Chinese Economy. Graduate School of Economics, University of Tokyo Day 7 (June 6th) Tomoo Marukawa

Transcription

1 Chinese Economy Graduate School of Economics, University of Tokyo Day 7 (June 6th) Tomoo Marukawa 1

2 State Budget and the Financial System 2

3 Introduction Consider an entrepreneur who is considering raising money for his/her business. There are five ways to raise money. 1Self accumulation 2Borrowing money from banks 3Issuing corporate bonds 4Issuing stocks. IPO 5Governmental investment 3

4 1. The Planned Economy Period: Role of state budget In a socialist economy, self accumulation and stocks should not exist. Then, bonds will not exist, either. The ideologically allowable ways of raising money are bank loan and government investment. Until late 1970s, the latter was the most important A planned economy is an economy in which the government raises money and invests like a big enterprise. 4

5 Government budget revenue as percent of GDP was 28% on average during 1953 ー 78, while household savings amounted to only 6% in % Relative Size of Government Budget Revenue, Household Savings, Extra-budget Revenue, and Market Value of Listed Companies to GDP 80% 70% 60% 50% 40% 30% Gov Budget Revenue/GDP Household Savings/GDP Extra-budget Revenue/GDP Stocks Market Value/GDP 20% 10% 0%

6 percent of fixed capital formation was financed by government investment. 120% The Ratio of Governmental Investment and Extra-budget Revenue to Fixed Capital Formation 100% 80% 60% 40% Gov Investment/Fixed Capital Formation Extra-budget Revenue/Fixed Capital Formation 20% 0% % 6

7 However, in the case of China, the government consists of central and local governments, with the latter having a big role. Local governments' share in budgetary income and expenditure % Expenditu re Income

8 Central-Local relationship in government budget Radical decentralization during the Great Leap Forward ( ) The jurisdiction of most state-owned enterprises were transferred from the central to local governments. The latter collected taxes and profits from SOEs. Since then, local governments had big shares in budgetary income. And the revenue was shared with the center under certain rules. Local governments had little autonomy in determining budgetary expenditure until Local governments had large autonomy only in 1958 and from 1971 to

9 The government soaked up money from coastal provinces and injected the money into the inland (Sichuan, Shaanxi) 9

10 2. The first half of the Reform Period: Expanding roles of local government and banks Decentralization of public finance was made in Local governments were allowed to have autonomy in their budgetary expenditure. They could invest into the state-owned enterprises under their control. The ratio of government revenue to GDP declined continuously, while that of household savings to GDP increased. Extra budget revenue increased until In the early years of reform ( ), the government tried to bring down the investment ratio to national income to improve the living standards of the people. Wages and agricultural prices were raised and therefore the profit rates of state owned enterprises decreased. 10

11 The first half of the reform period. Decrease of Government Revenue/GDP 90% Relative Size of Government Budget Revenue, Household Savings, Extra-budget Revenue, and Market Value of Listed Companies to GDP 80% 70% 60% 50% 40% 30% Gov Budget Revenue/GDP Household Savings/GDP Extra-budget Revenue/GDP Stocks Market Value/GDP 20% 10% 0%

12 Local governments became eager to increase their revenue since 1985, because their expenditure was linked to the revenue under the budget contract system. Local governments' share in budgetary income and expenditure % Expenditu re Income

13 The Role of Banking Govt Revenue/GDP decreased from 31% in 1978 to 23% in But household deposit/gdp increased from 6% to 13%, and extra-budget revenue increased from 10% to 15%. The government relaxed the exploitation of the people, but the people voluntarily deposited their increased income in banks, which the government could control. 13

14 Rise of household saving rate Household saving rate (saving/disposable income) rose from 1.3% in 1978 to around 30% in the 1990s. Why is the saving rate high? 1) High growth rate. 2) Promotion of savings. 3) One-child policy. 4) Underdevelopment of consumer credit. Development of financial intermediates. Until 1978, only the People s Bank of China existed. Since 1979, the four major state banks, which are the Agricultural Bank, Bank of China, Construction Bank, Industrial and Commercial Bank were established and absorbed nearly 70% of the national saving. Credit cooperatives and rural cooperative funds were established. 14

15 Government intervention in lending activities of banks The four major state banks had their policy imperatives. Until 1993, the government controlled bank lending by the allocation of lending quotas. The four major banks branches constituted hierarchies which were similar to the governmental hierarchy. The lending and personnel of local bank branches were under the control of the People s Bank branch in the same governmental hierarchy, which was controlled by the local government. 15

