To stimulate the economy through the stock market does not work

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					To stimulate the economy through the stock market does not work?
????In the global financial crisis and the devastating economic crisis,
China's foreign exports were seriously affected, to stimulate domestic
demand as the current macro-economic priority. Stimulate domestic demand
in a variety of programs and ideas, there is a very attractive eye view:
the way through government intervention to stock fry up, then, increase
the income of investors, domestic demand will increase. And to stimulate
domestic demand rose to Yijianshuangdiao. However, I believe, in the sub-
prime mortgage crisis is what we need to reflect on the theoretical logic
behind this reasoning is reasonable and scientific. In the special
context of China, the stock rose not only does not stimulate domestic
demand, but will exacerbate economic imbalances, Bu ÀûÓÚ Analysis on
Constant Economic and healthy development.

First, the "wealth effect" theory on the impact of China's
financial decision-making

"Raise the price to stimulate consumption," view behind the
theory of an important judge, that the stock market's "wealth
effect" in China has been very significant. The so-called
"wealth effect" refers to the increase in stock market can
stimulate consumption to increase, our community started to pay attention
the wealth effect theory, began in 1999. Zai Asian financial crisis in
the face of challenges, our government need to find new points of
economic growth, revitalize Gushi in the move was seen as a living chess:
Zhi Yao active stock market, people's hands Caifuzengjia can stimulate
Ïû·Ñ, to economic Baituo currency tightening of the mire; and stock
market financing for state-owned enterprises, help to bail out state-
owned enterprises. In accordance with the present terms, is "to
increase domestic demand to stimulate the market rally."

Deeper analysis of why our government after the Asian financial crisis,
Japan and the U.S. rely heavily on the stock market and financial models
in the last crisis have a direct relationship between the different
performance. Asian financial markets we see the Japanese model of
financial development (bank-led) defects, while recognizing the
advantages of direct financing, should be to realize the United States in
2001 after the New Economy bubble burst in further strengthening. Because
the "new economy" bubble has burst, the stock market crash,
when the United States and the real economy has not been seriously
challenged. Therefore, Zai Asian financial crisis, China Di target model
is actually determined the financial reform Le United States, Womenxiwang
and the United States to establish a similar to Zhijie Rongziweizhu
financial system, "Dali Fazhangupiao direct financing",
"ultra Changgui Fazhanjigou investors "," Establishment of
GEM "and other ideas are the product of this reform.

Needs to be emphasized is that our party's 17 major report on
"increasing the residential property-type income" is also
parking to the U.S. goods directly from the U.S. "asset-based
savings." Important to maintain high consumption means the United
States is "asset-based savings", namely, by the residents and
the real value of financial assets to make up for inadequate savings,
asset-based saving into saving alternatives. Undoubtedly, if the increase
in China through "asset-based savings" (the "property type
income"), you can reduce the savings rate, increased consumption,
the problem of insufficient domestic demand can be solved.

But the 17 largest stock markets fell sharply after the fact tells us
that "increasing residential property-type income" is not a
simple matter to mess it became a "resident of property
redistribution." In October 2007 of 6124 point to the end of 2008,
stock market capitalization has shrunk by 5 trillion yuan, fell 70%,
almost all investors hold the stock losses. As a financial
"experts" have not been spared the same fund, the Fund over the
past year more than 10,003 total loss of 100 billion yuan!

The U.S. financial crisis has once again sounded the alarm, the residents
of property-type income is unreliable, the savings is the case. In the
sub-prime crisis, Premier Wen has a conclusion that to "deal between
financial innovation and financial supervision, and between virtual
economy and real economic relationship to deal with the relationship
between accumulation and consumption" . These three words is the
Chinese government on the U.S. financial crisis, a profound summary and
reflection. If the Asian financial crisis 10 years ago, our country will
not superstitious, "East Asian growth model", then the sub-
prime crisis in the United States will allow us to new understanding of
financial development models, so we re-understand the risks of the stock
market and investment banking and regulatory issues .

