The macroeconomic situation in China in the spring of 28 is very similar to that in Thailand before the East Asian financial crisis. The East Asian financial crisis in 1997 first broke out in Thailand, and then spread rapidly in Asian countries.

In the years before 28, China's economic growth rate was too high, which led to significant inflation in 27. At the same time, foreign capital poured in in the form of direct investment and even debt, and the real estate price soared year after year, and the stock price soared to an alarming level in 26 and 27. By the spring of 28, housing prices in some cities had begun to decline, stock prices plummeted, and the government had to implement a tight monetary policy to curb inflation, which may lead to economic cooling, which is indeed a bit like the situation in Thailand before the Asian financial crisis broke out.

However, there are two fundamental differences between China's economic situation in early 28 and Thailand's before the Asian financial crisis: first, Thailand had an alarmingly high current account deficit before the Asian financial crisis, which accounted for 8% of GDP, while China has always had a considerable current account surplus; Secondly, before the outbreak of the crisis, Thailand actually fixed the exchange rate of Thai currency pegged to the US dollar, while China had made the exchange rate of RMB flexible against the US dollar before 28.

The difference between these two aspects makes it possible for China to avoid falling into the serious economic crisis like that in Thailand. Even if there are some crisis phenomena, it is entirely possible that the economic problems in China are not as sharp and dramatic as when Thailand was in crisis. The sharp financial crisis in Thailand in 1997 was marked by a dramatic event, that is, Thailand could not maintain the fixed exchange rate of Thai currency against the US dollar due to the rapid loss of foreign exchange reserves, and had to devalue the Thai baht against the US dollar on July 2, 1997. The macro-economic problems in China may not erupt so dramatically, but it is entirely possible that similar problems will emerge slowly and gradually.

The comparison between China's economic reality and the above-mentioned historical lessons shows that there is indeed a danger of reappearing the East Asian financial crisis in China at present and in the future, but it is entirely possible for us to take sufficient precautions to resolve this crisis, at least to reduce it to an insignificant macroeconomic impact.

At present, China is facing two threats in macro-economy. We should guard against these two threats at the same time, and prepare for them at the same time: on the one hand, we should cool the overheated economy, curb inflation and prevent excessive inflow of foreign capital, which is still the focus of current economic policy; On the other hand, the lessons of the East Asian financial crisis and economic fluctuations in various countries have warned us that we must guard against "sudden changes" in the macro-economy, prevent financial crises and economic depressions from occurring in the process of cooling the overheated economy, and prevent the resulting capital outflow from causing financial disasters.

On the one hand, China's economy is still overheated, and one of the inevitable consequences of this overheating is high inflation. China's economy has been growing at a rate of more than 1% for five years, and the growth rate in the last two years has even reached more than 11%. This continuous economic growth of more than 9% is unsustainable in China at present, which not only leads to high inflation in China, but also leads to higher and higher inflation rate, which will eventually lead to all kinds of chaos and "sudden change" and reduce the economic growth rate, which can only be achieved through sudden crisis and economic recession.

With the overheated economy in recent years, the price of urban housing in China has risen sharply for many years, and the stock market price has skyrocketed, resulting in an unquestionable bubble economy. Such an economic bubble will burst sooner or later. The plunge in the stock market price in recent months has fully exposed the harm of the growth of the stock market bubble in the previous year, which shows that the policy of "engaging in the bull market" is very wrong. Some policy makers used "developing the real estate industry" as an excuse to acquiesce in the rise of urban housing prices, and once condoned the stock market bubble and implemented the policy of "letting the stock market bull up" (although it was a "slow bull"). At present, the sharp fluctuation in the price of urban housing and the sharp drop in the stock market show that such a policy has caused great disasters to China's economy.

One of the main reasons for economic overheating, inflation and asset bubbles is the excess liquidity in China, and the balance between money and quasi-money is too high relative to the nominal total income. And so many currencies and quasi-currencies were first created by too many base currencies. Moreover, China's excessive foreign exchange reserves are increasing sharply, forcing the central bank to over-issue the base currency, which has already become the root cause of China's excessive base currency, and it has also forced the central bank to issue so-called "central bank bills" to reduce the amount of base currency issued in the case of excessive foreign exchange reserves. In the spring of 28, China's foreign exchange reserves reached 1.5 trillion US dollars. Excessive foreign exchange reserves have become a major threat to China's economy.

and such excessive foreign exchange reserves come from two aspects-on the one hand, the current account surplus accumulated for many years, on the other hand, the foreign capital flowing in for many years. In 27, China's foreign trade surplus reached $262.2 billion, and foreign direct investment totaled $74.7 billion. These two items alone will increase foreign exchange reserves by more than $3 billion.

