**Preface:** It appears that we are now engaged in a protracted economic battle with the traditional forces of the Western world.
Since 2018, we have first experienced trade frictions with the superpower, then escalated to a comprehensive economic contest, and subsequently engaged in a competition of financial and technological strength with almost the entire Western region.
After six years of numerous battles, we find ourselves in a state of economic stalemate with external forces, which implies that for the next decade, we will be in a long-term phase of strategic parity with external forces in terms of geopolitical and economic relations.
From 2018 to 2024, this period marks the initial stage of divergence and separation of the global interests led by China and the United States.
Moving forward, the developed regions led by Europe, America, and Japan will reconstruct the global interest pattern, which includes the international trade division and cooperation system, the manufacturing industry supply and demand value chain, and the high-tech industry application standards.
By firmly grasping the manufacturing of high-end semiconductor chips, developing super artificial general intelligence (AGI), controlling high-level open trade agreements such as the CPTPP and IPEF, and commercializing a series of cutting-edge high-end technologies like controlled nuclear fusion and room-temperature superconductivity, they will then use non-open-source methods to build a commercial ecosystem based on an open society, market economy rule of law, and property ownership to protect individual property rights.
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This is to benchmark our national strategic goals, including doubling the per capita GDP and entering the ranks of middle-income developed countries.
While we must achieve these goals, we must also thwart the actions of our opponents who wish to reconstruct a new global interest pattern that excludes us.
Now, we have no choice but to wage an economic protracted war.
First, we must understand that sovereign credit is reflected in the value of currency, which in turn is anchored in the prices of major asset classes.
Second, the trading and circulation of major asset classes occur in the capital market, which relies on the development of the market economy system.
Furthermore, a market economy can promote our country to become a financial powerhouse, and the financial powerhouse strategy can give rise to the internationalization of our sovereign currency.
Then, with a series of reforms for the internationalization of the sovereign currency, it can promote the circulation of domestic factors of production overseas, and a series of supporting measures include the removal of capital controls and the opening of market access.
At present, the only anchor for our country's sovereign credit monetary asset is the price of commercial housing in the real estate market.
To diversify the anchoring of sovereign credit assets, a series of reform measures need to be taken to establish its direction in the national strategy of industrialization, pursuing technological innovation, developing high-end manufacturing, industrial upgrading, and economic structural transformation.
The above practices are long-term economic system reforms centered on sovereign credit and major asset classes.
In the short term, the approach is to maintain housing finance, fiscal market rescue, foreign exchange capital stabilization, and consumption-driven national salvation.
In 2022, the first round of saving the housing market was the responsibility of commercial banks, until the second round of market rescue in 2023, in addition to commercial banks, many securities institutions also became one of the responsible entities due to the permission of private equity funds.
Subsequently, the implementation of recognizing housing rather than loans officially involved many housing loan subjects, expanding the responsible entities to a considerable portion of ordinary residents and corporate legal representatives.
This year, the top-level institutional design for the housing market has delivered the "three major projects" solution, and policy banks officially entered the game, becoming the main responsible party for the third round of saving the housing market.
The central bank has released liquidity to them through financial structural tools such as PSL and MLF.
It can be seen that since the third round of housing market downturn (the first two rounds of housing market downturn were in 2008 and 2014, respectively, and this round of downward trend started in 2019), the business entities within the financial system have been in a severe situation of saving the basic situation of the housing market.
However, there is a time issue in the transmission of responsible entities, starting with commercial banks to support the housing market, followed by securities institutions and loan groups, and then the central bank and policy banks, from bottom to top, until the entity with the most complete sovereign credit takes on the final responsible entity.
Why do these financial system operators spare no effort to ensure a smooth landing for the commercial housing market in the real estate industry?
Indeed, the past development models such as land finance and rent economy have created countless resources and wealth for almost all social entities, although looking at the present, this development model is no longer sustainable.
However, the debt-driven investment, monetary multiplier effect, and credit expansion generated by it need to continue, only because the underlying asset composition of various institutions in the financial system is closely related to the commercial housing market in the real estate industry, some are commercial bills of real estate developers, some are securities products that have been mortgaged to banks.
