Haitong Securities Jiang Chao: turn on the water and no future tax cuts only hope

Long-term important than short-term!  Macroeconomic researcher, our task is to study changes in the economy, thus providing investment advice to you, say white is the capital market, "fortune teller"。I actually considered myself the last two years and are not allowed, such as 15 years have not been able to see the Shanghai Composite Index 5000 points, did not see it last year, a new cycle, this year did not work out will fall below 3,000 points, the short-term for everyone investment and not much help。  And the domestic capital market is now increasingly competitive, short-term judgment of right and wrong will be directly reflected in the various assessment indicators。In the past year, various research competitions both rankings, or send the customer a commission point, we have felt a significant decrease。  Is the yield to short-term pressures, still adhere to the correct direction of long-term?  Looking back, we wrote, "residents plus leverage, dangerous game in the past two years! – see a surge in mortgage real estate bubble "," prosperity apex ", this year wrote" currency over the era is over, "" financial and real estate good old days come to an end – on deposit and open market ", although written when are people hate it, but at least so far we do not need to tear report。  To predict the short-term market, everyone probably only 50% of probability, I do not feel that they have this ability, so we chose unswervingly adhere to the long-term direction。  Whether it be investment research, and economic development, in fact, it is the long-term is more important than short-term!  Do not rely on currency future, to avoid further harm than good!  Last week's stock market stumble endlessly finally ushered in a long absence, rebound, at the same time, the minutes of a recent meeting of the central bank's Monetary Policy Committee is widely circulated, where official statements regarding liquidity from "maintain appropriate and stable" change is "to maintain adequate liquidity and reasonable", coupled with the implementation of the central bank in June, just a general orientation RRR, many people believe that the central bank monetary policy has shifted to the actual relaxed, and even start looking forward to the future of loose monetary policy more aggressively, as if desperate, he also grabbed a straw。  But we should not forget that monetary easing this kind of thing has happened more than once, in fact, if interest rates or RRR is defined as the monetary easing, then, after 08 years we've been three times to relax monetary policy, and if you count this is the first time the words four。The previous three were relaxed occurred in September 2008, 11 December and 15 February, and every time comedy opening, began to turn on the water when we are very happy, economic recovery rising stock market, but in the end no exceptions are based on a tragedy, rising debt, the economic downturn, only the real estate bubble grows bigger and bigger, while also increasing pressure on exchange rates。  So do not because the central bank to ease monetary policy to ecstatic, because history has proven that money just turn on the water anesthetic, we believe that in the long run not only not have any effect, but will addictive medication, missed the best time for medical treatment。  Moreover, since the drainage has been proved to be ineffective, we do not believe the new government will re-take the old road drainage development, does not rule out continue to directional loose, but will not flood irrigation。  We believe that the deleveraging of the general direction has not changed, the future of China's economic development instead of continuing to rely on high-quality debt to develop, but rely on innovation to develop。  Why money over?Shadow banking out of control!  Over the past decade, we have serious money super-fat, reflected on broad money M2 quadrupled from 40 trillion to 170 trillion, as well as the shadow banking bank financing represents 500 billion doubled from 60 times to 30 trillion China's real money after summing fivefold within a decade, the average annual growth rate of close to 20%。  In fact, all of the money created by the banking system, and as proof Super-currency, Chinese commercial banks total assets over the past decade from 50 trillion to 250 trillion is full quintupled。  The creation of money related to the central bank, commercial banks and the three major sectors of the real economy, the central bank put the money to the commercial banks, this step is the creation of base money, and commercial banks then lend money to the real sector, and this may be part of the money recycling, thus creating a more broad money。  China's central bank base money provided from the point of view, in the last decade from 10 trillion to 30 trillion, although tripled, but far less than 5 times the assets of the commercial banks to expand。Especially after 2012, the Chinese currency basis, from 25 trillion to 30 trillion now, more than six years increased by 20%, an average annual growth rate of less than 3%, indicating that the central bank can not blame the money over。  In fact, the broad money mainly made commercial banks more。After 12 years, the total assets of commercial banks in China nearly doubled from 130 trillion to 250 trillion, an average annual growth rate of up to 18%, while the growth rate far exceeds the commercial banks' capital adequacy ratio of around 10%, indicating very a large part of the money creation to escape the capital constraints, not in the bank table, so the development of the shadow banking is the core reason for China's runaway money over the。  From 14 years to 16 years, two years, trust assets increased by about 50% from 14 trillion to 20.2 trillion bank financing nearly double in size from 15 trillion to 29 trillion, securities firms and information management in size from 8 trillion more than doubled to 17.6 trillion, a subsidiary of the fund from 5.9 trillion turned nearly 3 times to 16.9000000000000。By 17 years, in other types of information management began to shrink the size of the background of trust assets still maintain 30% growth, year 6 trillion of new assets under management。  All of these bank financing, trust, securities and information management, fund subsidiaries, in fact, engaged in the business is a large part of the channel business by helping commercial banks to undertake non-standard off-balance sheet assets, making the development of the shadow banking out of control, China's real serious money super。  