Deep analysis of the policy trend that should be followed after the "two sessions"

After the two sessions, pay attention to these policy trends

Table 1 2016 Government Work Objectives Source: Guotai Junan Securities Research, 2016 Government Work Report

2. Raise the deficit rate and M2 target, the active fiscal policy will be more active, and the stable monetary policy will be slightly looser.

The government work report emphasizes that “positive fiscal policy should be strengthened” and “stable monetary policy should be flexible and appropriate”. The fiscal deficit was 2.18 trillion yuan, an increase of 560 billion yuan over 2015, and the deficit rate increased to 3%. In 2016, it plans to complete more than 800 billion yuan in railway investment, 1.65 trillion yuan in highway investment, and start 20 major water conservancy projects. The central budget investment has increased to 500 billion yuan. The M2 growth rate target is raised by 1 percentage point from 2015, corresponding to Zhou Xiaochuan's monetary policy “stable and slightly loose”.
The currency has not gone to the entity, and maintaining the core destination is to maintain the debt cycle and push the housing bubble judgment. In 2016, we need to be alert to the housing market to repeat the 2015 stock market and the collapse of the Japanese bubble in 1991. In the ten times of the crisis, the real estate bubble will reduce the competitiveness of a country's real economy, and the collapse of the real estate bubble will trigger an economic and financial crisis. The current structural and institutional problems are difficult to solve through the total demand management policy, and supply-side structural reforms are yet to be resolved. With the reforms and the hard work, the Chinese economy will usher in the dawn.

3. Supply side reform breaks the ice and breaks the ground: breaking the old
Focus on the structural reform of the supply side, both as a subtraction and as an addition. The government work report pointed out that "the current development of the total amount of problems and structural problems coexist, structural problems are more prominent, we must use reforms to promote structural adjustment. While moderately expanding aggregate demand, we must focus on supply-side structural reforms, both Do subtraction and add, reduce ineffective and low-end supply, expand effective and medium-to-high-end supply, increase the supply of public goods and public services, coordinate supply and demand to promote economic development, increase total factor productivity, and continuously emancipate and develop social productivity. ”
Do the subtraction: focus on resolving excess capacity and reducing costs and increasing efficiency. In 2016, we will focus on the production of difficult industries such as steel and coal, and insist on the market, corporate main body, local organization, and central support. We will use economic, legal, technological, environmental, quality, and safety measures to strictly control new capacity. Eliminate outdated production capacity and orderly withdraw excess capacity. Take measures such as mergers and acquisitions, debt restructuring or bankruptcy liquidation, and actively and steadily handle "zombie enterprises." We will improve financial, financial and other support policies. The central government will allocate 100 billion yuan of special award funds, which will be used for the distribution of employees. Take comprehensive measures to reduce the costs of corporate transactions, logistics, finance, energy use, etc., and resolutely curb the phenomenon of arbitrary charges.
Do addition: strive to improve the supply of products and services. In 2016, we will focus on three aspects. The first is to improve the quality of consumer goods. Accelerate the integration of quality and safety standards with international standards, and establish a punitive damages system for commodity quality. Encourage enterprises to carry out personalized customization and flexible production, cultivate the spirit of craftsmanship of excellence, increase variety, improve quality and create brand.
The second is to promote the upgrading of manufacturing. In-depth promotion of "Made in China + Internet", the construction of a number of state-level manufacturing innovation platforms, the implementation of a number of intelligent manufacturing demonstration projects, the start of industrial strong base, green manufacturing, high-end equipment and other major projects. Implement the accelerated depreciation policy and organize the implementation of major technological transformation and upgrading projects.
The third is to accelerate the development of modern service industry. We will launch a new round of comprehensive reform of the national service industry, implement high-tech service industry innovation projects, and vigorously develop the digital creative industry. We will relax market access and improve the level of specialization in the production service industry and the refined service industry. Construction of a number of optical network cities, and the promotion of 50,000 administrative villages to access optical fiber, so that more urban and rural residents enjoy digital life.