Once the long-term downward trend of the housing market is determined, it will cause a significant reduction in the assets of these financial institutions.
For practical reasons, these financial institutions will not sit idly by, and will even go to any lengths to ensure a smooth landing for the commercial housing market.
But the problem now is that the possibility of a smooth landing for the commercial housing market is rapidly diminishing.
The reasons are as follows: First, never underestimate the "gray rhino" of the economic system, once the best rescue time point is missed, it will be too late and useless.
Second, never step on the accelerator to the end on a direction that is full of side effects in the future, especially when you know that there is a high possibility of a precipice ahead, the result will inevitably be to fall off the cliff and be shattered.
Third, at present, this round of housing market downturn is far beyond any past period, including the 2008 financial crisis period, before the currencyization of shantytown renovation in 2014, and before the end of the high turnover model in 2019.
Whether it is a horizontal comparison of different periods of the housing market or a vertical comparison with other industries in terms of output value growth, we can draw such a conclusion based on objective facts, that is, the commercial housing market may be in a long-term downward trend and is not easy to stop.
If we follow the policy or strategic principle of diversifying the anchoring of sovereign credit assets, the growth potential of our country's real estate market will shift from commercial housing to affordable housing or rental housing.
Can the latter bear such a heavy historical mission?
My answer is: if affordable housing or rental housing itself cannot bear such a mission, it will eventually need to be securitized to supplement fiscal revenue sources.
However, in the future, a large amount of ineffective real estate development will lead to the inability to realize the securitization of the commercial to affordable housing model, and the same is true for ineffective infrastructure investment, which belongs to non-interest-bearing assets.
Therefore, no matter how hard we try to save the housing market, such as completely canceling restrictions on housing market transactions, reducing housing loan interest rates to near zero, and fully building "three major projects" and so on, the ultimate goal is not to support the housing market, but to liberalize its market transactions, and to build a long-term mechanism for this, rather than forcibly intervening through administrative forces.
This shows that in a state of institutional association, when dealing with continuous events beyond scale or concentrated rectification of chaos in large-scale industry fields, there is often weak organization or even disorganization in action.
Due to the national conditions, the normal operation of our country's economy cannot be separated from the administrative entity's scheduling of resources and decision-making attributes, especially after 2008, its way of making large-scale investments through fiscal policy has long become the pillar of the macroeconomic basic situation.
The past investment direction is large infrastructure construction projects, which is what we commonly call "big infrastructure", and urban construction investment projects all over the country, such as municipal engineering, green belts, urban parks, etc.
It has to be said that it is precisely because of the vigorous development of big infrastructure and urban investment projects that our country's economy can pull out of the quagmire of the global economic crisis, and then maintain nearly ten years of economic growth, and stabilize the macroeconomic basic situation.
Otherwise, our country's economic growth would have been in a state of stagnation long ago, and it would not be possible to successfully transition from an export-oriented economy to a development model dominated by low-end industrial manufacturing and administrative debt-driven investment, and strategies and measures such as technological innovation, industrial upgrading, and enterprise going abroad would be out of the question.
However, now due to the diminishing marginal utility, debt-driven investment causing the credit expansion of the whole society to reach the ceiling, various industries are deeply entangled with the financial system, that is, the so-called excessive financialization, and the frequent intervention of administrative forces in market transaction behavior, coupled with its excessive concentration of resources, leading to structural distribution imbalance and many other reasons, we urgently need to abandon the past model and fully switch to a new economic development model.
The specific approach is as follows: fiscal investment must change direction, from ineffective infrastructure and real estate development to long-term and sustainable investment in the real economy and capital market.
By fiscal means, the liquidity of state-owned asset reserves and treasury current investable funds or asset mortgage funds is activated, and then by reducing taxes and fees, starting direct tax reform, and replenishing social security funds, liquidity is injected into the private enterprise sector of the real economy to improve its operating conditions and balance sheets, thereby increasing its profitability, and thus increasing the initial income distribution of workers, that is, the income of labor remuneration, and its subsequent income expectations.
