What Is the Real Economy?

The real economy refers to the total value of commodities produced by a country. It is the economy that people create on earth through the use of tools. Including economic activities such as the production and distribution of material and spiritual products and services. Includes material production and service sectors such as agriculture, industry, transportation and communication, business services, construction, and cultural industries.

Real economy

The real economy refers to the total value of commodities produced by a country. Yes

Adam Smith (UK). The Wealth of Nations. Smith's book is the founding work of modern economics and the greatest economics work. His theory of labor value, division of labor and specialization are the theories of the source of economic efficiency. The "invisible hand" theory of the characteristics of the real economy and the nature of liberalism have inspired future game economics and made contributions comparable to economics. Newton's contribution to physics.

David Ricardo (UK) Principles of Political Economy and Taxation (Vol. 1). Ricardo is a successful speculator on the London Stock Exchange.

"Real economy" is not a special term. At least we often see such words in daily life. Sometimes this word is even used very popularly. To put it simply, as long as it is registered with production service activities Economic organizations can be counted as

The traditional view is that the real economy refers to those sectors or industries that are related to the national economy and people's livelihood.

The relationship between the virtual economy and the real economy can be summarized as: the real economy relies on the virtual economy, and the virtual economy depends on the real economy. Discussed separately below.

The concept of the real economy and the virtual economy

What is the real economy? The real economy refers to economic activities such as the production, circulation, and material and spiritual products of services. What is a virtual economy? Definition: A virtual economy is simply an activity that directly generates money from money and corresponds to the real economy.

1. The real economy uses the virtual economy

This manifests itself in three points: First, the virtual economy affects the external macro operating environment of the real economy. For the real economy to survive and develop, in addition to its internal operating environment, it must also have a good external macro operating environment. In this external macro operating environment,

The virtual economy shows some new characteristics in the development process: it is more virtual, and the continuous emergence of financial derivatives since the 1970s has made it farther and farther away from the real economy. According to statistics, foreign exchange transactions in the financial market are: More than 90% are related to speculative activities; greater risk, the use of financial derivatives can make smaller capital control hundreds of times the funds, there is a significant amplification effect to aggravate the risk; the stability is worse, compared with the real economy In terms of changes in the virtual economy, there are more factors and its stability is worse. If virtual capital is excessively expanded in the modern economy, it will have a negative impact on the real economy.

Excessive expansion of the virtual economy increases the possibility of turbulence in the real economy. If the virtual economy enters the production or service system in the form of expanded credit, it will increase the uncertainty of the operation of the real economy. In particular, the leverage effects of financial derivatives that are not directly related to the real economy, make the profits and risks of virtual capital transactions multiply. It is easy to cause speculation under the psychological influence of expected risks and expected returns. At the same time, huge profits will be obtained. Bringing microeconomic entities into a liquidity dilemma, bringing economic turmoil and even economic crisis. The outbreak of the Asian financial crisis in 1997 was a reflection of the impact of international speculative capital.

Excessive expansion of the virtual economy leads to the formation of a bubble economy. Because the price formation of the virtual economy is more affected by people's psychological expectations, if the expectations of virtual capital are too high, it will cause its price to deviate from its own value basis, which will cause the price of most commodities in the real economy to deviate from its value. Rising, creating false economic prosperity. People's expected returns are high, which will cause a large amount of funds to flow from the real economy to financial markets and real estate, seriously affecting the rational allocation of production resources, making the real economy's insufficient supply of production and investment funds, frequent bankruptcies, and financial institutions. A lot of bad debts appeared. And financial institutions in order to avoid risks and raise interest rates will put more companies in trouble. Once the bubble bursts and the financial crisis erupts, the unemployment rate rises, household consumer spending will shrink, and aggregate demand will shrink extremely, which will cause a sustained macroeconomic recession.

(3) The excessive expansion of the virtual economy will also mask the overheating of the economy. Due to the existence of a dual price mechanism between the real economy and the virtual economy, inflation during the overheating period will shift from the commodity market to the capital market. During this period, the stock price will rise all the way. This masks the overheating of the economy.

