First of all, the "double cycle" not only emphasizes the "domestic big cycle" that pays attention to domestic demand, but also emphasizes the mutual promotion of "domestic cycle and international cycle". In most industries, foreign trade and transnational investment based on the principle of comparative advantage will not disappear in the future, but will continue to develop. Without them, not only the normal operation of consumption and investment may be affected, but also the cost of the whole economic activity will become very high. At the policy level, it is foreseeable that in the future, it is likely to become more free and open in expanding imports of goods and services and reducing market access restrictions for foreign investors.
Secondly, openness is an institutional variable, which has no absolute connection with the way of economic cycle. The so-called openness mainly refers to whether the government restricts cross-border economic activities. Opening up can support the "domestic cycle" and "international cycle". How the economy circulates, whether domestic or international, is not necessarily related to the level of openness, but depends more on a country's resource endowment, economic development stage and economic structure. For example, the economic growth of the United States is basically driven by consumption. At present, consumption accounts for 85-90% of GDP, while the dependence on foreign trade is only about 20% (lower than that of China). The United States belongs to a typical domestic economic cycle. However, no one will think that the American economy is not open or has a low degree of openness. The situation in the European Union is similar to that in the United States.
Third, there is no turning back in opening up. Returning to the closed-door policy will lead to difficulties for China's economy and the global economy. 20 13 China surpassed the United States for the first time to become the world's largest trading country, and has been deeply integrated into the international division of labor and trade. As far as China is concerned, it not only provides a large number of manufactured goods to the world, but also imports agricultural products, energy, industrial raw materials and some high-tech parts from other countries. In 20 19, China's total foreign trade reached 3 1.54 trillion yuan, accounting for 32% of China's GDP and1.8% of the world's total trade. It is estimated that in the next 15 years, China's imports to other countries and regions in the world will reach 40 trillion US dollars. Obviously, it is unthinkable for China and the world for China to return to the old road of closed doors, which will lead to serious difficulties for China's economy and the global economy, and growth stagnation and inflation will be inevitable.
The second question is, how will financial openness boost the double cycle?
Financial opening can be divided into two basic aspects, namely, the opening of financial services and the opening of capital accounts (that is, the liberalization of cross-border capital flows). The former refers to allowing foreign financial institutions to set up commercial presence independently or jointly in China, and allowing them to provide financial services by issuing licenses, which belongs to the scope of service trade liberalization; The latter refers to the lifting of restrictions on cross-border capital flows, which belongs to the category of financial liberalization. In the first 15 years after China's entry into WTO, the progress of China's financial opening was generally slow. Take the proportion of the assets of foreign banks in the total assets of the whole banking market in China as an example. At the beginning of 200 1 China's accession to the WTO, it was about 2%, but by 20 16, it was not increased, but actually decreased.
However, in the past two years, the process of financial opening has obviously accelerated. On the one hand, since the central government proposed to speed up the financial opening-up in April 2008, the opening-up process in many fields, such as banking, securities, insurance, futures, rating and payment, has been significantly accelerated. The most important thing is to cancel the restrictions on the ratio of foreign shares of China financial institutions such as securities companies and futures companies, implement national treatment in supervision, and lower the minimum capital requirements for the establishment of some institutions. On the other hand, a series of opening-up measures, such as Shenzhen-Hong Kong Stock Connect, Shanghai-Hong Kong Stock Connect, Bond Connect, canceling QFII quota limit and cooperating with world-renowned stock and bond index companies, have also significantly improved the degree of liberalization of cross-border capital flows.
How does financial opening boost the double cycle? Corresponding to the above two meanings of financial openness, it can be explained from two aspects.
Opening of financial services industry
The double cycle, especially the domestic economic cycle, requires the smooth operation of production, circulation, distribution and consumption, as well as the smooth connection between all links. Corporate loans, capital market financing, supply chain finance, consumer finance, fund management, insurance, trust, futures and other financial services can provide very important support for the operation and connection of the above links, and play a role as a bridge and lubricant. Although the current financial service system in China has played a very important role, it is reasonable to believe that with the further opening of the whole financial industry, this system will be able to provide more, better and lower-cost services.
First of all, opening wider to the outside world will increase the number of financial institutions in China and improve the efficiency of financial services. Take the bank as an example. According to the statistics of China Banking Regulatory Commission, by the end of 20 18, the number of banking institutions in China was 4,588, with 3.29 people per million people. In contrast, as of the third quarter of 20 15, there were 6,270 licensed banks in the United States, with a population per million 19.33. Compared with developed countries, the number of banks in China is obviously quite insufficient. The entry of foreign banks will promote the development and expansion of the formal banking system and enhance its contribution to the real economy. Our recent research shows that the entry of foreign banks will not only significantly ease the financing constraints of enterprises and improve the financing structure of listed companies, but also help alleviate the financing inefficiency caused by ownership discrimination of enterprises.