since 1994, China has had a significant foreign trade surplus every year, which is a net outflow of funds, and there is no need to introduce foreign funds. However, due to the abnormal policy of attracting foreign investment that actually discriminates against domestic enterprises, too much foreign investment, especially foreign direct investment, has poured in, forming the abnormal phenomenon of large-scale two-way convection of funds between home and abroad. For example, in 26, China's foreign exchange reserves increased by about $247 billion, and the current account surplus in that year was almost equal to this. China's foreign direct investment, securities investment and other investment funds under capital and financial projects flowed out of nearly $16 billion. Under the current account surplus of that year, such capital outflow could have increased foreign exchange reserves by less than 9 billion US dollars, but the inflow of foreign direct investment, securities investment and other funds absorbed by China in that year was still as high as more than 16 billion US dollars, resulting in an increase of nearly 25 billion US dollars in that year. Another strange phenomenon in that year was that the capital outflow caused by the "import" of goods under the balance of payments was about 4 billion dollars less than the "import" of goods counted by the customs, which made the trade surplus of goods on the balance of payments about 4 billion dollars larger than that counted by the customs.

since the 199s, China has attracted at least 8 billion dollars of foreign capital through external liabilities, mainly attracting foreign direct investment. In fact, these inflows of foreign capital have not been used in China, but have turned into foreign exchange reserves and flowed abroad. Without these excessive inflows of foreign capital, China's foreign exchange reserves would remain at a reasonable level of $7 billion, which is not low at all. The inflow of foreign capital is one of the main reasons for China's excessive foreign exchange reserves, which has become the main factor causing China's overheating and bubble economy and threatening China's macroeconomic stability.

In this respect, China should curb economic overheating, reduce economic growth rate and curb inflation by reducing the total demand for money, which should be supplemented by preventing excessive foreign capital inflows and reducing foreign exchange reserves by reducing accumulated foreign capital. This is the focus of China's current economic policy.

But on the other hand, almost all historical experience of cooling overheated economy shows that after successfully fighting inflation to cool overheated economy, a country's economy will usually undergo a "sudden change". Not only will overheated economy become supercooled, resulting in low growth rate and high unemployment rate, but also high profits of enterprises will become low profits and high losses. On the surface, a financial system with good returns will become a lot of bad debts and defaults, and even various financial transactions will be paralyzed. If such a "sudden change" is left unchecked, transactions in the market economy will stop and the whole economy will fall into crisis and recession. In the current global economy, such a "sudden change" will also lead to the change of capital from internal flow to external flow, make a country's currency depreciate at the exchange rate, and even lead a country to fall into the crisis of external payment.

The experience and lessons of the East Asian financial crisis show that such sudden changes often occur in the process of overheated economic cooling and the collapse of stock and real estate prices. In this process, the outflow of funds directly led to the outbreak of the East Asian financial crisis in Thailand, and this outflow of funds and the devaluation of the domestic currency caused further financial disasters in East Asian countries.

At present, the primary problem in China is that excessive foreign exchange reserves have caused excessive currency issuance and inflationary pressure, so it seems not a bad thing for funds to flow from the inside to the outside. At the beginning of the overheated economic cooling, it was really not a bad thing for foreign funds from the United States and other countries to withdraw from China at that time, because it could reduce excessive foreign exchange reserves and thus alleviate the inflationary pressure in China.

However, the outflow of capital originated from the collapse of investment confidence in a country, which usually leads to excessive capital outflow, and the capital outflow itself may further deepen a country's financial disaster, which in turn leads to further capital outflow. The outflow of capital will cause further financial disaster through some transmission mechanisms: when the capital turns to outflow, the capital-debt chain of enterprises and financial circles breaks, which will disintegrate the financial system; The devaluation of the domestic currency caused by the outflow of funds reduces the financial wealth of the country and thus reduces the total expenditure of the country. All these will cause a large number of enterprises to go bankrupt and unemployment to increase sharply in countries where funds turn to outflow. In this way, even in today's China, the massive withdrawal of foreign capital and its associated capital outflow may also turn into financial collapse. We must pay close attention to this dynamic evolution to prevent the capital outflow from turning into a financial collapse that washed away China's financial system.

Based on the above two considerations, at present, on the one hand, we should resolutely implement a tight macroeconomic policy to cool the overheated economy and curb inflation; on the other hand, we should guard against the financial crisis and serious economic depression caused by the "sudden change" of the macroeconomic situation, and prevent the "sudden change" of the macroeconomic situation from being a sharp outflow of funds, bankruptcy of a large number of enterprises and a sharp increase in unemployment. After the anti-inflation economic policy has achieved initial results, the most important thing is to prevent financial crisis and economic recession.

