The COVID-19 epidemic sweeping the world has had a profound impact on the development model of human society and world order under globalization. In the face of this pandemic, we should rethink the national development strategy, national security strategy, and corresponding economic structure, industrial structure and other issues, especially the understanding and positioning of finance.

Finance, no matter how you look at it, is at the hub of modern economic and social networks. Its development model and status are related to the efficiency and security of economic and social resource allocation, as well as the long-term stability of the economy and society. and continued development.

In recent decades, some people in my country’s financial sector have been consciously or unconsciously taking the United States as a model of modern finance, and have shown a considerable degree of blindness. The root of this blindness is the new freedom the influence of doctrine. The chaotic performance of the United States in this pandemic has surprised the whole world, causing people with different ideologies and values ??to think about, why is this?

Joseph Stiglitz, the American Nobel Prize winner in economics, recently said: "The United States has been moving along the neoliberal philosophy in the past... believing that the market itself can solve all problems. In The United States has been conducting this experiment for the past half century, and now we should admit that the experiment failed. "Perhaps these changes that have occurred and are continuing can help some people in the domestic financial community break their superstition on the American financial model.

Kerry Brown, a China researcher at King's College London, believes that Western society has a fixed mindset in its understanding of Chinese culture, and what is needed first is to emancipate the mind. I believe that today’s Chinese financial community also needs to emancipate its minds and think about China’s problems based on China’s national conditions and socialist values. We must emancipate our minds and get rid of "foreign superstitions" and "foreign stereotypes" on the path of financial development.

Economic financialization is unsustainable

Since the 1980s, the United States under the banner of neoliberalism has reversed the forty-year financial repression policy under Roosevelt’s New Deal. The financial industry is allowed to deviate from the industrial service model of serving as a financing intermediary for the real economy. In the name of innovation, it pursues profits through speculation and arbitrage through financial derivatives and financial leverage, and gradually transforms into a naked financial transaction model. By 2008, this model "reached its peak", and then a financial tsunami spread across the world, severely damaging the global economy and affecting it to this day.

Unfortunately, it seems that we have not had time to deeply analyze and think about the deep-seated causes and consequences of the 2008 global financial crisis. After only a brief pause, we accelerated the pace of imitating American finance and began to financialize the economy. .

People are eager to invest and get involved in finance, and a large number of new banks, insurance companies and other financial institutions are constantly emerging. In 2006, before the financial tsunami in the United States, there were 238 commercial banks and insurance companies in my country. In 2019, the number of commercial banks and insurance companies in my country increased to 447, an increase of 88% in 13 years. Among them, insurance companies increased even more, increasing by 120%.

Private equity funds with the purpose of betting on listings and speculating on arbitrage have sprung up. In addition, there are hundreds of thousands of unregistered similar companies. Shadow banking, wealth management services of various financial institutions, P2P, "backdooring" and "shell speculation" of junk stocks of listed companies are rampant, and real estate and commodities are being financialized.

In the name of financial innovation, or even under the guise of serving the real economy, financial derivatives spread from the on-site to the off-site with greater risks, from financial futures to commodity futures, and risks continue to accumulate. The structure becomes increasingly complex. Algorithmic trading based on computer technology, such as leveraged trading and high-frequency trading, has become popular everywhere, making the financial market more fragile and full of crises.

In recent years, no matter how much the central bank releases money, it is difficult for funds to flow into the dry fields of real industries. This is not a problem with the central bank's monetary policy, but a huge siphoning effect from finance and financialized real estate, which demonstrate that money can be made quickly and money can be made more.

On the one hand, these siphoned funds have allowed financial institutions to make huge profits in the financial market. As a bank president said a few years ago: "Corporate profits are so low, bank profits are too high. I’m embarrassed.” On the other hand, the real economy is gradually shrinking, slowly inflating the financial bubble. In recent years, China's economic momentum has weakened and gradually declined. An important reason is the financialization of the economy.

Here, I would like to use a set of data to briefly describe the trend of economic financialization in our country in the past ten years. Let me make a comparison using 2006, before the financial tsunami in the United States, as an example. In 2006, the total profit of my country's industrial enterprises above designated size was 1,878.4 billion yuan. In 2019, the total profit of my country's industrial enterprises above designated size was 6,199.6 billion yuan. The latter increased 2.3 times than the former.

In 2006, the total profit of my country's financial enterprises was 395.010 billion yuan. In 2019, the total profit of my country's financial enterprises was 2.961274 billion yuan. The latter increased 6.49 times than the former. This growth rate was higher than the profit of industrial enterprises above designated size in the same period. 282% of the growth rate.