Secondly, with the increase of the number of financial institutions, the concentration of China's financial system is expected to decrease. At present, the concentration of China's banking system is relatively high. According to the data released by the China Banking Regulatory Commission, in 20 18, the loans and deposits of the four major banks of industry, agriculture, China and China Construction accounted for 46% and 48% of all domestic loans and deposits respectively, which was about 10 percentage point higher than the corresponding data of the four major banks in the United States. With the increase of foreign finance, the concentration of China's financial system will further decline. A more competitive system will encourage financial institutions to improve their management level, enhance their risk control ability, reduce costs and serve enterprises and other customers with higher efficiency.
Thirdly, the entry of foreign financial institutions will help to promote product innovation in China's financial industry. Although most of the world's largest 10 commercial banks are from China (including the four major banks of industry, agriculture, China and China Construction and other large joint-stock banks), most domestic banks need more innovation and development in wealth management, derivative products and international business. At present, 400-500 million people in China have entered the ranks of middle-income groups, and the demand for maintaining and increasing wealth is getting stronger and stronger, which directly affects their spending power through the wealth effect. By expanding financial openness, not only foreign financial institutions can directly provide financial services, but also domestic financial institutions can promote joint innovation and development in this regard.
Liberalization of cross-border capital flows
On the premise of controlling financial risks, expanding the liberalization of cross-border capital flows is essential for China to maintain a high economic growth rate in the coming period and is indispensable for forming a new pattern of "double cycle" development.
As we all know, the demographic structure of China is undergoing important changes. Aging and declining savings level are inevitable trends. The supply of labor and capital may be more and more restricted, and the economic growth potential of China will gradually show a downward trend. At the same time, under the "double cycle" development pattern of paying more attention to domestic demand, the growth rate of consumption and investment will continue to be relatively strong, even stronger than before. Efforts to open wider to the outside world will lead to more imports of goods and services. In response to the impact of the global financial crisis in 2008 and the COVID-19 epidemic, expansionary monetary and fiscal policies have significantly increased the overall debt level (in a broad sense, it may be close to 300%), and servicing these debts will undoubtedly consume future government financial resources and private savings resources. Based on the above factors, it can be predicted that China's current account surplus will gradually decrease in the future, and a moderate deficit may become the normal feature, which also means that China needs to maintain a certain degree of net capital inflow in the future. It can be considered that moderate current deficit and net capital inflow will become the important features under the new pattern of "double circulation" development, and also the inevitable choice for China to achieve a high level of economic balance under the opening conditions in the future.
In order to adapt to this choice, China needs to continue to liberalize its capital account, that is, to allow more foreign investment, including direct investment, portfolio investment and other forms of foreign investment, to enter China. Accordingly, we should gradually relax the control over all kinds of capital outflows, because without free outflows, there will be no enthusiastic inflows.
It is worth noting that this situation is happening. Since the beginning of this year, although China's economy has shrunk severely due to the epidemic, due to the better control of the epidemic, the economic recovery is faster than that of Europe and the United States, and China's interest rate (bond yield) is more than 200 basis points higher than that of Europe and the United States, and a large number of international portfolio investments have flowed into China. According to the data of the State Administration of Foreign Exchange, in the first half of this year, the number of domestic bonds and stocks held by foreign investors increased by US$ 72.9 billion, a year-on-year increase of over 10%. In addition, in terms of foreign direct investment inflows, some coastal cities also experienced a certain growth in the first half of the year, which was better than expected. These net capital inflows have played a positive role in reducing the financing costs of enterprises and governments in China to some extent.
Of course, there is one issue that deserves our great attention. This is how to ensure that the net capital inflow can be sustained, stable and orderly after the financial opening and expansion, rather than frequent inflows and outflows in a short period of time? After the capital account is basically liberalized, it will be very necessary to use macro-prudential policies for countercyclical adjustment and "free reserve" system to limit the flow of speculative short-term capital when necessary. At the same time, we should also attach great importance to the intensification of horizontal competition after the opening of the financial services industry to avoid excessive competition and excessive risks, which will lead to financial turmoil and even financial crisis. (Professor Zhang Liqing, School of Finance, Central University of Finance and Economics, Chief Economist, PricewaterhouseCoopers China)