchor for stabilizing global inflation.
Speech at Lujiazui Forum on June 10, 2021
2020年以来，为应对百年一遇的疫情大流行，发达国家纷纷推出超级经济刺激计划。在财政猛烈扩张的同时，货币政策达到前所未有的宽松程度。美联储资产负债表已扩张将近一倍，欧央行扩张一多半，日本银行扩张超过四分之一。这些超常规举措，短期内确实起到了稳定市场、稳定人心的作用。但是相伴而来的负面效应则需要全世界各国来共同承担。首先，发达国家的金融资产和房地产价格普遍出现较大幅度上涨。特别是股票市场很快就达到了创纪录的高水平。经常爬山的人都知道，越是陡峭的山峰，上去不易，下来更难。第二，通货膨胀像约定好了一样，如期而至。而且比美欧同事们所预料的幅度要高出一截，至于将要持续的时间似乎也不像许多专家预测的那样短暂。第三，当财政支出已经在很大程度上靠中央银行印钞来支撑时，就像一架飞机在空中进入自转旋涡，很难由自己顺利改飞出来。2008年前，美联储的资产负债表只有8000多亿美元，如今已将近8万亿美元，而且美国联邦债务与GDP之比已超过二战时期创造的最高记录。第四，世界疫情现阶段还有诸多不确定性，全球产业链和供应链局部受阻或断裂的风险仍然较大。本来最需要各国同舟共济、共克时艰，但还有少数发达国家不断制造麻烦，继续奉行所谓本国优先的单边主义，事实上首先损害其本国人民的利益。例如，对来自中国的产品保留高关税，客观上推动通货膨胀上升更快。第五，面对美欧开闸泄洪产生的溢出效应，新兴市场经济体和发展中国家不得不采取痛苦的应对举措。俄罗斯、土耳其、巴西央行已启动加息，有的发达经济体也开始释放收缩信号。从全球宏观经济来观察，这些政策取向的利弊得失目前还很难作出结论。In response to the pandemic unseen in a century, developed countries successively launched super economic stimulus packages since 2020. Alongside the fierce fiscal expansion, monetary policies have seen an unprecedented level of looseness. The balance sheet of the U.S. Federal Reserve has nearly doubled, that of the European Central Bank has expanded by more than half, and that of the Bank of Japan has expanded by more than a quarter. Indeed, these extraordinary measures play a role in stabilizing the market and soothing public sentiments in the short term. However, the attendant negative effects are shared by all countries worldwide.
First of all, the prices of financial assets and real estate in developed countries have generally increased significantly. In particular, the stock markets quickly hit record highs. As experienced hikers may know, the steeper the mountain, the harder it is to ascend, and it is even harder to go down.
Second, inflation takes place, as if according to a plan. Moreover, it runs at a higher level than our counterparts in the U.S. and Europe expected. As for the duration, it does not seem to be as short as many experts predicted.
Third, when fiscal expenditures are largely met by the central bank’s money-printing, it is like a plane caught in a spinning vortex in the air, and it is hard to break free by itself. The Fed’s balance sheet was merely over US$800 billion before 2008 but now reaches nearly US$8 trillion. In addition, the ratio of U.S. federal liabilities to GDP beats the record set during World War II.
Fourth, many uncertainties hang over the COVID-19 pandemic at this stage, and the global industrial chain and supply chain still face the high risk of partial obstruction or breakdown. It is necessary for all countries to work together and overcome difficulties, but a few developed country/countries instead keep causing troubles and pursuing unilateralism in line with its/their so-called (XXXXXXX) First. In fact, this harms the interests of their own people first. For example, retaining high tariffs on products from China objectively aggravates inflation.
Fifth, due to the spillover effect caused by the U.S. and European countries, emerging market economies and developing countries have no alternative but to take painful countermeasures. The central banks of Russia, Turkey, and Brazil raised interest rates, and some advanced economies also began to send signals of slowdown. From the perspective of the global macro-economy, it is hard to draw conclusions on the pros and cons of these policies as of now.
(To be sure, Turkey recently cut interest rates and is now battling a nose-diving lira.)
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Zhou Xiaochuan, former governor of China’s central bank, at Boao Forum for Asia Economists Roundtable 2021, Sept.15, 2021
Fifth, we need to closely watch the development of inflation and asset bubbles and the impact of QE. With rising CPI and record-high asset prices in some countries, there are mounting concerns over inflationary trends, lower or even zero interest rates and prolonged QE with its potential negative repercussions. For example, asset prices might have deviated from the real economy fundamentals. Rising costs for housing as well as public and quasi-public facilities and services are making the measurement of inflation more elusive. Meanwhile, prices for global primary products and ocean shipping freight rates have experienced unusual rallies. Under these circumstances, every move by the Fed is in the spotlight as it sits at the helm of the biggest economy in the world. Furthermore, people are increasingly concerned about whether printing money as needed to fund fiscal deficit as suggested by the MMT would do any harm. As an old Chinese saying goes, do not expect pennies from heaven. Otherwise, one might be daydreaming. Whether there will be pennies from heaven or not, we will see by ourselves how it turns out as it underlines an important macroeconomic phenomenon with global implications.