4. The reform of state-owned enterprises may exceed expectations, and the direction is more mergers and acquisitions.
In 2016, the reform of state-owned enterprises may exceed expectations, pilot, mergers and acquisitions, and capacity reduction. On February 25, the State-owned Assets Supervision and Administration Commission announced the “Ten Reform Pilot” for the reform of state-owned enterprises. The government work report proposes to focus on the production of difficult industries such as steel and coal, and adopt measures such as mergers and acquisitions, debt restructuring or bankruptcy liquidation, and actively and steadily handle “zombie enterprises”. In 2016-2017, we will resolutely lay down state-owned enterprises to improve quality and efficiency. Fighting hard.
The direction of state-owned enterprise reform is more mergers and acquisitions, and bankruptcy as little as possible. In answering a reporter's question, Premier Li Keqiang said that China will firmly push for reform and hope to achieve a win-win situation in terms of capacity and avoidance of the downgrade. The central government has established 100 billion yuan of special funds for resettlement, and can increase if necessary. At the press conference of the State-owned Assets Supervision and Administration Commission, Xiao Yaqing, director of the State-owned Assets Supervision and Administration Commission, said that the reform should ensure balanced development of interests in all aspects, especially to protect the interests of employees; the three major oils have overlapping business problems, and other enterprises exist in this issue, and the future will be the key solution. The direction of the central enterprises is to encourage the elimination of vertical redundant links and horizontal barriers. We must increase our efforts to make big companies stronger and better. Deputy Director Huang Danhua said that the losses of central enterprises are mainly in the industries of steel, coal and serious overcapacity of non-ferrous production capacity. The State-owned Assets Supervision and Administration Commission (SASAC) strives to promote these listed listed companies to become quality companies in terms of improving quality and efficiency and restructuring quality assets.

Table 2 List of relevant policies for state-owned enterprise reform Source: Guotai Junan Securities Research

5, due to city policy to resolve real estate inventory
Due to the city's efforts to resolve real estate inventory. The government work report proposes to “promote the construction of urban security housing construction and the stable and healthy development of the real estate market. This year, 6 million sets of housing renovation in shanty towns will increase the proportion of monetization of sheds. Improve taxation and credit policies to support the rational consumption of residential housing, and adapt to housing. Rigid demand and improved demand, due to the city's efforts to resolve real estate inventory. Establish a rent-and-buy housing system, and gradually integrate qualified migrants into the public rental housing supply."
The first-line and core second-tier cities have accelerated their prices, triggering a new round of regulation and control. The third-fourth line is difficult to go to the warehouse, and the total housing market is slowing down. Chen Zhenggao, Minister of Housing and Construction, told reporters that an important task at present is to stabilize housing prices in first-tier cities and some second-tier cities.
First-tier cities have adopted various measures and measures to strengthen regulation and control: first, implement strict purchase restriction policies and implement strict taxation and financial policies; second, increase land supply, and publicize them to stabilize expectations; third, increase supply of small and medium-sized enterprises. The number, especially the construction of affordable supply; the fourth is to crack down on various violations of laws and regulations; the fifth is to actively voice and guide public opinion.
According to China’s business support, the senior officials of the Ministry of Construction have reported that the People’s Bank of China has communicated with the Ministry of Housing and Urban-Rural Development on the issue of down payment. There are certain reasons for the rapid rise in housing prices and down payment; Beijing, Shanghai, and Guangdong are seriously handling a number of intermediaries, mainly intermediaries involved in default down payment loans. According to Wall Street reports, chain homes do not accept housing listings that are too expensive, and listings that are too high are not entered on the intranet, and are not recommended and taken to customers.
In particular, it is pointed out that school districts with a unit price higher than 150,000 yuan are "excessively quoted." According to Chen Zhenggao, at the end of 2015, China's real estate inventories reached 718 million square meters, an increase of 15.6%; in January-February 2016, the inventory reached 739 million square meters, with a growth rate of 15.7%. Among them, stocks are mainly concentrated in third- and fourth-tier cities.
Where did the money go: Ponzi financing rolled and pushed up asset prices. The gap between broad money supply and nominal GDP growth has continued to widen, and super-currency currencies have not flowed into the real economy and have fallen into liquidity traps. Where did the money go? On the one hand, it is to maintain the debt cycle and Ponzi financing, and the large amount of funds has precipitated, which has led to a decline in the speed of money circulation. On the other hand, it has pushed up the stock market bubble, which once again shows that the current structural and institutional problems are difficult to solve through the total demand management policy. Reform is the only way out.
The asset bubble is greater than the risk of stagflation. Recently, the prices of bulk and cyclical products have risen, and stagflation is expected to rise again. Super-money currencies are naturally chasing commodities that are elastic and small in demand. Considering that the output gap, severe overcapacity and insufficient demand will restrict the transmission of money to PPI and CPI, the impact of over-currency on asset bubbles will be far greater than the risk of stagflation. The rebound in February CPI was mainly affected by seasonal and weather short-term factors.
In economic history, the two stagflation in the 1970s and 1980s was mainly related to the oil crisis. In the economic recession, the over-issued currency generally pushed up the stock market bubble, instead of pushing up the CPI, PPI, etc., which is why the global deflation has to be overweight. QE even has a negative interest rate. The over-issued currency was absorbed by the stock market bubble, but did not flow into the real economy, so it was not transmitted to CPI, PPI, etc. Around June 2015, the market had been worried about stagflation due to the increase in pig prices. We suggested that “there is no inflation, and all the deflation after the pigs are removed”. Now we are again warning the market that the asset bubble is greater than the risk of stagflation.

