How To Ease The Financing Difficulties And Financing Problems Of Some Emerging Industries?

The controversy over China's economic growth prospects is heating up in the second half of this year.

How to deal with the excess capacity that still exists and the debt leverage that is still accumulating is a major challenge for China's economy and will further test China's financial system.

The relevant reforms and countermeasures are more urgent.

In the current economic environment, in order to make wider money more conductive to wide credit, the financial system not only has to bear the pressure of excess capacity digestion, but also needs to upgrade the financing demand of emerging industries. At the same time, the deleveraging of highly leveraged industries is also an unavoidable task, and economic growth can not rely on the sustained growth of debt.

As the current round of excess capacity is mainly concentrated in the upstream and downstream industries, heavy capital industries, and most of these industries are closely related to state-owned enterprises, therefore, in the process of capacity development, there may be a lot of repetition.

For example, in the reform of state-owned enterprises, we need to consider the introduction of special policies to promote productivity and deleveraging. We need to develop a reasonable central and local cost sharing mechanism to solve the problems left over by state-owned enterprises.

Leverage and productivity pressures will continue next year.

In the three quarter of this year, macro economic data show that China's economy continues to show a weak trend under the general stable tone. Whether it is the profit or investment status of enterprises, it has increased the market's concerns about China's economic growth. Even if there are more positive information about the steady growth of consumer spending, the rebound of real estate in the first tier cities, and the increase in infrastructure investment, the positive information is still not hedging the trend of economic downturn.

If we combine a series of intensified underpinning policies adopted by the Chinese government in recent years, including the rate reduction and interest rate reduction in October 24th, we will not be pessimistic about the growth of China's economy in the short term. As these short-term underpinning policies increase on schedule, China's economic growth in the four quarter of 2015 and the beginning of 2016 is expected to show a short-term upward trend. The real challenge is how to deal with the excess capacity of the Chinese economy and the debt leverage that is still accumulating in the short-term effect of this round of bottom policy results, so as to improve economic efficiency.

In 2016, China's economy will face more severe challenges in terms of capacity, leverage and economic efficiency.

At present, the pformation of China's economic pformation is obviously reflected in the difference and differentiation of different industries. Specifically, the performance of the service industry and consumer industry has been good. The real estate sales activities in the first tier cities have begun to be active, but the recovery of real estate investment has been weaker, and some innovative industries have also performed well.

Contrasted with this, the growth of the second industry is very weak. PPI has been declining for four consecutive years. The real estate market in the two or three tier cities is still in high demand. Some upstream industries and high leveraged industries with excess capacity are still facing the difficult task of bankruptcy reorganization and clearing excess capacity in 2016. China's sustained economic recovery can not rely on the continued rise and accumulation of the debts of some highly leveraged industries. It is bound to undergo a deleveraging process, which may lead to a rise in the number of non-performing assets in the banking sector, but this is a real problem that the Chinese economy can't get back to the rising cycle and the progress of economic pformation.

At present, the valuation of bank shares listed in the Hongkong market is indeed at a relatively low level from a historical level. One important reason is that investors expect that these potential economic risks will be exposed as bad assets in the banking system with the gradual development of capacity and deleveraging. Judging from the current bank valuation level, the market expects that the ratio of bad assets that banks may have in the future will be around 10%, which is far higher than the current interest rate level of banks. This also shows that the market is now pessimistic that the banking industry will inevitably experience a deterioration of asset quality in the future.

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The expectation that quality will accelerate deterioration in the process of de production and deleveraging is in fact based on the characteristics of China's current financial structure and the impact of previous economic fluctuations on the financial system.

China's economy is shifting from the traditional manufacturing industry that relies on extensive input of resources to the intensive and balanced development of the one or two and three industries. The general characteristics are the shift from heavy assets to heavy assets, from tangible assets to intangible and tangible assets. These trends in the economic field generate diversified capital needs, and the characteristics of the banking financing system are customary services for capital intensive and heavy assets industrial enterprises.

Similar incompatibility of production and finance not only delayed the pace of China's industrial pformation, but also caused a large number of "excess capacity" in the field of individual heavy assets, resulting in inefficient allocation of resources.