At the same time, a national fund is formed to provide long-term and sustainable liquidity to the four capital markets of stocks, bonds, exchange rates, and insurance, thereby replacing the credit anchor of the sovereign currency from a large amount of ineffective infrastructure and real estate, which is not only non-interest-bearing but also pays interest in reverse, with a large amount of relatively free-trading and liquidity-generating securities assets.
For example, large company stock options or bonds, and commercial bills with sovereign credit guarantees, and this measure can not only strengthen the property income of residents and the asset operation income of private enterprises, which is beneficial to the real economy, but also make a positive historical contribution to stabilizing the sovereign credit and even increasing its value.If the previous section was about the means for stabilizing sovereign credit in the long term, then this part is about the short term.
At present, it seems feasible to stabilize the exchange rate of the sovereign currency and the prices of its assets by consuming foreign exchange reserves in the short term.
Currently, our country's foreign exchange reserves are as high as 3 trillion US dollars, and we have maintained a trade surplus with major countries in the world for more than a decade, with our trade surplus consistently maintaining at tens of billions of US dollars.
In recent years, our country's foreign exchange reserves have shown a stable growth, especially in 2021, due to the impact of the epidemic prevention and control, at that time, the global demand for epidemic prevention and other needs all flowed into our country, and the output of our own capacity supported the global demand market.
Such dazzling achievements not only made our country's foreign exchange reserves reach a historical peak at that time, but also never appeared such a magnificent data in the modern history of mankind.
Even the output capacity of the United States during World War I or World War II was a small trick compared to our country at that time.
However, since the end of the epidemic prevention and control, the world has accelerated the deglobalization, and the past international trade division of labor and cooperation system and the manufacturing industry supply value chain are facing the situation of being reconstructed by external political forces.
Our country's foreign trade and manufacturing export share have once dropped to a historical low compared with the previous year.
The geographical map of the entire export has undergone a major change, and the dependence of Western developed countries or regions led by Europe, the United States and Japan on our capacity has been greatly alleviated, and they have turned to favor the manufacturing export industry in Southeast Asia, India, Mexico, Eastern Europe and other regions.
Although our enterprises have invested in factories there, it will essentially lead to a reduction in related employment positions in the local area, a significant decrease in income such as goods tariffs, and the risk of the manufacturing industry supply chain being transferred out.
In addition to causing a great blow to our manufacturing industry and foreign export trade industry, the Western traditional forces have even restricted our neck in high-end chip manufacturing, artificial intelligence, clean energy and other aspects, making us fall into a vicious circle of repeating the wheel and not easy to enter the international mainstream technical standard system.
Now, we can only adopt the method of continuously consuming foreign exchange reserves, first stabilize the exchange rate of the sovereign credit currency, and then stabilize the prices of various domestic assets priced in it, and then we can consider it from a long-term perspective, otherwise we will fall down before the critical moment.
Fortunately, the family background accumulated in the early years, that is, foreign exchange reserves and state-owned asset reserves are still substantial, especially the state reserves, which are said to be as much as hundreds of trillions of yuan.
Regardless of its structural nature, such a scale is enough to consume with the opponent for several years.
It is necessary to know that the current geopolitical confrontation of major countries has long fallen into a protracted war of continuously consuming each other's resources and energy, and we must strengthen this aspect.
However, we cannot ignore the key issues.
For example, in recent years, measures have been taken to de-dollarize the structure of foreign exchange reserves, which has led to a relatively passive situation in our global asset allocation.
For example, the increase in debt scale and credit expansion in recent years has led to a lot of foreign exchange reserves seemingly, but in fact, there are also a lot of foreign debts and sovereign debt bonds that need to be repaid, and the net foreign exchange reserves, that is, the actual available foreign reserves, are only tens of billions of yuan after the two are subtracted.
The above problems are superimposed together, and in the long run, it will inevitably lead to a significant increase in the price difference between the inside and outside, a decline in the prices of major assets, a decline in the purchasing power of the currency, and damage to sovereign credit.
If we rely on capital control to balance the exchange rate, it will cause the assets priced in the sovereign currency to depreciate, thus limiting the expansion of sovereign credit.