6. The registration system is suspended. The “13th Five-Year Plan” “Outline (Draft)” deletes the content of “establishing a strategic emerging industry board”, unswervingly develops multi-level capital markets, and strengthens supervision.
The registration system is suspended, and the new idea may be to push for asset securitization. The 2016 government work report did not mention the registration system reform. The draft of the “13th Five-Year Plan” proposed “creating conditions to implement the registration system for stock issuance”, indicating that the current conditions for implementing the registration system are not yet available. The government work report specifically proposes to explore asset securitization such as infrastructure. The new thinking in 2016 may be to promote asset securitization, and some industries will benefit. In answering a reporter's question, Premier Li Keqiang said that the mainland and Hong Kong authorities are in close consultation and strive to open Shenzhen-Hong Kong Stock Connect this year.
The registration system is a must, but it cannot be spurred by individual soldiers. Liu Shiyu, chairman of the China Securities Regulatory Commission, answered three important signals on the registration system: First, the direction of the reform of the registration system remains unchanged. "Registration is the important task of the Party Central Committee and the State Council on the top-level design of the long-term healthy development of the capital market." Must do it."
Second, the reform of the registration system is an opportunity to advance. "Registration reform requires a fairly complete legal environment. The supporting reforms will take a long time, and the registration system cannot be spurred by individual soldiers."
Third, we always adhere to the concept of protecting investors. “Either the approval system or the registration system must adhere to the concept of protecting investors.” We believe that this statement will enable the market to strengthen the registration system to promote the rise of equity financing, promote transformation and innovation, and lay the foundation for the long-term prosperity of the capital market; on the other hand, it has lifted the implementation of the relevant legal protection. A one-step, thorough registration reform has turned the capital market into a worry about money-making games.
The "13th Five-Year Plan" "Outline (Draft)" deletes the content of "establishing a strategic emerging industry board." During the two sessions, the "13th Five-Year Plan" "Outline (Draft)" was reviewed and 57 contents were revised. Among them, according to the opinion of the CSRC, the content of “establishing a strategic emerging industry board” was deleted from the draft. Pay attention to the structural opportunities such as the suspension of the registration system, the value of small and medium-sized shells after the deletion of strategic emerging boards, and mergers and acquisitions.
When Premier Li Keqiang answered the reporter's question, he said that no matter how volatile the market is, we must unswervingly develop multi-level capital markets. Maintaining the capital market assumes important mission judgments in the supply-side reform. It is expected that policy makers and regulators will pay more attention to maintaining capital market stability, and the stability and continuity of future capital market policies will be strengthened.