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原财政部长楼继伟 8月9日全球财富管理论坛
Lou Jiwei, former Minister of Finance, at Global Asset Management Forum on August 9, 2021
经济复苏可能会带来通胀，各国极度宽松的财政货币政策是必要的，特别是QE导致了资本价格的上涨和债务高企，在经济受到压抑的时候并没有过多反映为物价上涨。但是经济一旦复苏，正常的需求恢复就会产生通胀压力，特别是大宗商品价格是有先导性的会先上涨。我们目前已经处于这样一种局面了。
下一步通胀怎么样预判，会不会出现20世纪70年代滞胀的局面？确实有这种可能，但是强度和表现方式会不同。上世纪70年代的滞胀，问题主要在供给侧，主要国家是高税收、高支出、过度的管制，比如说当时尼克松总统还管制了物价，管制了工资，当然OPEC国家推动了石油价格的大幅度上涨。在这种情况下，用宽松的货币政策去应对，解决不了供给侧的结构性问题，只能造成物价上涨，形成滞胀。
本次疫情供给侧问题也很大，宽松财政货币政策的采用主要是为了纾困，经济一旦复苏有些政策就可以逐步退出，中国财政政策力度就开始收缩了。相应来说比较大的问题是杠杆率高企和逆全球化，逆全球化损失效率，若杠杆率高企，如果有可能出现杠杆大面积破灭的情况，那就是灾难了。在这种情况下，各国的政策是比较谨慎的，中国的用语是财政货币政策不急转弯，同时坚持继续“去杠杆”。美国在讨论的问题是何时开始Taper，就是缓慢退出。
因此大家谨慎，不会像上世纪70年代那样。过度的流动性会造成通胀，也可能出现滞胀，但出现20世纪70年代那样强度的滞胀可能性不大。这是我的基本看法。Economic recovery may cause inflation. Extremely loose fiscal and monetary policies adopted by various countries are necessary - QE led to an increase in capital prices and higher debts. There haven’t been big price increases when the economy remains depressed. However, once the economy begins to recover, the normal recovery of demand will lead to inflationary pressures, starting with the increase in commodities prices which are indicative. We are already in such a situation now.
How to predict inflation? Will we have stagflation like the 1970s? That’s a possibility indeed, but its intensity and manifestation will be different. Stagflation in the 1970s was mainly caused by supply-side problems. High taxes, high expenditures, and excessive regulation. For example, former U.S. President Richard Nixon even froze prices and wages at the time. Of course, OPEC countries prompted a sharp increase in oil prices. Under such circumstances, the response of loose monetary policy could not solve the structural problems on the supply side. Instead, it only resulted in increasing prices and caused stagflation.
During the COVID-19 pandemic, severe supply-side problems exist. The loose fiscal and monetary policies are adopted mainly to ease difficulties. Once the economy begins to recover, some policies can be gradually phased out. For example, China has begun to unwind its fiscal stimulus. Comparatively speaking, bigger problems lie in the high leverage ratio and reverse globalization. Reverse globalization undermines efficiency. If the leverage remains high, it may broadly collapse, which will be a disaster. Under such circumstances, various countries have adopted prudent policies. China stresses that it will make no sharp turns in fiscal and monetary policies, and continue to deleverage. People in the U.S. are discussing when to Taper, namely how to withdraw slowly.
Therefore, everyone should be acting prudently, so we will not end up like the 1970s. Excessive liquidity causes inflation, and it may also result in stagflation, but it’s unlikely to see a Great Stagflation as the one in the 1970s. These are my primary views.