The dilemma we are currently caught in in these two aspects stems from the violent cross-border flow of huge amounts of funds between China and foreign countries: when these funds flood in, China's foreign exchange reserves surge, causing huge inflationary pressure; When a large amount of funds are eager to flow out of China, China will face the kind of financial crisis and economic recession experienced by East Asian countries. The reason why China faces these two threats at the same time lies in letting foreign capital flow in and out and letting foreign-funded enterprises develop freely in China.

The fluctuation range of China's currency against the US dollar is extremely limited, and China has always had a huge foreign trade surplus, which makes the cross-border flow of funds have a very special impact on China's economy. However, the adverse consequences of transnational capital flow are common in all countries in the world today. Due to the convenient transportation and capital flow today, the large-scale cross-border free flow of funds has become the biggest problem for any country's government to stabilize the macroeconomic situation and prevent the economy from overheating and supercooling.

Even in a country like the United States, although the currency exchange rate fluctuates greatly and there is a huge foreign trade deficit for a long time, the cross-border flow of funds also magnifies the macroeconomic fluctuation: when the macro economy is overheated, the profit rate appears to be very high, and the large inflow of foreign capital makes the domestic currency exchange rate rise too high, which lowers the price of consumer goods and inhibits the rise of nominal wages by making imports cheap, which further aggravates the overheating of the economy; When the macro-economy is depressed, the profit rate is very low, and the large outflow of funds makes the exchange rate of domestic currency too low. By making imports expensive, the price of consumer goods is increased, and the pressure of nominal wages is increased, the profit of enterprises is lower, thus further aggravating the economic depression; The outflow of funds will also throw the domestic financial system into chaos, making it difficult to finance, thus aggravating the economic depression.

In this way, it is actually necessary for every country to stabilize its economy and restrain its excessive fluctuation between overheating and depression, especially for China at present. At present, the cross-border convection of domestic and foreign funds in China has reached a completely unnecessary level: China is a net outflow of funds, but at least 6 billion dollars of foreign direct investment flows in a year, which means that the cross-border convection of domestic and foreign funds in China is at least 6 billion dollars a year; In 26, the cross-border flow of domestic and foreign funds reached $16 billion. At present, the inflationary pressure caused by excessive foreign exchange reserves in China is mainly reflected in such cross-border convection of funds.

in order to eliminate the hidden dangers of the financial crisis and alleviate the macroeconomic instability, it is necessary to minimize such cross-border convective flows of funds. This means reducing the total scale of foreign capital inflow as much as possible, because when China has a huge current account surplus for a long time, any foreign capital inflow in the form of foreign debt and foreign direct investment is a cross-border convection of funds.

The violent fluctuation of the stock market price in China in recent ten years shows that the owners of funds in China are extremely sensitive to the changes in income caused by the expected price fluctuation, and have a strong tendency to flow funds. Under such circumstances, allowing RMB to be freely convertible under capital account is equivalent to allowing funds to flow freely between China and overseas without restrictions. Once domestic capital owners doubt the safety of China's financial assets, especially banks, they want to convert hundreds of billions of bank deposits into foreign currencies and export them abroad, or even sell their China stocks and real estate and then convert them into foreign currencies, China's foreign exchange reserves will never meet their requirements, which will lead to a severe capital outflow and a financial crisis. At that time, because RMB was freely convertible under capital account, China's monetary policy authorities lost any means to prevent financial collapse and stabilize the financial system.

Now we need to stop the cross-border flow of funds as much as possible, so as to prevent China's foreign exchange reserves from further increasing and reduce China's foreign exchange reserves appropriately. At present, the most practical way to achieve these goals is to strictly curb the borrowing of new foreign debts and foreign direct investment, and at the same time pay off the existing foreign debts as soon as possible and buy back the ownership of foreign-funded enterprises in China, with the overall purpose of reducing the foreign debts owed by China and the capital of foreign direct investment.

under the current situation in China, there are three ways to slow down the further increase or even reduce China's foreign exchange reserves. The first way is to allow RMB to be freely convertible under capital account, so that the public who invest abroad can buy the foreign exchange reserves; The second method is to purchase foreign assets with foreign exchange reserves through commercial "sovereign wealth funds" (such as foreign exchange investment funds), and turn the officially held foreign exchange reserves into foreign assets held by commercial funds; The third method is to repay foreign debts with foreign exchange reserves, buy back foreign-funded enterprises in China, and reduce the foreign debts owed by China and the capital of foreign direct investment. The first two methods cannot reduce the cross-border of funds.