In November 2008 introduced the "Financial State 9", the pair
set the tone for the stock market is "to maintain market
stability", to expand the direct financing of the task had fallen to
the "bond market", which is the decision-making major changes
in attitude on the stock market , the stock market ahead of many
attributes and modifiers quietly disappeared, this time to mention
"the stock market can stimulate domestic demand rose," the case
is somewhat "innocent" of.

Second, the wealth effect is a beautiful lie

International discussions on the wealth effect began in the nineties of
last century. The last decade of the 20th century, the U.S. stock market
rose steadily, at the same time, the U.S. economy and consumer spending
rising level of long-term in the state, thus leading to the concern of
many scholars, and in-depth analysis of this phenomenon. However, the
views of different scholars.

In discussing the relationship between stock market and economic growth,
some scholars believe that there is positive correlation between the two.
Such as Poterba (M. Poterba, 2000) that the stock price volatility and
real economic activity has a strong positive correlation. Aylward and
Glen (2000) through 23 countries during the period 1951-1993 a large
number of data measurement results show that the stock market and
macroeconomic positive relationship exists between this performance in
different countries are broadly similar. Greenspan (Greenspan, 2001) from
the official point of view the stock market wealth effect positive
contribution to economic growth, saying, "produced by the stock
market rose 'wealth effect', causing U.S. consumers spend more",
promoted the 90s economic growth. Federal Reserve study shows that
household wealth for each additional dollar will affect the post-
permanent increase in consumption of 3-5 cents (Edward M. Gramlich,
2002), the additional spending, annual GDP growth by over 1 percentage
point. Of course, some scholars have different views, Meyer (Colin Mayer,
1998) that the stock market is not important to the overall economy.
Harris (Richard Harris, 1997) emphasizes the impact of the stock market
on economic growth is not significant. Stiglitz (Stiglitz, 1997) is that
the stock market not only fails to promote economic growth, and may
hinder economic growth.

In discussing the correlation between stock market and the consumer is
concerned, the stock market and economic growth than the correlation
between the existence of a larger dispute. Romer (Romer, 1990), Zandi
(Zandi, 1999) that support the development of securities markets in
consumer confidence, which also believes that there is no wealth effect
on the impact of stock-owning households is also possible. Ludvigson and
Steindel (1999) demonstrated the transmission mechanism of the consumer
market, sure the stock market and consumption, there exists strong
positive relationship. Poterba (M. Poterba, 2000) that even if the stock
market wealth has a lower marginal propensity to consume, the wealth
effect is also very obvious. Zandi (Zandi, 1999) based on 1929 and 1987,
the U.S. stock market ups and downs of consumer spending on research
shows that as the wealth effect, the U.S. stock market ups and downs for
every one U.S. dollar a direct impact on consumer spending 4-7 cents. On
the one hand, stock prices rose for every one U.S. dollar could boost
consumption rose 4 cents, this expenditure will enable the United States
GDP increased by 1 percentage point; the other hand, down one U.S. dollar
per share, 7 cents could reduce consumer spending, fell on consumption
more negative affect performance significantly. On the relationship
between stock market and consumer opinions of scholars hold the opposite
view that uncertainty and volatility in the consumption of
"delay" so that the wealth effect is not significant. Such as
the 1987 stock market crash, not a sharp decline in U.S. consumption,
Stiglitz (1997) through the 1987 stock market crash of an empirical
study, that people react to changes of wealth is very slow, the stock
market on consumption is very limited. But he also acknowledged that
long-term sustained decline in the stock market or may be a tremendous
blow to the consumer. Niemira (1997) on the U.S. stock market wealth
effect negative attitude, they investigated the situation in the U.S.
stock market, measure the size of wealth effect, concluded that the role
of the stock market does not exist on the consumer.

Comprehensive terms, the United States, scholars of the results, even if
the obvious is that the wealth effect, but also that the stock market
down the marginal impact on the economy than the stock market up to the
marginal impact on the economy. Then, only the stock market in Manniu
state (rising), the only significant wealth effect, or the long term, the
wealth effect is negligible, because the stock market volatility is
normal, can not rise forever.

