CITIC Securities: Can fiscal expansion in the fourth quarter stimulate credit growth?
At the policy level, it is decided that the fiscal policy of 20 19 will continue to grow steadily, and at the same time, the central bank announced the RRR cut, thus liquidity in the banking system was supplemented. If the fiscal expenditure increases in the fourth quarter of 20 19, will the situation of asset shortage change in the fourth quarter? Will the credit growth rate go up sharply? In view of the above problems, we believe that the possible fiscal expansion in the future can be "steady growth", but the current "asset shortage" problem has not been solved, and it is expected that credit growth will not rebound on a large scale.
If the fiscal expenditure increases in the fourth quarter of 20 19, will the situation of asset shortage change in the fourth quarter? Will the credit growth rate go up sharply? This paper combs the practical experience of "fiscal and monetary" coordination in various countries in the world in detail. At present, China's "active finance" coincides with the RRR cut by the central bank, so whether the credit growth rate can rebound in the fourth quarter has become a problem worthy of attention.
The global economy has entered a new normal of low-speed growth, which makes the global policy layer discover the limitations of monetary policy. The economic growth rate and risk-free interest rate of the United States, Europe, Japan and China are all declining, and the easing of monetary policy has never stopped. Looking back on the experience of the United States and Japan, "fiscal-monetary" coordination is helpful to support economic growth. Creating aggregate demand through expansionary fiscal policy and expansionary monetary policy, or even through the direct purchase of national debt by the central bank, is the "financial-monetary" coordination path between the United States and Japan. Observing the historical data of US fiscal deficit and economic growth, we find that a single monetary stimulus is often ineffective.
During the period when private sector economic activities were inactive, monetary policy encountered difficulties, but China did not fully meet the conditions of "financial monetization". The problem of insufficient credit demand in the private sector plagues major economies. Therefore, the issue of "fiscal-monetary" coordination has begun to be valued by everyone. However, the traditional "fiscal-monetary" coordination relies more on the background of private sector deleveraging to avoid large-scale fiscal austerity. China's current downward credit demand index and gloomy financial data in the third quarter show that China's credit promotion measures can't solve the credit demand problem, but at the same time, we can't be sure that China's private sector has entered the deleveraging process, so the application of "money-backed finance" theory in China is debatable.
In the fourth quarter, the budget space was limited. There is nothing new in the fourth quarter local debt issuance plans announced by several provinces. Secondly, if the government chooses to increase leveraged financing in the fourth quarter, it will face a certain "crowding out effect". Fiscal policy expansion can provide consumption and investment demand for the economy during the period of weakening total demand, but if the commitment of fiscal expansion is temporary, the current fiscal expansion will change the intertemporal decision-making of the private sector and trigger the "crowding out effect" of finance. Finally, active financial projects need to solve the problem of credit matching. Although local debt issuance and fiscal expenditure have been in the forefront since 20 19, infrastructure investment is still difficult to improve significantly due to insufficient participation of social funds, which is one of the main reasons for the current high special debt, weak infrastructure and economy.
Outlook of the bond market: We believe that if fiscal expansion is to be realized in the fourth quarter, fiscal policy needs to exert its strength on local projects. However, the income side faces the pressure of budget space and balance of debt issuance, and the enthusiasm of social capital participation is also a major difficulty. First of all, the budget space in the fourth quarter is limited; Secondly, if the government chooses to increase leveraged financing in the fourth quarter, it will face a certain "crowding out effect"; Finally, active financial projects need to solve the problem of credit matching, but the coverage of projects with special debts as project capital is not extensive. We believe that the change of generalized finance in the fourth quarter will not change the situation of lack of high-quality assets, and the judgment of credit demand is still neutral, and we still attach importance to observing the judgment of credit growth rate 13% (calculated from the RRR tangent point). To sum up, we maintain our previous judgment that the yield to maturity range of 10-year treasury bonds is 2.8%~3.2%.
main body
On September 4th, the Finance Committee meeting proposed that "the financial department should continue to do a good job in supporting the issuance of local government special bonds"; At the same time, the State Council held an executive meeting, which clearly stated that "the new special debt quota will be issued in advance according to the regulations to ensure that it can be used at the beginning of next year". At the policy level, it is decided that the fiscal policy of 20 19 will continue to grow steadily, and at the same time, the central bank announced the RRR cut, thus liquidity in the banking system was supplemented. Observe the relationship between the growth rate of public expenditure and the growth rate of credit: the growth rate of government fund expenditure, public expenditure and credit growth seems to have some correlation recently. Then, in recent years, the hot issues of "fiscal-monetary" coordination in the international scope are worth studying (the success of "fiscal-monetary" coordination in the period of weak demand has made relevant discussions hot, including blanchard's "public debt and low interest rate" and Bernanke's "helicopter money" theory. This also makes some voices believe that credit is expected to rebound in the fourth quarter with the strong support of financial investment.