7. “Bad debt-to-equity swap”: poor resolution and limited scale
According to Reuters, the relevant central bank of the People’s Bank of China has drafted relevant bank debt-to-equity swap documents, which will allow commercial banks to replace non-performing loans of enterprises with equity. The documents will be specially approved by the State Council to bypass the commercial banking law and impose restrictions on bank-holding enterprises. .
It is highly probable that “bad debts will be converted into shares”. Rongsheng Heavy Industry (now renamed as Huarong Energy) recently announced a debt-to-equity swap, intending to issue up to 17.1 billion shares to creditors to offset the debt of 17.1 billion yuan (of which 2.75 billion shares were issued to the Bank of China to offset the 2.75 billion yuan debt ). After the completion of the debt-to-equity swap, BOC will become its largest shareholder, and its shareholding ratio will be as high as 14%. The proposal is still pending at the shareholders' meeting on March 24.
Difficulties in debt swaps are difficult to spread out in a wide range and have limited impact on market trends. Bad debt-to-equity swaps will solve bad problems in a new way, and the short-term will help reduce bank non-performing rate and corporate debt ratio, and release systemic risks. However, debt-to-equity swaps are one of the methods of debt restructuring. They are subject to one-on-one discussion and highly non-standardized. They must be negotiated by creditors, debtors and stakeholders. Therefore, it is difficult to spread them widely and have limited impact on market trends. In the long run, the simple reform of debt restructuring is actually to delay the clearing of the old growth model and encourage the addition of leverage, which will make the future problems more serious. The market trend is better depending on the reform and the improvement of China's economic fundamentals.
Focus on the structural opportunities offered by distressed debt-to-equity swaps. Bad debt-to-equity swaps can reduce the bank's book non-performing rate, but it will increase the bank's capital occupation and affect the bank's neutrality; it can alleviate the debt pressure of the companies involved, and facilitate their improvement of operations, which is good for enterprises. Bad debt-to-equity swaps provide structural opportunities for the market, focusing on those companies that are temporarily experiencing difficulties in operating and paying interest but have good long-term development prospects.

8. Accelerate the reform of the fiscal and taxation system, and fully implement the reform of the camp from May 1
Accelerate the reform of the fiscal and taxation system. The government work report proposes “reasonably determining the proportion of central and local VAT sharing. The taxation that is suitable as local income is allocated to the locality, and the local government is appropriately decentralized in terms of tax administration authority. Further reducing the scale of central special transfer payments, this year’s general transfer payment The scale has increased by 12.2%. The reform of resource tax ad valorem is carried out in a comprehensive manner. Tax collection and management is implemented according to law. A standardized local government debt financing mechanism is established. For financial strength and low debt risk, the debt limit is appropriately increased according to legal procedures. The government must stick to the tight days and spend every money in the clear place and use it."
From May 1st, the camp will be fully implemented. The government work report proposes that “the full implementation of the reform of the camp will be extended from May 1 to the construction industry, real estate industry, financial industry, and life service industry, and the value-added tax included in all new real estate enterprises will be deducted. Scope, to ensure that all industry tax burdens are only reduced." Wang Jun, director of the State Administration of Taxation, said that starting from May 1 this year, the camp will be fully implemented. The first time the reform of the camp involves the payment of VAT by natural persons, such as personal second-hand housing transactions; the new taxpayers have never been exposed to VAT in the past. . It is expected that after the end of the "two sessions", the State Council executive meeting will soon review the plan for the reform of the camp.