(I) Actively promote the development of the real economy

Without the support of the real economy, there will be no solid foundation for the return on investment and transactions in financial assets. At present, in the development of the state-owned economy, problems such as unreasonable product structures, technical structures, and industrial structures, severely solidified capital, and lack of liquidity Therefore, we need to adjust the industry layout, regional structure, and state ownership, work hard to advance the modern enterprise system, make the state-owned capital alive, optimize the allocation in the flow, and give full play to its contribution to the real economy. Through various means such as policy support and encouragement of private venture capital, we must vigorously develop the high-tech industry, accelerate the industrialization of scientific and technological achievements, feature technology commercialization and market demand as the guide to accelerate the adjustment and upgrade of China's economic structure. Promote the steady development of the real economy and provide sufficient guarantees for the development of the virtual economy.

(2) Moderate development of virtual economy

In the era of economic globalization, it is of great significance to moderately develop a virtual economy, which will help transform and enhance the real economy. At present, the proportion of direct financing in China is relatively small, the capital market is still immature, the scale is small, there are few varieties, and the operation is not standardized; financial innovation has just begun. Therefore, we should learn from the experience of financial innovation in Western countries, actively explore new forms of virtual capital and new technologies of virtual capital transactions, and promote the development of the monetization and asset securitization of the real economy. While strengthening the prevention and elimination of market investment risks, the development of various derivatives with hedging and hedging functions has been the focus of innovation and development of the virtual economy. Since the development of the virtual economy will crowd up the investment of the real economy to a certain extent, we must also pay attention to controlling the extent of the expansion of the virtual economy, relying on the government's macro-control, and coordinate the relationship between the real economy and the virtual economy by formulating corresponding monetary policies and guide The return of the virtual economy to the real economy.

(3) Improve the supervision system and system construction

Since the virtual economy has inherent instability since its inception, with the continuous development of modern science and technology, the financial network and electronic means have been strengthened, making the financial transaction market show strong variability, especially when financial expansion When the economic and trade growth rate is exceeded, capital movements aimed at financing and speculative profit-making increase the bubble component of the economy. Without a sound regulatory system, it will inevitably affect the stable development of the real economy. We should strengthen supervision of bank capital adequacy ratios, asset liquidity, and risk management, and establish public supervision and public opinion supervision mechanisms. At the same time, it is necessary to standardize the operation of the securities market, strengthen the management of international hot money, and monitor the virtual and speculative financial derivatives. We need to advance the development of all levels of the virtual economy step by step and open the financial market in a prudent and orderly manner.

Separation of China's Financial Sector and Real Economy: Causes, Possible Results and Countermeasures

I. Introduction

From 1991 to 2006, the average annual growth rate of China's GDP was 10.16%, while the average annual growth rate of broad money M2 reached 21.83%, and the average annual growth rate of M2 was more than twice the average annual growth rate of GDP. At the same time, the financial assets / GDP (FA / GDP) ratio of financial institutions increased from 110.0% in 1991 to 172.4% in 20061. In the Chinese economy, this phenomenon of faster currency growth than the real economy can be called the separation of the financial sector from the real economy. In fact, in any economy, as long as the transfer of financial resources does not form the corresponding physical assets, there will be a phenomenon that financial assets increase faster than physical assets. In the real economy, speculative behaviors and The unusual fluctuations in the prices of some assets (especially stock prices and real estate prices) also indicate a separation between the currency and the real economy. In theory, the financial function view demonstrates from the financial risk management and resource allocation functions, why the increase in financial assets is faster than the growth of the real economy, so there will be a separation between the financial sector and the physical sector2. It can be seen that it is a common phenomenon that the currency growth rate is faster than the economic growth rate, and separation is the norm.

This report believes that the separation between China's financial sector and the real economy is mainly driven by economic fundamentals. It is caused by passive external demand under the current exchange rate system and is the result of long-term accumulation of external demand. Financial control policies may be expanded to some extent, and this separation may be restricted, but there is uncertainty. Together, these two factors have resulted in an excess of macro liquidity in the Chinese economy, which has not been reflected in a marked improvement in the financial liquidity of micro-enterprises. At the same time, because China's economy is basically oriented, it is necessary to adopt a small and multi-frequency austerity monetary policy and administrative management policy to eliminate the potential risks brought by excessive fluctuations in the prices of local economic assets and enable monetary policy to be applied in the financial sector. To achieve a balance between the level and the level of the real economy: Monetary policy to eliminate large fluctuations in asset prices must avoid deteriorating corporate financial liquidity and a significant decline in corporate investment due to the deterioration of corporate financial liquidity. This report demonstrates these judgments in four parts. The second part analyzes the reasons for the separation of Chinese financial sector and gaming entity economics ; the third part discusses the possible consequences of this separation; the last part is the brief conclusions and policy recommendations.