If the fiscal expenditure increases in the fourth quarter of 20 19, will the situation of asset shortage change in the fourth quarter? Will the credit growth rate go up sharply? We believe that: firstly, the deficit space in the fiscal budget in the fourth quarter of 20 19 is limited, and the amount of extra-budgetary loans for local special bonds is also limited, so there is some resistance to the government's substantial increase in leverage in the fourth quarter; Secondly, if the economy stabilizes through government leverage and financial projects in the fourth quarter, government leverage will cause the crowding-out effect of bank asset allocation; The effect of financial projects needs attention, but it is still necessary to solve the problem of low participation of social funds. We believe that the possible fiscal expansion in the future can be "stable growth", but the current "asset shortage" problem has not been solved, and it is expected that there will be no large-scale rebound in credit growth.
Why should we pay attention to "financial-monetary" coordination?
The global economy has entered a new normal of low-speed growth, which makes the global policy layer discover the limitations of monetary policy. The economic growth rate and risk-free interest rate of the United States, Europe, Japan and China are all declining, and the easing of monetary policy has never stopped. Japan, the United States and the European Union have reached the lower limit of zero interest rates, but their economies have not resumed long-term growth. Subsequently, the Federal Reserve's quantitative easing action, the Bank of Japan's QQE+YCC (quantitative and qualitative monetary easing+yield curve control) and the European Central Bank's asset purchase plan did not work obviously, and the simple monetary policy seemed to fail. The nominal interest rate, which is lower than the economic growth rate for a long time, also makes the cost of issuing bonds continuously diluted, and the economic stimulus led by fiscal expansion seems to be more and more profitable.
Looking back on the experience of the United States and Japan, "fiscal-monetary" coordination is helpful to support economic growth. Creating aggregate demand through expansionary fiscal policy and expansionary monetary policy, or even through the direct purchase of national debt by the central bank, is the "financial-monetary" coordination path between the United States and Japan. Observing the historical data of fiscal deficit and economic growth in the United States, we find that a single monetary stimulus is often ineffective: after the subprime mortgage crisis broke out in 2007, only the "fiscal-monetary" coordination between the interest rate reduction policy and the big federal deficit appeared in the United States, while Trump's 20 17 tax reduction plan encountered the tax increase cycle of the Federal Reserve, which made this round of fiscal stimulus fail to achieve a sustained economic rebound.
Japan has always been at the forefront in "finance-currency". In order to raise Japan's inflation and reform Japan's economy, Japanese Prime Minister Shinzo Abe shot "three arrows" in February 20 12-bold monetary policy, flexible fiscal policy and economic reform. Although "Abenomics's Three Arrows" are effective, and each round of fiscal relaxation will also bring about an upward trend of economic growth, Japan has not given up its efforts in fiscal normalization. This kind of political repetition makes the stimulus effect poor: the Japanese government announced that Japan would raise the consumption tax rate from 8% to 1 0 from 10, which once again increased residents' anxiety about Japan's economic prospects and began to cancel the previous efforts of fiscal expansion.
During the period when private sector economic activities were inactive, monetary policy encountered difficulties, but China did not fully meet the conditions of "financial monetization". Traditional monetary policy means (continuous interest rate reduction and repurchase) or non-traditional monetary policy (asset purchase plan and QE) can supplement the funds in the banking system, but cheap credit supply does not mean credit growth. The problem of insufficient credit demand in the private sector plagues major economies. Therefore, the issue of "fiscal-monetary" coordination has begun to be valued by everyone. However, in the conventional sense, "fiscal-monetary" coordination (fiscal policy is driven by the purchase of bonds by monetary authorities) relies more on the background of private sector deleveraging to avoid large-scale fiscal crowding out. China's current downward credit demand index and the poor financial data in the third quarter show that there are some problems in China's credit promotion measures (microfinance promotion and LPR reform) in the face of credit demand, but at the same time, we are not sure that China's private sector has entered the deleveraging process, so the application of the theory of "money-backed finance" in China is debatable.
Can fiscal expansion stimulate credit in the fourth quarter?
We believe that if fiscal expansion is to be realized in the fourth quarter, it may be necessary for finance to exert its strength on local fiscal projects: however, the income side is facing the pressure of budget space and debt issuance balance, and the enthusiasm for social capital participation is also a major difficulty.
In the fourth quarter, the budget space was limited. "Fiscal-monetary" coordination requires fiscal policy to directly increase government expenditure with the support of monetary policy. However, China's current budget deficit is not much: the National People's Congress Financial and Economic Committee approved the central budget deficit of 2.76 trillion yuan in 20 19, and by August, the fiscal deficit had reached 2 18 billion yuan, leaving only 580 billion yuan. For the extra-budgetary part, according to the data of the Ministry of Finance, among the 36 places (namely provinces, autonomous regions, municipalities directly under the Central Government and cities with separate plans) that have issued creditor's rights, Beijing, Liaoning, Dalian, Shanghai, Zhejiang, Ningbo, Fujian, Jiangxi, Guangdong, Shenzhen, Guangxi, Sichuan, Xinjiang and Xiamen have completed the task of issuing new bonds this year. Judging from the data of the government's bond issuance schedule in the fourth quarter published by various provinces, many provinces including Ningxia, Sichuan and Zhejiang have not yet added special bond issuance content. Therefore, even if special bonds are issued in advance in the fourth quarter of 2020, the total debt may be limited.