9. Reform and improve the financial supervision system to achieve full coverage
The financial system reform program was first introduced or appeared during the year. The "13th Five-Year Plan" of the Central Committee proposes "reform and improve the financial regulatory framework for the development of modern financial markets." On February 26, Zhou Xiaochuan, the governor of the central bank, said at the G20 press conference that China’s financial regulatory system is under pressure to make adjustments and is currently under study. An important consideration in the adjustment is whether it is conducive to the macro-prudential regulatory framework. carried out. On March 4, Yi Gang, deputy governor of the central bank, also told reporters that “the reform of the supervision system of the three-member meeting is being studied. It is still uncertain when it is launched.” On March 16, Premier Li Keqiang said that as the situation changes, it needs To reform and improve the financial supervision system, we must achieve full coverage. Wall Street’s observations quoted foreign media reports that China’s reform plan for “three lines of meetings” was announced at the earliest or within the year. Based on the consideration of strengthening macro-prudential supervision, it is expected that the central bank will enjoy greater power in the future financial regulatory system.
In answering a reporter's question, Premier Li Keqiang pointed out that "the government has the responsibility of supervision. Now, as the situation changes, we need to reform and improve our financial supervision system, and we must achieve full coverage. Because there are many products for financial innovation, we cannot leave Regulatory gaps; coordination should be enhanced, because the correlation between financial market products is relatively high, coordination must have authority, and powers and responsibilities must be consistent. Relevant departments and localities of the central government should be responsible for stratification, and problems should be dealt with in a timely manner to prevent signs. Sexual problems spread and certainly cannot tolerate moral hazard."

10, 13: The reform is tough, and the line is better than words.
On the morning of March 16, the National People's Congress voted on the draft resolution on the government work report and the draft outline of the 13th Five-Year Plan. The government work report pointed out that to do a good job in the economic and social development during the "13th Five-Year Plan" period and achieve the goal of building a well-off society in an all-round way, we must focus on grasping firmly the first priority of development, not relaxing, vigorously promoting structural reform, and accelerating the development of new and old developments. Continue to convert three points. In answering a reporter's question, Premier Li Keqiang said that "the Chinese economy is both difficult and hopeful." "Promoting reform can stimulate greater vitality in the market and greater creativity of the people."
According to the "13th Five-Year Plan" of the Central Committee, the economy has maintained rapid growth. On the basis of improving development balance, inclusiveness and sustainability, by 2020, GDP and urban and rural residents' per capita income will double by 2010. The main economic indicators were balanced and coordinated, the development spatial pattern was optimized, investment efficiency and enterprise efficiency increased significantly, the level of industrialization and information integration was further improved, the industry moved to the middle and high-end level, advanced manufacturing accelerated development, and new industries and new formats continued to grow. The proportion of the service industry has further increased, and consumption has contributed significantly to economic growth. The urbanization rate of the registered population has accelerated. Significant progress has been made in agricultural modernization. Entering the ranks of innovative countries and talented countries.
In the period of speed increase and shift, we propose a “transformation macro” framework to distinguish it from the traditional “cycle macro” framework and judge the economic L type in the next 3-5 years. Before the de-capacity de-leverage and supply-side reforms are completed, the economy will continue to adjust at the bottom, and there will be no economic recovery. All sectors should be mentally prepared. The Chinese economy is standing at the crossroads of history, and public policy is facing major choices. Reform will usher in the dawn; if it is stimulating, it will accelerate the crisis. If the reforms are prepared from the preparation of the plan to the ground, the road will be tortuous and the future will be bright.
(The author of this article: Guotai Junan Securities Research Institute Managing Director, Chief Macro Analyst, China Finance 40 People Forum invited researcher, China New Supply 50 Forum Forum, Renmin University of China part-time researcher, etc.. Previously served as the Macro Department of the Development Research Center of the State Council. Deputy Director of the Research Office.)