Because the bank's large amount of credit is based on the characteristics of mortgage guarantee business and so on, it mainly focuses on the heavy assets industry. The clearing of excess capacity is reflected in the bank's balance sheet, which is the accelerated deterioration of asset quality.

According to the data released by the banking industry, the bad loan rate of commercial banks in China has been rising for the eight consecutive quarter since the first quarter of 2013. As of the first half of 2015, the bad rate of commercial banks has reached 1.39% (Q1 0.96% in 2013).

And from the bad rising trend, the manufacturing industry is significantly faster than the third industry. The CBRC data show that in 2014 and 2012, the bad rate of mining industry and manufacturing industry increased by 0.82 percentage points. As for 2014, the bad rate of the two industries was 1.04% and 2.42%, compared with that of the third industries, the bad rate of the third industry increased much more slowly, the bad rate of the residents' service and other service industries increased 0.56 percentage points, and the personal loans and the bad financial industry increased 0.13 and 0 percentage points respectively.

The slow liquidation of excess capacity and the slow progress of deleveraging may further enlarge the mismatch of financial resources and delay the pformation process of economic pformation.

The continued deterioration of the balance sheet of banks will damage the willingness of banks to lend their credit, and thus produce a downward negative feedback on the economic operation which highly relies on bank financing. SMEs and emerging industries bear the brunt of the tightening of credit.

The "rigid and undead" of excess capacity is still consuming credit resources and generating credit squeeze for emerging industries.

Although it may reduce the risk of local risk on the surface, it is at the cost of delaying the process of industrial upgrading.

China's financing system is still dominated by banks and other indirect systems. In the background of the banking system's bad and sustained rise in loans in the heavy assets industry, and the uncertainty of the economic outlook, the reluctance of the main banks will inevitably intensify, leading to the pmission of broad money to wide credit.

Of course, it is undeniable that the interest rate brought by broad money has slowed down the impact of rising debt rates.

Since 2015, there have been five reductions (including directional reduction) and interest reduction, but the credit expansion of the whole society is not significant.

First of all, the credit resources are still tilting towards the government's credit.

As of September 2015, the new social financing was 11 trillion and 900 billion yuan, less than the same period last year increased by 900 billion yuan; the three quarter of the new RMB loans, especially the amount of medium and long-term loans increased substantially.

On the face of it, social integration and new credit volume have shown good performance after the three quarter, but this does not mean that the credit of the whole society has been restored, and there are some disturbing factors.

In the three quarter, the special financial debt leveraged credit support was affected. The special financial debt of 600 billion yuan was fully put into operation before September, and the leverage of 4 times to 5 times would naturally lead to a larger amount of credit, which reflected particularly in the medium and long-term loans of enterprises.

Therefore, the high side of the bank's enthusiasm for the government - led infrastructure projects is also a reflection of the prudent lending to other industries. If this part of the credit is eliminated, the credit expansion of the whole society is not smooth.

Similar cases occurred in Japan in the 90s of last century.

If we only look at M2, Japan's money supply can be maintained at 2%-4% level, but in fact it is mainly due to the government's counter cyclical fiscal expansion and credit creation, and private sector lending is negative growth.

Second, the downside of the bond market's financing interest rate is limited to new industries.

Although the supply of bonds was large in 2015, under the relatively loose liquidity, the yields on the two tier markets of the bond market and the issuing interest rates of the primary market all appeared downward. However, from the actual industrial impact, the emerging industry has not benefited from it at present.

First of all, whether the NDRC's corporate bonds or corporate bonds of the exchange, etc., all have a high threshold for issuing bonds. Many emerging industries in the initial stage are hard to reach this threshold. Secondly, from the yield of bonds, the downward trend is only in the Treasury bonds and policy financial bonds. The yield of corporate bonds has not been significantly downward. The maturity yield of one year bonds is 3.5% in 2014, and the rate of return is two in 2015, up to 90 BP in 2015. However, under the ample liquidity, the yield difference between corporate bonds and treasury bonds has not narrowed significantly, indicating that the risk appetite of the whole market is still low in the current economic environment.