Look at China's stock market wealth effect of the theoretical study?
China's academic circles since the late nineties of last century had a
lot of related research. Yu-Ming Feng (1999) investigated the stock
market through the ups and downs in the rate of total retail sales of
social commodities with the whole existence of the growth rate of
"Granger causality analysis" to examine the existence of stock
market wealth effect in China. Liang Yufeng, Yu-Ming Feng (2000) used a
sample investors on the Shanghai stock analysis of survey data, that a
rising stock investors in the stock index will have the illusion of
wealth and income is expected to expand consumption, so there are some
China's stock market wealth effect , but the pattern of income
distribution caused by an irrational market, stock market,
"Matthew", seriously dampening the wealth effect into full
play. Zhen-Ming Li (2001) The use of Ando and Modigliani used the
extended life cycle model validation that our data, China's stock market
capitalization as a small number of residents involved in the stock
market is limited and our residents from the main stock market gains for
the stock re-investment or speculation rarely used for mass consumption,
so the stock market wealth effect on consumption only have a small
impact. Zhong Liu (2001) and Lin Lin (2002) that the Chinese stock market
wealth funds account for the proportion of the total population low, so
the wealth effect on consumption is not significant. Yuming Gui, Xia
Xinping and Wang Yixia et al (2003) study shows that China's stock market
still has a wealth effect, the main factors affecting the consumer is
still disposable income and consumption habits. However, China's
investment in the stock market has certain effects, but this impact is
relatively small. Xue-Feng Li, Xu Hui (2003) study showed that the
Chinese stock market wealth effect is almost non-existent. Overall,
China's stock market wealth effect is extremely weak. In other words, I
hope to start the stock market to stimulate consumption, China's current
stock market can not undertake this important task.

Recently, the author of a student in China since the 2005 stock market
wealth effect measurement study, the conclusion is also a wealth effect
is not significant.

Third, the stock rose exacerbate economic imbalances

From the local perspective, since the end of 2005 rose to solve the many
problems in our economy, most notably the number of direct financing
through the stock market increased rapidly, the stock market in 2007, the
financing will be more than 700 billion yuan (including the number of
more than 400 billion yuan IPO ), hundreds of listed companies by the
capital markets funding. It is particularly worth mentioning is that the
state-owned commercial banks through capital markets to rapidly increase
capital adequacy ratio, so that state-owned commercial banks greatly
increased ability to resist risks. With various aspects related to
capital markets, the sector's profitability are greatly improved, the
state received in the capital market is also very generous tax.

But the overall perspective, the stock price up and the stock market boom
exacerbated the country's macroeconomic imbalances, the economy is not
conducive to sustained and healthy development. Many studies show that a
major imbalance in China's current economic performance is the excessive
growth of net exports, the net export growth is mainly due to excessive
consumption inadequate. Further study the surface, due to lack of
consumer savings, major changes in structure, the proportion of corporate
and government savings increase the proportion of household savings
decline. So, what is beneficial to increase the activities of government
and corporate savings will exacerbate the imbalance of our economy. Stock
market boom of the biggest beneficiaries are companies, followed by the
government, the interests of the residents suffer.

First of enterprises, enterprise since 2007 price of ordinary shares
issued in more than 30 times price-earnings ratio (IPO priced at 30 times
earnings, issuance of more than 30 times price earnings ratio generally),
which is the world's lowest-cost capital market financing. Enterprises
through capital markets at low cost financing is bound to increase
corporate savings.

For capital markets, capital mainly flows between residents and
enterprises and distribution, increase in household savings, corporate
savings reduction. Simple calculation, investors of listed companies in
2007 contributed about 800 billion yuan of funds (mainly issuing
additional shares), to pay the taxes and fees totaled 400 billion yuan
(mainly stamp duty and commission), for a total 1.1 trillion element. The
total profits of listed companies in 2007 is difficult to estimate more
than 1 trillion yuan, secondary market investors, listed companies
corresponding to about 3,000 billion yuan in profit, less transaction
costs paid by investors. Investors Dividend income from listed companies
is estimated at 1000 billion yuan, equivalent to transaction costs
investors pay a quarter. Investors in general, a net loss.