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中国社科院学部委员余永定2021年11月于中国金融四十人论坛举办的第三届外滩金融峰会暨第五届浦山年会外滩圆桌“国际金融体系的演变：回顾与展望”上发表的演讲
Yu Yongding, Academician with the Chinese Academy of Social Sciences and former Member of the Monetary Policy Committee of China’s central bank, said in an event hosted by China Finance 40 Forum in November 2021
美国面临债务违约和债务货币化的两难困境
今年是布雷顿森林体系解体50周年，与布雷顿森林体系相比，后布雷顿森林体系的特点，是美元本位制取代了黄金汇兑本位制。美元作为一种国家法定货币，是可以无限供应的，储备货币国家为国内利益而诉诸印钞机的诱惑极难抗拒，唯一能阻止美国这样做的力量是美国自己以负责任的态度行事的意愿。美国有意愿以负责任的态度行事，而全球投资者也要相信美国会这样做。也正因如此，（也仅仅因为如此），此后布雷顿森林体系存续了五十年。
最初，美国政府通过资本账户赤字来提供“国际流动性”，但20世纪80年代初以后，美国通过经常账户赤字提供“国际流动性”。目前，美国净外债15.4万亿美元，占美国GDP的70%左右。对此我们不禁要问：世界各国不断积累美国借条的局面还要持续多久？
“豆茎不可能长到天上去”，从某种意义上说，世界仍面临着“特里芬两难”。在当前阶段，如果美国政府希望改善经常账户平衡状况，就必须让美元贬值。如果考虑其他因素，比如美国飞涨的公共债务、以QE形式不断印钞等，情况则可能更加糟糕。根据美国国会预算局的数据，美国联邦债务持续上升，到2050年将占GDP的200%。
债务是必须偿还的，否则就必须把债务货币化。很难想象美国政府如何在不进行债务货币化的情况下偿还如此巨大的债务。公共债务货币化可能会对通货膨胀和汇率产生巨大影响，我们也不能排除美国政府债务违约的可能性。虽然实施QE和零利率政策有其必要性，但无论如何，这种政策对通货膨胀和汇率的影响令人担忧。总而言之，如果美国政府继续执行当前政策而不能顺利退出QE，考虑到通胀和美国政府债务违约的可能性，从长期看，外国投资者还将可能面临美元的大幅贬值。另一方面，如果美国退出QE，发展中国家就将再次面临“退宽恐慌”（taper tantrum）。
将限制不正当跨境资本流动纳入全球金融体系改革议程在布雷顿森林体系下，发展中国家由于金融系统的脆弱性，不得不积累大量外汇（主要是美国国债）以保护其货币不受投机性攻击。目前，全球外汇储备总额约12万亿美元，占2020年全球GDP的14%。如此规模的外汇储备对发展中国家来说，是一种巨大的资源浪费；但如果没有这层防火墙，来自国际投机者的攻击，就可以使发展中国家几十年来的经济成就付诸东流，亚洲金融危机就是典型案例。 如果能更好地监督和管理跨境资本流动，金融危机的发生几率就会减小。我们应该制定一些规则以减缓跨境资本流动的速度，比如禁止某些高频交易，对某些类型的跨境资本流动征税等。近年来，不正当资金流动已经成为国际上高层政策讨论的热门话题。我们需要采取更加协调一致的行动，将限制不正当的跨境资本流动纳入全球金融体系改革的议程中。
The U.S. faces is facing the dilemma of debt default and debt monetization
This year marks the 50th anniversary of the dissolution of the Bretton Woods monetary system. Compared to the Bretton Woods system, the current international monetary system is characterized by the dollar standard, in place of the gold standard. As a legal tender of a country, the U.S. dollar can be supplied endlessly. For a country that issues the reserve currency, it is extremely hard to resist the temptation of resorting to printing money for its domestic interests. The only way to prevent the U.S. from doing so is its willingness to act in a responsible manner. The U.S. has been willing to act in a responsible manner, and global investors also believe that the U.S. will do so. Because of this – and just because of this – the current system has been in place for 50 years.
Initially, the U.S. provided “international liquidity” through capital account deficits, but after the early 1980s, the U.S. provided “international liquidity” through current account deficits. The net foreign debts of the U.S. have reached $15.4 trillion, accounting for about 70% of its GDP. We can’t help but ask: How long will this situation continue where all other countries accumulate the IOUs from the U.S.?
Beanstalks only in a fairytale reach up into the clouds. In a sense, the world is facing the “Triffin dilemma.” At this stage, if the U.S. wants to improve the current account balance, it must let the dollar depreciate. If other factors are considered, such as the mounting public debts of the U.S. and the continuous printing of money in the form of quantitative easing (QE), the situation be even worse. According to the Congressional Budget Office, in current estimates, the U.S. federal debt rises to 200% of its GDP by 2050. [195%, to be exact.]
Debts must be paid. Otherwise, debts must be monetized. It is hard to imagine how the U.S. government can pay off such colossal debts without monetizing them. The monetization of public debt may exert a huge impact on inflation and exchange rates, and we cannot rule out the possibility of the U.S. government’s default on debts. Although there are necessities to implementing the policies of QE and zero interest rate, the impact of such policies on inflation and exchange rates is a cause for alarm. Overall, if the U.S. government maintains current policies and does not withdraw from QE smoothly, foreign investors may face a substantial depreciation of the U.S. dollar in the long term, given the possibility of inflation and default. On the other hand, if the U.S. withdraws from QE, developing countries will again encounter the “taper tantrum.”
（we should) Incorporate restrictions on improper cross-border flow of capital into the reform agenda of the global financial system
Developing countries had to accumulate a wealth of foreign exchange (mainly U.S. Treasuries) to protect their currencies against speculative attacks, due to the vulnerable financial system. At present, the global foreign exchange reserves total about $12 trillion, accounting for 14% of global GDP in 2020. Such huge foreign exchange reserves are a colossal waste of resources for developing countries. However, in the absence of this firewall, economic achievements made by developing countries over the past few decades could vanish from the attacks by international speculators. The Asian financial crisis was a case in point.
If we can better supervise and manage cross-border flows of capital, the probability of a financial crisis will decrease. We should draw up rules to slow down the cross-border flows of capital, such as banning certain high-frequency transactions and imposing taxes on some types of cross-border flows of capital.
In recent years, improper capital flows have become a trending topic in high-level international discussions of policy. We need to coordinate our actions and incorporate restrictions on improper cross-border flows of capital into the reform agenda of the global financial system.
(Zhixin Wan is responsible for the copyediting.)