If the government chooses to increase leveraged financing in the fourth quarter, it will face a certain "crowding out effect". Fiscal policy expansion can provide consumption and investment demand for the economy during the period of weakening total demand, but if the commitment of fiscal expansion is temporary, the current purchase of fiscal expansion will change the intertemporal decision-making of the private sector and trigger the "crowding out effect" of finance (Ricardo equivalence). On September 24th, President Yi Gang said that "China cherishes the normal monetary policy space and is not in a hurry to follow other central banks' large-scale interest rate cuts or quantitative easing policies". As the money supply mechanism in China is still centered on banks, the path of the central bank releasing reserves and the bank repurchasing bonds is different from the "fiscal-monetary" coordination path in the United States and Japan, and they cannot be directly compared: because the bank's allocation behavior will crowd out the bank's credit, observing the data since 20 14, we can find that the interest rate bonds held by banks are negatively correlated with the loan balance year-on-year. The crowding-out effect is even more obvious in the recent reserve of the banking system. Observing the relationship between the leverage ratio of Chinese government departments and the growth rate of various loans: since the second half of 20 17, there has been an obvious negative correlation between them-at present, the process of increasing leverage by Chinese government has indeed exerted some pressure on the growth rate of credit. Therefore, we believe that the income from increasing the debt scale in the fourth quarter of the fiscal year is small, and the probability of occurrence is also small.
Active financial projects need to solve the problem of credit matching. The last issue of Enlightenment Bond Market Series 20190814-Can the silent infrastructure be revived? It is pointed out that although local debt issuance and fiscal expenditure have been in the forefront since 20 19 (although expenditure is slower than issuance, which will be discussed later), infrastructure investment is still difficult to improve significantly due to insufficient participation of social funds, which is also one of the main reasons for the current high special debt, weak infrastructure and economy. Since the beginning of 20 19, fiscal deposits have remained at a high level, which shows that fiscal expenditure is difficult to exert: social funds are unwilling to participate, and credit demand is naturally out of the question.
Special debt as project capital is a favorable policy for credit, but its coverage is not wide at present. 2065438+June 2009, the Notice on Doing a Good Job in Issuing Local Government Special Bonds and Supporting Project Financing made it clear that special bonds can be used as capital for major projects; In September, the National People's Congress Standing Committee (NPCSC) explicitly expanded the project that special bonds can be used as capital to 10. Since the projects involved in special bonds often have good qualifications, this policy is undoubtedly a big plus for credit supply. However, according to the 265438+20th Century Business Report, there are currently 9 domestic projects using special debt funds as capital, with a total amount of only 6.8 billion yuan. Generally speaking, the coverage of this model is still not wide. Secondly, by the end of 2065438+September 2009, the national * * * newly issued local special bonds supplied 21297.3 billion yuan, which has basically reached the issuance target set at the beginning of the year. However, the process of raising the limit of new special bonds this year is complicated and the income is relatively limited. Therefore, we expect that "issuing some special bonds in advance" does not mean that there will be a large number of new special bonds in the fourth quarter. It is expected that there will be little extra-budgetary financing space in the fourth quarter.
At the same time, both the residential sector and the enterprise sector in China are in the process of slowly adding leverage and marginal deleveraging. The financial efforts since 20 19 do not seem to significantly drive the increase of private sector expenditure, and the crowding-out effect may be more dominant, which may indicate that the background of private sector deleveraging required for the "fiscal-monetary" synergy effect to take effect may not appear in China. To sum up, we believe that the possible fiscal expansion in the future can be "stable growth", but the current "asset shortage" problem has not been solved, and it is expected that credit growth will not rebound on a large scale.
Bond market prospect
We have combed the practical experience of "financial-monetary" coordination in the world in detail. At present, China's "active finance" coincides with the RRR cut by the central bank, so whether the credit growth rate can rebound in the fourth quarter has become a problem worthy of attention. We believe that if fiscal expansion is to be realized in the fourth quarter, fiscal policy needs to exert its strength on local projects: however, the income side is facing the pressure of budget space and debt issuance balance, and the enthusiasm for social capital participation is also a major difficulty. First of all, the budget space in the fourth quarter is limited; Secondly, if the government chooses to increase leveraged financing in the fourth quarter, it will face a certain "crowding out effect"; Finally, active financial projects need to solve the problem of credit matching, but the coverage of projects with special debts as project capital is not extensive. We believe that the change of generalized finance in the fourth quarter will not change the situation of lack of high-quality assets, and the judgment of credit demand is still neutral, and we still attach importance to observing the judgment of credit growth rate 13% (calculated from the RRR tangent point). To sum up, we maintain our previous judgment that the yield to maturity range of 10-year treasury bonds is 2.8%~3.2%.
(Article source: Qing Bi Tan)
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