16 Local state corporatism Local governments controlled budgetary revenue, extrabudget revenue, and bank lending for their investment. Local governments invested in erecting plants for manufacturing television, refrigerators, washing machines, bicycles, and automobiles. In color television manufacturing, the central government s plan was to set up only three manufacturers. But because of local governments enthusiasm in setting up TV plants, 75 manufacturers were established. Refrigerators: the plan was 14 manufacturers, but 140 manufacturers appeared. Automobiles: 55 manufacturers in 1979, increased to 120 in 1991, producing 5900 units a year on average. 16

17 The shortcomings of local state corporatism 1 Disparity in local budget expenditure 800 The income level and budgetary expenditure of localities in 1992 Local budgetary expenditure per capita (Yuan) 重慶 Tibet r=0.69 Shanghai Local GDP per capita (Yuan) ( 出所 ) 中国統計年鑑 1993 年版を用いて筆者計算 17

18 The case of Japan 140 図 4-5 日本の地方の経済水準と財政支出 (2007 年度 ) 120 島根県 都道府県 市町村の 1 人あたり普通歳出 ( 万円 ) r= 都道府県 1 人あたり GDP( 万円 ) 18

19 2 Bad loan problems in the 1990s Economic austerity in 1989 led to sluggish sales, and chain debts among state owned enterprises Chain debts have led to the collapse of inter-firm trust. Firms were vulnerable to bad loan problems because their debt to asset ratio was high. From 1985, state owned enterprises were directed to borrow money from banks when they invest. 19

20 3. The latter half of the reform period: Construction of the market system In 1993, China decided to set the goal of economic reform as Socialist market economy, marking the start of the building of the institutions of market economy, which include the social welfare system, labor law, corporate law, etc. In 1994, a major reform in public finance and banking. 20

21 The budget contract system was abolished. Taxes were divided into central, local, and shared taxes. The center can now take 50% of budgetary income and redistribute a part of it to local governments. Local governments' share in budgetary income and expenditure % Expenditu re Income

22 The disparity of local expenditure was still not small in The income level and budgetary expenditure of localities in チベット 上海 Local budgetary income per capita (Yuan) 重慶 天津 北京 r= Local GDP per capita (Yuan) ( 出所 ) 中国統計年鑑 1993 年版を用いて筆者計算 22

23 Local expenditure was more equalized in The income level and budgetary expenditure of localities in r=

24 The relationship between local GDP per capital and local budgetary expenditure per person Log(Fis/N)=0.67Log(GDP/N)+0.37 (1992) Log(Fis/N)=0.43Log(GDP/N)+4.22 (2009) Log(Fis/N)=0.38Log(GDP/N)+5.38 (2016) The elasticity has been decreasing. 24

25 Banks: Reduced government intervention, enhanced the autonomy of banks The four major state owned banks were transformed from policy-oriented banks to commercial banks Three policy banks were established anew, which are the Development Bank, Agriculture Development Bank, and the Export-Import Bank Loan quotas were abolished, and banks were directed to govern the relationship between asset and liability. 25

26 Remedies to the bad loan problem Bad loans of banks amounted to 22.5% of GDP in 2000, which was much higher than Japan s peak year (15.6%, 2001) The definition of bad loans in China was narrower than international standards. Bad loans may double when they are defined by international standards. However, government debt is much lighter than in Japan. 4% of GDP in 2000, 16% in In the case of Japan, 97% in 2000, 232% in It will not be difficult for the government to buy all the bad loans and erase them. But that will exacerbate the problem of moral hazard. 26

27 Remedies to the bad loans Bad loans of four major banks were transferred to Financial Asset Management Companies (FAMC). The government injected capital into the banks. Bad loans bought by the FAMCs amounted to 1419 billion yuan. 144 billion of which was transferred into stocks. Only 24.2% of the loans was recovered. Bad loans were created by government orders to banks to lend money to their projects, so the responsibility to settle them naturally came back to the government. 27

28 Development of the stock market Chinese firms need to overcome their reliance on bank loans. They need to expand their capital. Hence the capital market will have a big role. In 1990, stock exchanges were established in Shanghai and Shenzhen. Number of listed stocks increased from 53 in 1992, 530 in 1996, 851 in 1998, 3052 in 2016 During the 1990s, most of the listed companies were parts of state-owned enterprises. Until around 2008, the stocks were divided into circulating stocks and non-circulating stocks 28

