The era of global economic water release

1. The cooperation model of the global division of labor determines the large-scale release of foreign countries in response to the impact of the epidemic, which is likely to cause domestic imported inflation. This is an external variable that we cannot ignore.

2. Under the background that the new open economic system is gradually taking shape, the domestic economic policy connectivity between China and its major trading partners will become stronger and stronger. Affected by the “trilemma”, it is difficult for China’s monetary policy to survive alone.

3. In a mature financial market, equity investment is undoubtedly one of the best safe-haven assets. At present, we need to lower our expectations of real estate investment returns, while continuing to pay attention to the opportunities and risks of the Chinese stock market.

The era of global economic water release

1. What is imported inflation?

In economics, constant and general price increases are defined as inflation. Since the birth of banknotes, inflation has followed suit. In human history, the serious impact of several large-scale inflations is thought-provoking. Therefore, governments of all countries, without exception, have regarded “maintaining the stability of price levels” as one of the main goals of macroeconomic policies.

In the research on the causes of inflation, imported inflation has gradually attracted the attention of economists. This is mainly because since the middle and late last century, Western developed countries began to transfer the lower value-added links in their manufacturing industries to developing countries in consideration of the comparative advantage of production factors, thus forming a production process covering the world. The so-called global value chain (GVC).

This mode of production has made the global economy increasingly close. In the book “The World Is Flat” by the American economist Thomas Friedman, there is a vivid description of this phenomenon, that is, in the global industrial chain, A multinational company may be headquartered in New York, with a factory on the coast of China, and a listing in Hong Kong, China. Because only in this way, can the cost of production factors required by the enterprise’s production links be optimized.

The increasingly close connection of the global real economy has also made the flow of financial capital in various countries closer. As a result, closely related global financial markets have been formed. Once a country experiences a financial crisis, it will inevitably bring an inevitable impact on its main trading partners and even the global market.

A typical fact is that during the US subprime mortgage crisis in 2008, the Chinese government issued a “four trillion” stimulus policy.

The so-called imported inflation, that is, the international transmission of inflation, refers to the increase in domestic prices caused by the input of external inflation in an open economic system.

Speaking of this, some people may say that since globalization has such a big risk, can’t we not engage in globalization? It is true that there are indeed different voices in the international academic community when it comes to dealing with the impact of globalization. However, this kind of doubt mainly lies in the damage to the interests of developing countries and the uneven distribution of interests within developed countries.

As the world’s largest developing country, it “opens the door for construction” and “utilizes foreign capital is not out of date.” The report of the 19th National Congress of the Communist Party of China clearly pointed out that it is necessary to build a new and open economic system of a higher level. It is the best answer to this question.

2. In the era of global water release, China’s monetary policy is difficult to survive alone

Trade links are the basis of international capital flows, which determine the inseparable financial links between trading partner countries.

At present, China has long been the world’s second largest economy, and has been the world’s largest manufacturing exporter for many years. The latest news from the General Administration of Customs shows that from the perspective of trade volume in 2020, my country’s top five trading partners are ASEAN, the European Union, the United States, Japan and South Korea in order.

With the formal signing of the Regional Comprehensive Economic Partnership Agreement (RCEP) and the completion of negotiations on the China-EU Comprehensive Investment Agreement (CAI), China will have closer ties with the outside world.

The World Bank’s “Global Value Chain Development Report (2017)” shows that under the global production division model, if measured by trade volume, the world has now formed three regional global production centers of China, Germany and the United States.

Therefore, in the post-epidemic era, the monetary policies of the United States, Japan, and Germany are particularly worthy of our attention.

As far as the United States is concerned, in order to effectively respond to the impact of the epidemic, under the promotion of the new US President Biden, the US House of Representatives voted on the 27th local time to pass the US$1.9 trillion economic stimulus plan. Although the plan still has different disputes between the two parties in the United States, mainstream public opinion shows that the implementation of a large-scale post-epidemic economic stimulus plan will be a high probability event.

Looking at Germany again, in order to support the companies and individuals affected during the epidemic, the German ruling coalition has passed an economic stimulus plan with a total amount of up to 130 billion euros.

As far as Japan is concerned, in order to effectively alleviate the economic impact of the epidemic, the Japanese government has launched a third round of economic stimulus plan with a planned total investment of up to 73.6 trillion yen.

In this round of the epidemic, the Chinese government responded quickly and forcefully. On the one hand, it controlled the epidemic, ensured the safety of the people, and handed over an answer that was satisfied with the people and attracted the attention of the world, which can be recorded in history. On the other hand, through a flexible, accurate, reasonable and moderate monetary policy, it has contributed positively to the resumption of work in the early stage of epidemic prevention and control.

However, in the international environment of global flooding, China’s monetary policy has become increasingly difficult to be alone. The central bank’s M2 data shows that since January 2020, the money supply has continued to rise.

Figure 1 China’s central bank money supply (January 2020-January 2021)

Data source: Wind

In the context of an increasingly open economic system, it will become increasingly obvious that the Chinese government’s monetary policy is restricted by the “trilemma”, which brings new and greater challenges to the monetary policy.

3. 2020 may have become the starting point for many asset prices in the next few years

There is no doubt that under the conditions of limited capital account opening, the Central Bank of China has sufficient policy reserves and tools to hedge the negative impact of the epidemic.

However, looking at a longer period of time, the economic stimulus plans launched by various countries in response to the impact of the epidemic will greatly affect the major prices of global assets and will to a large extent become a new round of asset pricing. The base year.

Especially, in the era of global water release, large amounts of foreign exchange reserves cannot avoid the risk of devaluation. For example, the State Administration of Foreign Exchange announced that it will orderly abolish the annual limit on foreign exchange purchases and payments. The signal released is not unobvious.

For us personally, how to start the battle to defend our wealth?

One is to lower expectations for real estate investment. The golden age of buying real estate with your eyes closed and waiting for appreciation is undoubtedly gone. The value of future real estate investment lies in the core areas of core cities, ranging from apartment types, community environment and properties, to education, medical care, transportation and commercial facilities, which will be the core factors that determine the value of real estate investment. “Do not speculate on housing and housing” and don’t try to challenge the central government’s determination to regulate and control real estate.

The second is to attach importance to the opportunities and risks of equity investment. After a year of high light, the risks in the stock and fund markets have become apparent. For ordinary investors, if they do not want to be a leek, it is particularly important to study the basic investment knowledge. Choose a good investment target, master the basic position building skills, save your strength, and be a friend of time. Perhaps the most sure way to fight against an uncertain future.

Finally, talk about an extravagant hope about the freedom of wealth. In those years when housing prices in Beijing were soaring, there was a popular saying among many people, “What were you thinking when the house price in Beijing was 2,000 yuan?” Perhaps some years later, someone might ask, “When the Chinese stock market was 3,000, you were What are you doing?”