2007 Shanghai Composite Index rose 97%, rising in price can be
temporarily covered up losses to investors the truth. But the investor is
a virtual book total assets, is volatile and can not be used to
accurately reflect the investor's earnings. When stock prices fell
sharply after 2008, 2007, show that the huge losses into profit quickly.

In this process, the Government can not only increase revenue through the
imposition of stamp duty and profits by listed companies (because of
financial costs decrease) increase in the tax increase is always the
beneficiary, therefore, is the increase in government saving.

In short, the stock price rose, the stock market boom, the Government
savings and corporate savings has risen, while the household savings
ratio will decline, contributing to imbalances in the Chinese economy.

Fourth, the policy prop is the key price distortions

The above findings and our original intention of developing the capital
market is difficult to fit in. The original purpose of the development of
capital markets is the development of direct financing, optimizing the
structure of financial markets and improve the efficiency of resource
allocation, increase the property-type income for the people to create
conditions, but the current capital market has become the macroeconomic
imbalances of the accelerator, why not?

Basic reason is overvalued. Because of over-priced, low-cost financing to
businesses, investors, of course, corresponds to very low levels of
investment income, representing the residents to spend money on subsidies
to businesses and governments. Therefore, the face of our capital markets
has made encouraging achievements, achieved a historic leap equity
financing, but overall situation into consideration, China's economy has
thus imbalances.

But this does not mean that I oppose the development of capital markets.
The current capital market was the result of this embarrassing outcome,
because the key structure of a sound capital market, corporate bond
market is not developed, but most of the time the stock market
speculation in the atmosphere too strong, serious overestimation of
stock. Is the number of our stock is overvalued, compare the current
price of A shares and H shares of the price difference can be clear, H
share price average A share price of around 60%. Hong Kong market is the
global open market, there is no investment products to be underestimated,
especially long been underestimated. This shows that A shares of the
degree of overestimation.

It is worth mentioning that in 2005, China's A share price briefly
dropped to around 10 times price-earnings ratio, price, and then H-shares
the basic integration, the market's investment return rate of around 7%,
which is a relatively reasonable in the state. Unfortunately, such a
reasonable price soon disappeared. Due to historical reasons, when the
market price down to reasonable levels, investors losses, securities
firms crises, various pressures, the Government adopted a "policy of
active stock market" so that a reasonable price once again
distorted.

The current stock market has been very embarrassing. Since the end of
2007, the share price fell by an average 60% more, investors have been
countless losses, but the stock still has not fallen on the long-term
investors an attractive range (5% dividend return on the investment
return of more than 10%). If the stock price downward revision means that
the path into the long bear market, stock market finance function would
be greatly reduced, investors faced losses and securities institutions in
turn is facing bankruptcy. However, if the policy to the stock prices at
artificially high, meaning that investors continue to enterprises and
government subsidies to further increase China's economic imbalances,
stimulating domestic demand can not be achieved.

Why China's stock market bubble in the state for long, the root cause is
the "policy market" caused, when the stock market fell, the
government introduced policies to stimulate the stock market has always,
since 1991, the Government has a comprehensive intervention at least
seven times the stock market, stock market has led to a cycle of seven
major ups and downs. The policy again and again to shore up the market
price is difficult to self-correct, the stock market bubble inflated
gradually.

Only when the stock market investors get from the stock market listed
companies to pay dividends than their transaction costs, investors may
have to share the benefits of economic growth, stock markets may be to
increase the property-type income residents of a channel, or the stock
market can only redistribution of national wealth is the place. To
achieve this goal, we must allow stock prices to a reasonable range, the
policy prop is a big mistake.

				
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posted:9/13/2010
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