Turn off shadow banking, manage and money over。  Therefore, to take control of China's currency over, in fact, the key lies in the shadow banking, and information management and the new rules explicitly proposed to "eliminate nested, suppression channel business, net realizable value management, to break the rigid payment", in fact, is equivalent to shadow banking gradually turned off。  As early as 17 February, the central bank and other institutions on the drafting of the "Guiding Opinions on Regulating financial institution asset management business" in the review, the draft released in November, and by April 18 the official release。  During this period, almost all of the shadow banking-related business development and have come to a standstill, 17 January quarter, the Fund began to shrink the size of subsidiary 17 company-owned securities in the second quarter of the size of the pipe began to decline, to 17 in the fourth quarter of the size of bank financing began to decline, and to the trust under management 18 January quarter began to decline。  From money growth, the current broad money M2 growth rate has dropped to around 8% of the lowest point in history, but also taking into account the shrinking shadow banking, real money growth or less than 7%。As proof that the total assets of commercial banks in China for 18 years in May was 253 trillion, an increase of only 3 trillion from the end of last year, year on year growth rate of only 6.8%, while the annualized growth rate this year only 3.4%。  As a contrast, M2 average growth rate of more than 15% over the past ten years, the average growth rate of commercial bank assets of more than 17%, only half of the last decade, which means that the current monetary growth can not。  Rising default risk, there is no easy way。  Down sharply monetary growth would impact on two aspects, one is the economic downturn, and second debt default。Delays due to conduction from the money to the economy, the current economic downward pressure is not yet clear; but the impact of monetary tightening on the immediate liquidity, debt default risk increased significantly。  Since 18 years, 25 have occurred since the event of default of corporate bonds, involving an amount of 25.3 billion。And trust in the market, there are more than a dozen cases occur trust products delay payment or not payment, in addition to the stock market which, due to the collapse of stock-secured flash is too large proportion caused by too frequent。  At present, China's average lending rate of around 6%, the average cost of financing more than 7%, but our estimates of real money growth has been less than 7%, which means that many companies are not starting this year, not only debt gold, maybe even no money for further interest。  The second half is debt peak maturity, when the trust expires, the size of each enterprise debt principal and interest are more than 3 trillion, but the current monthly circulation of trust loans are negative, corporate bonds almost unable to go, the bank loans are subject to various constraints such as no significant increase in capital, which means that the risk of the stock of debt maturity defaults will continue to rise in the future。For those in the past too aggressive small and medium financial institutions, financing platform companies or entities, liquidity stress test probably decide life or death。  Since the risk of default to let everyone so painful, so there any simple way to resolve this problem?We exchange he discovered that there are so few ways: First, the new information management regulations canceled or delayed, so that the shadow banking can be re-prolonging。But this is clearly impossible, we managed to release a new information management regulations to oversee shadow banks, if there is no new information management regulations, the problem will only worsen the bank's shadow。  Second, comprehensive flood irrigation, improve the market risk appetite。This is obviously not realistic, the current problems are the result of excessive drainage in the past, if you zoom in the water again, we currently suffering will be meaningless。  Third, the government came forward to buy junk assets, similar to the year the stock market stabilization fund was established, we then set up a bond market stabilization fund, for the government to buy junk bonds。In fact, this is not realistic, because the shadow banking assets involved up to tens of trillions, not the year of the establishment of the stock market stabilization fund 1-2000000000000 funds can be solved。  On the whole, the current can see is actually a relatively easy way to turn on the water take the old road, which is only postpone the problem once again, in no way real way out。So Conversely, this time really no easy way to go。Liu He, deputy prime minister had declared that: "the cost of doing business is to have to borrow money to repay the investment is to take risks, to do bad things is a price to pay," indicating a firm determination to break the regulators just against the。  Just break against the government, clearing only hope。  If we are determined to deleveraging, then what constitutes deleveraging success, just against the effective break?  In our view, so far obviously can not be considered to break the rigidity of payment, because the current defaults are mainly private enterprises, and private enterprises could have been market-oriented operation, default and bankruptcy is not particularly great significance。  Since the root of money over that shadow banking, shadow banking and the main body involved there are so few categories: First, funders part of small and medium banks, the second is the demand side of the real estate funds, financing platform and private enterprises, and small and medium banks , and some real estate financing platform is actually associated with government credit, only just break the government against the belief among those in the field, this is the real sign of deleveraging effective。  But the question the market is that the deleveraging seems that damaged private enterprises, and the real "bad guys" also seems to live well, this is indeed a more realistic problem。Because the bad guys are very powerful, it can withstand such high interest rates of more than 10% of the overall real estate and financing platform because there are behind the government's implicit credit support, while private enterprises can not afford the high interest rates, so deleveraging may indeed be damaged first It is part of private enterprise。  