In 2006, the ratio of the profits of my country's industrial enterprises above designated size to the profits of financial enterprises was 4.8:1; in 2019, the ratio of the profits of my country's industrial enterprises above designated size to the profits of financial enterprises was 2:1. In just thirteen years In 2009, the rapid shrinkage of the weight of industrial enterprise profits in the entire economic aggregate and the substantial increase in the proportion of financial enterprise profits indicate that the financialization trend of the economy has been very significant.

In the first quarter after the outbreak of the COVID-19 epidemic in 2020, China's economy suffered a setback and fell by 6.8%, but the net profits of China's listed banks increased by 5.62% year-on-year. This phenomenon is incredible. The financialized economy will be unsustainable in terms of both historical laws and realistic examples, which is worrying.

Manufacturing is the foundation of the economy

China is a large country with a vast territory, a large population, increasing influence, and a very complex geopolitical environment. Unlike small countries that rely on their natural endowments and can passively or actively accept the international division of labor and live in peace and contentment, China must establish a relatively complete and peaceful country, whether from the perspective of people living and working in peace and contentment, sustainable development of a virtuous economic cycle, or from the perspective of maintaining national security. A self-contained, healthy and balanced industrial system and economic ecology.

We cannot over-consider comparative advantages and fantasize about international division of labor, otherwise we will be "unable to breathe", which will not only make economic development unsustainable, but will also seriously affect national security. The basic driving force of China's economic system is manufacturing. The important position of manufacturing is unshakable whether in the pre-industrial era (handicraft industry), the steam engine era, the electrical age or today's Internet era.

Manufacturing is as important as agriculture, which provides people with food. It is the real creator of material wealth and the source and driving force of all economic activities. Other industries have a dependent relationship with it, in which both prosper and lose. . Without the support of manufacturing, other industries will be difficult to sustain. The foundation of all virtual economies and all service industries is manufacturing, including the ever-popular Internet economy.

Manufacturing is the core and foundation of the entire economic system and is in the most important position. The integrity and maturity of the manufacturing industry chain determines national strength, national destiny, and the country's economic security, public health security, and national defense security. Manufacturing is the foundation of China's economy. We must be focused on this and use the strength of the whole country to do our best.

In order to maintain the foundation of Made in China, the primary and secondary relationship between the service industry and manufacturing must also be clarified. Over the years, some people have seen that in Western countries, including some developing countries whose economies lag behind ours, the service industry accounts for a much higher proportion of GDP than ours, and they have put forward the idea of ??establishing a service-industry power. Is this view correct?

First of all, the increase in the proportion of the service industry in the economic structure is due to the development of the manufacturing industry that provides technical support and creates demand for the social and living fields. At the same time, the improvement of labor productivity and technological progress in the manufacturing industry also provide the possibility for the transfer of labor to the service industry, indirectly supporting the development of the service industry.

In short, the development of the service industry is a natural change that occurs due to economic and technological progress and changes in social life. It should not be a goal that people deliberately pursue, and should not put the cart before the horse and blindly promote it. develop.

Secondly, the service industry, especially the daily service industry, has relatively low labor productivity. The development of the service industry alone will affect the level of economic growth.

We must not only develop daily service industries that meet the people's growing needs for material and cultural life, but also guide the development of manufacturing industries with higher productivity and productive services that provide supporting support for the manufacturing industry. Industry. On the issue of promoting China's industrial development, we must establish correct concepts and guide industrial optimization and upgrading.

Kuznets, the Nobel Prize winner in economics, proposed that the key to upgrading the industrial structure is the transfer of resources from sectors with lower productivity to sectors with higher productivity, thereby improving the overall resource allocation efficiency of the economy. improve. Therefore, we should have the right direction when formulating industrial policies and not go against Kuznets' direction of optimal resource allocation.

Finally, the United States and other Western countries have blindly developed the service industry and financial industry in the past thirty years and implemented the "de-industrialization" policy, which has failed. The implementation of the "de-industrialization" policy not only led to industrial imbalance and softening in the United States, seriously affecting the normal cycle of the overall economic system, but also created a large "rust zone", widening the gap between the rich and the poor, and causing social divisions. When the COVID-19 pandemic hit, due to the lack of manufacturing, the United States, known as the world's most developed country, was unable to guarantee even the most basic public health safety, and it was in chaos.

Therefore, we must not blindly imitate the United States in our economic development strategy, and firmly and down-to-earth build a large and powerful manufacturing country.

Allowing finance to develop blindly can lead to major risks

If finance is allowed to develop beyond its limits, not only will it be impossible for it to be content with its duty to serve the real economy, but it will also hinder the development of the real economy and erode China. Manufacturing has caused the phenomenon of industry and finance to wax and wane.

