As for the success or failure of the rescue, it also lies in leverage. If you want to succeed, you may have to maintain leverage. If the stock market continues to fall, it is actually reducing leverage. The weekend in early July was scary, so I wrote a column at midnight on Sunday, "Powerful rescue? Or doomsday liquidation? My London night shift colleague asked if it was possible to clarify whether we should rescue the market-this question is really complicated and my mind is very contradictory. In fact, whether to save the market is not a moral choice, but a realistic dilemma. If you don't save the financing plate, there will be a river of blood. If you save the market, it means blowing a big bubble. Generally speaking, it may be more correct to suffer in the end, but I expect the government to take action under pressure in the end.
Today, people in China don't need simple market knowledge enlightenment. In hindsight, although I predicted that the market would be saved under pressure, I didn't realize that the national team was actually defeated a few days before the entrance. Only when the stock market index becomes the first meaning of stability, after liquidation, malicious short selling, spontaneous suspension and resumption of trading by the people and even the Ministry of Public Security, the stock index began to stabilize. What makes people feel is that after a few days of rising, some retail investors have changed their outlook on life, and posts that make a profit of about 50% in short-term transactions have once again swept social media.
As the old saying goes, people will eventually embark on the road they are good at, even if there is no end in sight for the time being. As for China's economy, the same is true.
Within three weeks, the China stock market fell by more than 18 trillion, and the market value lost by more than ten Greeks. Some senior financial media people privately asked, is the stock market falling true wealth? It takes courage to ask this seemingly simple but complicated question. People everywhere categorically say yes or no, and it is inevitable that there will be rational conceit. On whether the stock market evaporates wealth, the key point lies in the definition of wealth. I think wealth itself is the valuation of assets. The figures at the rising moment are not all wealth on paper, and the losses at the falling moment are not all real money, that is, the falling losses correspond to the rising gains. Assets may remain the same, but losses are indeed wealth. People represent collective judgment through price, and the price is often determined by a very small number of marginal buyers at an extraordinary moment-just like a community, even if only one house is sold a year, the transaction price of this house largely determines the prices of other houses, even if the value of these houses has not changed, which is a change in wealth.
So it is too arbitrary to say that the rise and fall of the stock market is only a virtual economic change. Between the prosperity and annihilation of the stock market, the idea of transferring state leverage to residents not only failed, but also forced residents and even enterprises to think more about asset allocation outside RMB. If this aspect becomes a trend, it will cause unprecedented pressure on the RMB, which is the direction to be vigilant in the future. As for the fiery capital account and RMB internationalization, it can be expected that the pace will slow down after the stock market crash. At present, it is obviously a mirage if we still expect to open the way for RMB internationalization through stock market rise or even deleveraging in the bubble.
The core question now is, what is the impact of the stock market crash on the real economy? Since the loss of wealth really exists, the stock market crash will definitely affect the real economy, so how big is the impact. At present, many economists feel that the impact is not great, and there are mainly three kinds of estimation logic, which are aimed at financial institutions, consumption and residents' wealth. First of all, it has little impact on financial institutions. At present, the market roughly estimates that the financing inside and outside the market is about 4-5 trillion RMB. In contrast, the potential losses of financial institutions are limited. Some analysts estimate that the extreme loss is 400 billion RMB, but compared with the total assets of commercial banks 1, 3 1 trillion RMB, it can be described as "nine Niu Yi hairs". Secondly, the wealth effect of the stock market has an impact on consumption. Considering that China's consumption is mainly driven by income, there is no obvious impact from the consumption data, and the wealth effect of the stock market has little impact on the economy. Third, from the perspective of the number of stock investors, the proportion of investors participating in the stock market is limited, so it will not further affect major factors such as real estate, so the impact is not great. China Southwestern University of Finance and Economics "China Family Finance Survey Report" shows that in the first quarter of 20 15, only 6% of China families held stocks.