But the question is, if we do not leverage the re-start turn on the water, private companies may not necessarily get them money, because funds are profit-driven, high probability is redirected to the real estate and financing platform。After last week's drop quasi We had a conference call, the focus of questions is RRR funds will not flow to real estate?  This is like a cancer, tumor cells are the most powerful, because it would take away almost all the nutrients。In our view, the real estate bubble in fact, has developed into a malignant tumor of the Chinese economy, from May the latest economic data can be seen, only thriving real estate investment and sales, while the other is the overall decline in domestic demand, high prices, sharply increase the cost of doing business, the debt burden residents, forming a comprehensive extrusion of investment and consumption。  Therefore, if the real estate bubble compared to cancer, then the Chinese economy in order to completely recover, then obviously we can not continue to tumor cells in the blood, which this process will indeed pay for part of a healthy cells implicated, but it is our recovery health must pay the price。  And, for our time is already running out。If we are determined to break against just this year, in fact, support the US economic recovery as well as external, internal prices, commodity prices are still high, do not worry about systemic risk。But if you drag the next two years, even if the US economy go down, domestic prices and commodity prices also fell, by that time will be a significant increase in systemic risk, might just break the dollar once again missed the opportunity。  Reduce improper subsidies, increasing tax cuts。  If the current high debt of the Chinese economy seen as a patient, then the real estate bubble is cancer, like chemotherapy and monetary contraction, you can relieve symptoms but may not be able to cure, because chemotherapy is to kill tumor cells and healthy cells together, the result may be a whole well, people do not。  So, we also need the right medicine, the implementation of precision strike against tumor cells。The current real estate bubble intensified, especially in real estate a hot line three hundred forty-five。The current round of three hundred forty-five real estate hot line and actually shed change related monetization。In the three hundred forty-five original line of urban real estate inventory remains high, so the implementation of the monetization shed change。But since the country's real estate stocks declined sharply, then shed change monetization ratio can actually slow down。Because the shed change monetization of funds from the central bank PSL loans, the equivalent of the central bank's base money directly to support three hundred forty-five line real estate, while the central bank's money supply should be open to all sectors, and should not be long-term flows to a certain industry。  Another example is the tax system can also advance with the times, such as property tax with Korea East Asian countries, not only over a certain part of the value of the stock of housing, but also to the property transfer heavily taxed, with more than two sets of family housing in the purchase of real estate two in less than sell, property transfer tax to pay more than 50%, to effectively combat real estate speculation, suppressed prices rose。  At the same time, in order to protect the normal operation of the enterprise does not hurt, you can increase the intensity of tax cuts, to the real economy transfusion。  Currently, the new personal income tax law for public comment, which greatly increased the tax threshold, tax bracket from the expansion, we can estimate more than 200 billion tax cut, more than 20% of the total personal income tax, residents can effectively reduce the tax burden, increase consumer potential。  On the other hand, need more tax cuts is actually China's corporate sector。  This year, M1 growth fell sharply, the corporate sector is represented by illiquid。The various debt default frequent, in fact, mean that liquidity in the corporate sector under tremendous pressure。  The revenue from the tax point of view, the first 5 months of this year, tax revenues 7.68 trillion, an increase of 15.8%, which grew 19% VAT, far exceeding the growth rate of nominal growth rate over the same period, indicating that the current tax burden on the corporate sector in fact there is a clear rise。  The new changes in the past five months deposit, although the bank added a total of 6 trillion of deposits, but the new corporate deposits is -7500 million, while the new government deposits 2.2 trillion。  The decline in corporate deposits not only directly affect the company's liquidity and credit behavior of the banks also had a huge impact。Bank credit in the current table is always slow growth, in addition to capital constraints, many banks have feedback because of insufficient funds, total deposits on the surface because of the new year, or 6 trillion, of which there are 4 trillion government deposits and financial institutions interbank deposits, deposits with the central bank and financial accounts, interbank deposits of financial institutions instability, these are not a reliable source of deposits, the bank can not grant long-term loans by type of deposit。  So, if we can further increase the tax cuts for businesses, such as the further substantial reduction in the VAT rate, or a substantial reduction in corporate tax rates, not only directly on the corporate sector transfusion, but also the financial savings in time into general corporate deposits, increase the stability of bank deposits, the ability of banks to increase lending。  In conclusion, if the current high debt of the Chinese economy is seen as a patient, then the focus is the real estate bubble, the cause is out of control due to the shadow banking money over。If in the future continue to turn on the water, in fact, can only alleviate the pain。If you want to complete recovery, we must maintain concentration, and a firm currency neutral, inhibition of shadow banking, breaking the rigid payment; at the same time, also need to reduce the proportion of monetization shed change, reducing improper subsidies to the real estate industry, as well as timely reform real estate tax, to curb real estate bubble。In addition, should further increase the tax cuts, especially the need to increase the intensity of corporate tax cuts, the corporate sector to improve liquidity。If we can catch the tail of the global economic recovery and timely clearing, from the development of currency mainly by turning on innovation and development, our economy and capital markets will have a long-term hope。