The report of the 19th National Congress of the Communist Party of China proposed to resolutely fight three tough battles. Among them, the most important thing to prevent and resolve major risks is to prevent and resolve major financial risks. To this end, two issues must be clarified: First, where major financial risks may appear ? Second, is the emergence of such major financial risks a price that modern economic and social development must bear?

In other words, does modern economic and social development have to adopt a financial self-service model full of risks? There is no other way but to move forward carefully along the single-plank bridge accompanied by risks? Is it necessary to be ravaged by financial crises again and again like the United States? To prevent and resolve these financial risks that follow us all the time, we can only strengthen supervision and take careful precautions. This is the fate of the modern economy. Is it really so?

Let’s look at the questions one by one.

First, where may major financial risks occur?

There are many types of financial risks that may occur in many economic activities, and major financial risks often occur in financial trading markets. Among financial transactions, the ones with the greatest risk probability and the highest impact intensity are leveraged transactions and financial derivatives transactions that also have leverage amplification and cross-market risks.

Second, why is there a financial trading market?

There are also many types of financial trading markets. Here we take the most typical stock market as an example. In order to provide direct financing services to the real economy, we need a primary market for issuing stocks; in order to provide shareholders who hold stocks with the convenience of allocating resources and transferring shares, we need to provide them with a secondary market for trading stocks. The financing capacity of the primary market is directly proportional to and closely related to the liquidity of the secondary market. Therefore, to provide direct financing services to the real economy, there must be a relatively active stock trading market.

Third, are there necessarily major risks in stock and other trading markets?

There is no doubt that there are uncertainties and risks in any transaction, and financial transactions are no exception, but they do not necessarily involve major risks. Judging from history and market practice, traditional stock spot market risks are limited, and major financial risks are often closely related to leveraged transactions and derivatives transactions.

Fourth, why are there leveraged transactions and financial derivatives?

The reason for the "innovation" of leveraged trading and derivatives is to provide liquidity to the market, curb market volatility and manage hedging risks.

Fifth, the market truth about leveraged trading and financial derivatives.

Margin margin trading is the main form of leveraged trading. In name, margin trading is to increase liquidity in the market, promote bilateral transactions in the market, and stabilize the market, but in market practice, it is another matter.

In the stock market, whether investors or speculators actively enter the market depends on the market atmosphere. Speculators who use financing leverage rarely enter the market during bear markets or when the market is cold, and it is impossible to provide liquidity to the market when the market needs liquidity. When the market enters a bull market and becomes lively, and the problem is no longer a lack of liquidity in the market, but to prevent the market from overheating and excess liquidity, speculators will use financing leverage to enter the market in large numbers, quickly inflating the stock market bubble, overdrafting the bull market, shortening the bull market cycle, and accelerating the Big stock market risk.

When the stock market bubble bursts and the market enters a downward channel, speculators will not only not continue to raise funds to increase their stock holdings, but will actively or passively close positions and sell stocks, they will also use securities lending instruments and other derivatives in reverse operations. Shorting the stock market and taking arbitrage in the opposite direction helped the stock market plummet.

In market practice, many of the various on-exchange and over-the-counter financial derivatives such as stock index futures and options, foreign exchange futures and options, and futures options are used to hedge risks and stabilize market volatility. risk management tool. This kind of nominalism can be established at the micro level, but at the macro level, it is wrong. Under the superposition of various internal and external factors, or even under the influence of small-probability events, financial derivatives will undergo immeasurable and uncontrollable nuclear fission. Not only cannot the risk be controlled, but it will also cause a financial crisis.

Just like an MIT economics Ph.D. who was invited to participate in the development of financial products and trading models on Wall Street in 1984 and is considered to have triggered the two most significant financial crises in the late 20th century, As Richard Buxtaber pointed out in his book "The Devil of Finance": "Our attempts to improve the state of financial markets have directly led to structural risks in financial markets, and the source of risks is precisely It is what we usually think of as innovation. We have taken many measures... to increase the complexity of financial derivatives, and thus inevitably lead to various crises. ”

Preventing major financial disasters. Risks cannot only rely on passive supervision. The correct approach should be to put finance in a cage that serves the real economy and use systems to restrict the financial industry from doing whatever it wants in the name of "innovation" and serving itself. We should also stay awake to overseas financial institutions that are good at derivatives trading and specialize in speculation and arbitrage. Direct investment should be encouraged and investment in financial derivatives restricted.

The cycle of capitalism is not the law of socialism

History is a bright mirror. In the face of today’s raging economic financialization, we should look back on history, especially the rise of capitalism in the West. Let’s look at the history of the last 500 years and see what enlightenment the cycle of rise and fall in history can give us.