These three reasons represent the mainstream logic of the current market. Of course, there are also some inertial views such as superstitious singing down China and shorting China, which are of little value, so I won't analyze them here. Based on the above three reasons, the second one holds. The wealth effect of the stock market is really limited to consumption. Although economists who emphasize aggregate demand always value consumption, the chain from stock market to consumption is actually very long, just like the chain from consumption to economic growth is very long. Articles 1 and 3 need careful consideration.
Just from the data level, it is true that there are not many bank funds directly entering the market, and there seem to be not many shares held at the family level (let's not question the accuracy of this data), which also makes most people believe that the stock market crash will not spread to banks, real estate and other fields, so it has little impact on the real economy. The problem is that economy is a system, not a simple summation equation. In the real economy, families and banks are not separate individuals, and it is incalculable that family and bank funds indirectly enter the stock market. All units in the economy are closely linked. A's expenditure is B's income, and A's deposit is B's debt. Private investment is obviously driven by animal spirits, which is closely related to the wealth valuation of material assets. The wealth destroyed by the stock market crash not only dampened the impulse of private investment, reduced the value of credit collateral, but also lowered the expectation of future investment return, which affected the overall possible valuation of RMB assets. Moreover, coupled with the potential impact of rising risk aversion and decreased predictability in the financial system, it is too linear to simply input stock market data to examine the losses caused by the stock market crash.
When extreme situations break out, there will be loopholes in the usual analytical logic. Looking back at the end of 2007 before the American financial crisis, there were signs of crisis in the American real estate market at that time, but most economists still predicted that the United States would achieve 2.4% growth in 2008 in the survey of the Philadelphia Federal Reserve. In fact, the American economy was negative 3.3% that year. Until today, most people know that the US financial crisis originated from high leverage, and they are deeply impressed by all kinds of highly leveraged "toxic assets". However, in terms of non-government liabilities, the overall leverage ratio of China's economy is not lower than that of the United States.
Not only the stock market, but also the economy, and leverage is still the core issue. Ray, founder of Bridge water, the world's largest hedge fund? Daglio is experienced in deleveraging. Qiaoshui is good at macro hedging and survived the American financial crisis and subsequent recession. He believes that there are four ways to deleverage: wealth transfer, expenditure reduction, debt restructuring and debt monetization. De-leverage is generally a process in which four ways coexist, which often means a painful process, but there is also a "beautiful de-leverage". The balance of the four ways makes the economy return to a process close to potential productivity. As for "ugly deleveraging", it is not uncommon. Either excessive austerity leads to the Great Depression, and then wanton printing of money leads to great inflation, and both consequences may lead to social unrest.
Regardless of ugliness or beauty, long-term pain or short-term pain, there are actually three ways to reduce leverage. Either transfer leverage, then settle debts, and then reduce leverage through inflation. Data is important, but the economic logic behind it is even more important. With the economic downturn, more and more people pay attention to macro data, but most people don't know that macro data is often lagging behind. The just-announced GDP growth rate of China in the second quarter is 7.0% year-on-year, which is higher than the average market forecast of 6.8%. This looks like a sign of recovery, but it is far from the actual situation. Now the industrial added value is only 6.8%, which is not the same as the previous double-digit growth rate.
How was China's future road to deleveraging born? There may be two possibilities, either similar to Japan's slow deleveraging in the 1980 s, which ironed out the damage of leverage with long low growth, or similar to South Korea's financial crisis in the 1990 s, which was reborn in the future through one-time cleaning.
In either case, we may notice that the per capita GDP and population structure of Japan and South Korea were better than that of China at the time of the crisis. For a detailed analysis, please see my column "China, Next Stop" two years ago.
What has happened is bound to happen again. When the stock market crash broke out as scheduled, when the rescue of the market also happened as scheduled, and when the leverage has not been liquidated, the risks exposed are daunting enough. Investors should be more careful about those risks that are not fully exposed. Just like a crowded theater in the dark, what should I do once the alarm suddenly sounds? It is one thing to escape, and it is also important to find out the cause of the alarm, but it is irresponsible to shout don't panic without knowing the situation. As for those who complain about sounding the alarm, they are deceiving themselves. People should not complain that they are preparing for the worst before full information is exposed. At this moment, rashly asserting optimism may be misleading.