As everyone knows, for the current and the future period, our country needs to use the guarantee role of sovereign credit to expand credit in the whole society, so as to support the macroeconomic fundamentals, and cannot adopt the means of capital control or the exchange settlement system to contain the expansion of sovereign credit and the circulation of asset transactions.
In the long run, in addition to anchoring the assets of the sovereign credit currency to a variety of directions, it is also necessary to implement measures such as gradually canceling capital and exchange settlement control, enriching the foreign exchange asset reserves priced in mainstream currencies such as the US dollar or the euro, actively participating in the construction of the new type of economic and trade globalization system, and fully developing the modern market economic legal system to establish a national unified large market economic internal circulation system, so as to drive the external circulation and form an economic dual circulation system, supporting the expansion of sovereign credit and the stability of the prices of major assets and other comprehensive system reforms.
In the long run, whether the major assets of our country produce interest and whether they can cover the institutional costs, and the rise and fall of the total demand consumption power determine the rise and fall of the currency's purchasing power.
The above two points will be the objective criteria for judging or looking forward to the rise and fall of sovereign credit.
If we want the sovereign credit to continue to expand, so that the asset prices priced in it can rise, in addition to implementing the practices of the second and third parts, there are also the following two practices: First, follow Mr. Lu's view, not only transfer the vested interest property that has been transferred overseas through various means and then confiscate it, and then resolutely implement the administrative subject property disclosure system, and fundamentally eliminate the occurrence of corruption within the system; Second, for this group, various measures are taken to collect or confiscate their illegal income, and no longer help them to grow wildly, tighten the power from the supervision, implement the hierarchical responsibility system, and then confiscate all the confiscated money to become the national treasury funds, and then distribute it to the vast number of people with strong consumption marginal tendency in various forms.
Such practices, on the one hand, achieve the justice of robbing the rich to help the poor, and will not shake the fairness of the system; on the other hand, fundamentally alleviate the severity of resource allocation imbalance, and further narrow the gap between the rich and the poor; thirdly, effectively boost the real economy, and solve the economic structural problems such as insufficient domestic demand and overcapacity by expanding the consumption capacity of the people, which can be said to be "consumption saves the country".
However, these practices are difficult to implement in reality, and due to human nature and the social concepts of this land for thousands of years, it is more difficult to touch interests than to touch the soul.
The institutional economist Coase once said: reformers cannot reform their own interest base.
If we do not adopt comprehensive institutional reforms, can we continue to expand sovereign credit and maintain its exchange rate and asset price stability through administrative intervention under the existing system?
I think, this involves the issue of structural redistribution of social resources.
In terms of emphasis, one is the main body of resource allocation, and the other is the way resources are generated.
The issue of structural redistribution of resource allocation is always unbalanced, and it cannot be solved by administrative intervention means under the existing system without thorough reform.
It must be effectively solved through comprehensive institutional reforms and the full development of the modern market economic legal system.
In addition, the conversion efficiency between industrial capital and financial capital is not only an important indicator of total factor productivity, but also the core competitiveness of the modern market economic legal system.
Finally, I must emphasize again and again: developing the market economy is the only way for us to defeat the traditional forces of the West and stand at the top of the world, and it is also the most effective and beneficial action weapon for our country's society without any side effects.
All measures that help the development of the market economy, such as strengthening the capital market, reducing taxes and fees for private enterprises, expanding fiscal expenditure on social security and other welfare projects for residents, should be actively supported and implemented; all measures that hinder the full development of the market economy, such as always placing the public ownership economy higher than other non-public ownership economies, rather than equal, will lead to a series of structural problems such as uneven social resource allocation.
In summary, our country urgently needs to start a protracted war concerning the economy to cope with the covetous eyes of overseas traditional forces.
The long-term approach is to find multiple anchor directions for sovereign credit and its assets, in order to change the objective fact that sovereign credit is only anchored in a few directions such as commercial housing and state-owned enterprise bonds.
The short-term approach is to achieve financial housing, fiscal market rescue, foreign exchange stabilization, and consumption to save the country, which are four measures to support the macroeconomic fundamentals and avoid its continuous decline and bottoming out.