The Age of Discovery, which began around 1500 AD, created four different "hundred-year cycles" including the Spanish, Portuguese Kingdom and Genoa city-state cycles, the Dutch cycle, the British cycle and the American cycle, creating the modern era. Capitalist world system.

In the early stage of rise and growth, these overlords all relied on industry to start and develop. However, when the industries they rely on develop to a certain stage, the capital that pursues profit maximization will turn to seemingly Easier, faster, and more profitable finance. When industrial capital enters the financial field on a large scale, it must be the most prosperous and wealth-rich stage of this century-old cycle.

However, it flourished but declined. With the large-scale transfer of industrial capital to the financial field, industry begins to shrink, material wealth begins to dry up, the economy gradually loses momentum, and financial bubbles gradually increase. Coupled with the challenges and squeezes of emerging economies, periodic major crises will be inevitable. The earth erupts, and the overlord is inevitably replaced.

"One cannot step into the same river twice." What we are engaged in today is the cause of socialism, which is a criticism and inheritance of human civilization so far, including the capitalism that exists with us. , is a creation in sublation, a new mode of production, and the creation of a new great history. We are not following the tradition, but following history, tradition, national conditions and social practice to create new history and laws. Therefore, the "100-year cycle" is a mirror of China. We must learn from it and find a new path.

We should be clearly aware of the negative effects of capitalist financial liberalization and cannot let it go unchecked. To avoid being misled by finance and falling into the fate of the capitalist cycle, the most important thing is to have consciousness and confidence in the socialist system.

1. Use the socialist system to reshape finance.

The fundamental goal of socialism is to achieve common prosperity for all, that is, to seek the greatest interests for all the Chinese people, that is, to maximize social interests. Different from the capital profit maximization of capitalism, it requires finance to serve the interests of the whole society, the real industry, and the people; it does not allow finance to imitate the United States under the guise of innovation and act in the name of serving the real economy. Real service.

Not only that, but more importantly, we have institutional advantages under the guidance of socialist development values. Under the guidance of socialist values, we can formulate a new financial system that is impossible to have in a capitalist country where capital profits are paramount, and that serves the people rather than capital, regulates financial services, inhibits the laissez-faire development of finance, and suppresses disadvantages and promotes benefits. Make finance do something and not do something.

This is our institutional advantage. This is the reason, confidence and magic weapon for us to avoid the "hundred-year cycle" of capitalism. However, everything depends on whether we have institutional consciousness.

2. Advocate a simple philosophy in the financial field.

We currently have a tendency to complicate matters when it comes to finance. Originally, finance was to provide financing intermediary services for the real economy. To improve service levels, it is certainly possible to engage in financial innovation, but the premise of innovation is to provide customers with low-cost, high-efficiency, convenient and fast financial services.

We must retreat bravely, resolutely oppose financial complexity, and let finance honestly provide intermediary services for financing funds and do what it should do. Policymakers and regulators should adhere to socialist financial values, adhere to the bottom-line principle of financial services for the real economy, focus on research on the direction of policy effects, and when facing "innovation" applications from financial institutions, they must carefully evaluate and empirically analyze the so-called "services for the real economy" service methods, transmission paths, and business processes; resolutely resist complicating finance in the name of serving the real economy and innovation, and serve themselves.

3. Treat foreign capital with caution in the financial market.

In view of the serious economic financialization in the United States and other Western countries, speculation and arbitrage in financial transactions are rampant. Therefore, in terms of policies towards foreign investment, we should encourage direct industrial investment and be cautious about financial investments and financial transactions. During the policy period that allows foreign investment in the financial market, in addition to strategically restricting the entry of foreign hedge funds into the market, the top priority should be to establish a real-time statistical and monitoring system for the entry and exit of foreign capital, especially short-term hot money, and formulate practical responses to different situations, especially extreme situations. Disposal plans to prevent large market fluctuations and financial attacks.

In today's world, networked finance is highly complex and cannot always be thoroughly understood or observed clearly. In addition, it has the power to spread like a virus, so it is very difficult to predict. Therefore, regulators must have a clear awareness of "epidemic prevention and anti-virus", must be determined, be able to withstand the lobbying of arbitrageurs, resist the temptation and pressure brought by competition between financial centers, and let the wind and waves blow. He remained motionless.

Adhere to the original intention of financial services and adhere to the philosophy of simplicity.

Source | Excerpted from "Origin and Original Intention", which is part of the CITIC Reform and Development Research Foundation·China Road Series

Text | Zhang Yundong, former Party Secretary of the Shenzhen Supervision Bureau of the China Securities Regulatory Commission , Director