Chinese-style "reinflation": How? What's the strategy?
Next year's economy and policies will focus on the issue of inflation. China's style of re-inflation mainly relies on supply and demand, real estate, and exports. However, due to employment pressure and uncertainty, the activation of demand is crucial. In addition to the expansion of fiscal and monetary aggregates, it is also important to create new demand, such as new infrastructure projects. Taking history as a guide, loose monetary policy, active fiscal policy, and supply-side policies are equally important. Currently, the performance of inflation is similar to that of 1998, with the high-tech sector leading the way and the consumer sector relatively lagging behind. More incremental policies need to be introduced next year.
"Inflation" will be one of the most important focal points for the economy and policies next year. This year's Economic Work Conference unusually mentioned the need for credit to match the "target of price level expectations." Instead of following the Western approach of "flooding the market," what does the Chinese-style "reinflation" rely on? Taking history as a guide, "reinflation" mainly relies on "supply + demand" and "real estate + exports." However, under the pressure of employment, it is difficult to implement bold "supply-side" reforms. The engines of real estate and exports still face uncertainties. The activation of demand is crucial. In addition to the expansion of fiscal and monetary aggregates, creating new demand will also be an important focus. For example, new infrastructure represented by integrated computing power networks is of great significance in driving demand in industries such as semiconductors and new energy. Historical processes and policy insights of "reinflation" in China: 1. Monetary policy should be accommodative, fiscal policy should be proactive, and macro policies should be coordinated. This year's Central Economic Work Conference also emphasized the need to "enhance the consistency of macro policy orientation," reflecting the coordinated policies of fiscal leverage and proactive monetary measures in this round of "reinflation." 2. Supply-side policies are equally important. Firstly, through micro-industrial policy adjustments, the supply-side structure can be optimized to find new sources of economic growth. Secondly, through state-owned enterprise reforms, industrial transformation and cost reduction can be achieved. 3. The goal of "reinflation" may be a long and arduous journey. We have already seen positive signals with the increase in fiscal deficits and the issuance of trillions of yuan in government bonds, but more incremental policies are still needed. In previous episodes of "reinflation," which sectors performed better? The current inflation performance is similar to that of 1998. It can be observed that in the latter half of the deflationary period, the high-tech sector (including media, electronics, and computer industries) led the way, while the consumer sector (including beauty care, textile, and apparel industries) lagged behind.