29 Changes in stock price index. Two very big bubbles. But the bubbles were not related with the actual economy. 図 4-7 上海株価指数 ポイント /1/4 1993/10/ /7/ /5/ /3/ /12/ /10/ /8/ /6/ /4/ /2/ /12/ /10/ /8/ /6/ /4/ /2/ /12/6 2007/10/8 2008/7/ /5/ /3/ /1/ /11/ /9/6 2013/7/ /5/ /3/6 2015/12/ /10/ /8/16 ( 出所 ) 新浪財経 より筆者作成 29

30 As of the end of 2016, 3052 listed companies in Shanghai and Shenzhen. Market value of stocks increased to 53% of GDP 90% Relative Size of Government Budget Revenue, Household Savings, Extra-budget Revenue, and Market Value of Listed Companies to GDP 80% 70% 60% 50% 40% 30% Gov Budget Revenue/GDP Household Savings/GDP Extra-budget Revenue/GDP Stocks Market Value/GDP 20% 10% 0%

31 4. De-industrialization of Fund Raising Until the 1980s, government budget money and bank lending were mostly invested in mining and manufacturing. Economic construction expenditure in the govt budget was 64% in 1978, 44% in 1990, and 27% in 2006 Social and educational expenditure accounted for 13% in 1978, 24% in 1990, and 27% in 2006, in which 11% was spent for social welfare. In Japan, social welfare expenditure accounts for 30% of budgetary expenditure. Expenditure for economic activities (agriculture, transportation, resources etc.) accounted for 21% of the budget in 2013, 20% in Social expenditures (social welfare, education, science, healthcare) accounted for 37% in 2013, 39% in 2016, of which social welfare and labor accounted for 10% in 2013, 11% in

32 Social insurance: a new route of money circulation Social insurance is a system in which people prepare for unavoidable risks, such as aging, sickness, unemployment, through mutual help between all the people in the nation. China s social insurance started in Firms pooled 3% of the total wage in in-house labor unions. Labor unions paid pension, medical expenditure, injury allowances to the employees. The surplus and deficit of individual labor unions were balanced through the national labor union. During the Cultural Revolution, labor unions stopped to operate. Social expenditures were all borne by the firms. 32

33 From intra-enterprise welfare to social welfare During the reform period, the difference of the burden of social expenditures became a big problem, because firms started to care about their profits. Firms that have many retirees may not be able to pay bonuses for active employees because they must feed the retirees. Therefore, the creation of a social insurance system became imperative. In 1997, the social pension system, and in 1998, the medical insurance system were established. Both systems adopted a combination of pay-as-you-go and accumulation systems. 33

34 Pension system Firms pay less than 20% of wages, and individual pay 8% of wage to the pension system. Individuals should pay more than 15 years to become eligible for receiving pension. Retirees receive 20% of local average wage as basic pension. Individuals receive one 120 th of the total amount of the individual fund every month. When the individual fund is exhausted, retirees receive pension from the social pool fund. 34

35 Medical insurance system Firms pay 8% and individuals pay 2% of the wage. A part of the money paid by firms enters the social fund and it will be used for chronic diseases and hospitalization. The fund in individual accounts are paid for drugs and hospital visits. In addition to the employee medical insurance system, the urban residents medical insurance system started in 2007, which can accommodate old people, non-employees, students, and disabled people. This system is run by individual payments and government subsidies. The employee system has 300 million members while resident system has 440 million members in It was announced in 2016 that the urban residents system and the rural medical insurance system would be integrated. 35

36 Increase in the size of social welfare funds The Relative size of various public insurance funds (% of GDP) 7.00% 6.00% 5.00% 4.00% Pension Unemployment 3.00% Urban Medicare 2.00% Injury 1.00% Delivery 0.00% 36

37 Financial Concerns Since 2009, local governments established lots of financing platforms to extract loans from banks and invested the money into building residential districts and infrastructure. Such creation of hidden debt went out of control. The central government organized a research team to clarify the amount of debt. It was estimated that at the end of 2013 the total amount was 18 trillion yuan, which was 30% of GDP. 37

38 The Chinese government s debt The central government debt outstanding is around 16% of GDP If the local governments debt is added, the total burden is around 50% of GDP. 年 財政赤字 ( 対 GDP 比 ) 中央政府債務残高 ( 対 GDP 比 ) % 16% % 19% % 17% % 17% % 16% % 15% % 14% % 15% % 15% % 16% % 16% 程度 38