Reasons for the separation of China's financial sector from the real economy

(1) The strong growth of the foreign trade surplus is an important reason for the separation of the financial sector and the real economy in the Chinese economy. The increase of financial assets in the financial sector faster than the increase in GDP is mainly caused by the passive external demand under the current exchange rate system. It is the result of long-term accumulation of external demand, especially since 2001. But in general, this separation is mainly based on the real economy and is based on a better real economy.

Since the 1990s, FA / GDP and M2 / GDP have gradually increased in China's economy (Figure 1). For the monetary growth of the 1990s, a basic judgment is that, unlike the Chinese economic monetization in the early 1980s, which brought a large amount of monetary income to cover the costs required for reform, after the mid-1980s, the process of China's economic monetization slowed down. The main result of excess money supply is inflation, and the returns on currency issuance have also fallen significantly (Yi Gang, 1996). After 1992, the monetization of the economy reached its peak, and it was no longer enough to pay for system reform subsidies by issuing currency income (Xie Ping, 1996). Therefore, currency growth since the 1990s is not the result of the issuance of currency by the management to obtain coinage tax revenue.

Because export trade is mainly caused by external demand, under open conditions, high savings are more likely to be the result of a trade surplus than the cause of a trade surplus. Since foreign-funded enterprises account for more than 50% of China's export trade (the proportion of foreign-funded enterprises' exports in total exports in 2002 was 52.2%, 2006 was 58.2%, and the first half of 2007 was 56.9%), therefore, FDI The resulting foreign trade surplus has become an important reason for promoting FA / GDP growth in China's economy in recent years. A large number of studies have shown that FDI has increased investment and capital formation in the Chinese economy, promoted the upgrading of industrial technology, and played a positive role in promoting China's economic growth. Therefore, under such judgments, the higher M2 / GDP and FA / GDP in China's economy are driven by better economic fundamentals.

The real economic recession is mainly manifested in three aspects: First, employment has decreased and unemployment has increased. Second, the expected income of residents has decreased, consumer confidence has been severely frustrated, and consumer spending growth has stagnated. Third, corporate investment confidence is low, residential investment continues to decrease significantly, and industrial activity is weakening.

In order to verify the specific relationship between the increase in foreign exchange assets brought by the foreign trade surplus and M2 and FA, using the time series data since 1995, the natural logarithm of the rate of change of foreign exchange reserve assets denominated in RMB is used to compare the changes in M2 and FA. Regression of the natural value (the p-value of the corresponding variable in parentheses below the equation).

The regression results show that the increase in USD foreign exchange reserve assets is a significant explanation factor for the increase in M2 and FA.

The elasticity coefficient of the increase in foreign exchange reserves against M2 is 0.14, and the elasticity coefficient of FA increases is 0.17. Therefore, it is the high investment and high external demand that have caused the rise in FA / GDP in the Chinese economy, and high savings are more likely to be results than causes. Especially after China's entry into the WTO in 2001, high external demand was the direct cause of higher M2 / GP and FA / GDP in the Chinese economy. At the same time, there are some problems with the financial system itself, such as non-performing assets, which are also part of the reason for higher FA / GDP, but the main reason comes from the rapidly rising trade surplus and the current exchange rate arrangement.

(2) The financial control policy has led to the credit bias of the state-owned economy and increased the FA / GDP ratio in the economy, but there is uncertainty. At the same time, the financing constraints of non-state-owned economies have reduced the FA / GDP ratio in the economy. The fragmentation of regional capital markets caused by financial control policies is uncertain about the changes in FA / GDP in the economy, but the rise in asset prices caused by excess macro liquidity has further exacerbated the separation between the financial sector and the real economy.

Different from the traditional theory of financial restraint and financial restraint, the financial control policy in China's transition period is designed to ensure that management departments can obtain specific financial resources to support state-owned enterprises and other reforms, while making risks as possible as possible. Control (Wang Jinbin, 2000). In theory, there are multiple possible relationships between financial control policies and FA / GDP: On the one hand, financial control policies ensure that bank-dominated financial systems allocate credit resources to state-owned enterprises and government-supported industries. Credit then increases the number of financial assets in the economy, leading to an increase in FA / GDP4. From the data point of view, private enterprises contributed about 50% of GDP, but only received 25% of bank credit; state-owned enterprises contributed 20% of GDP, but obtained 2/3 of credit (Tran, 2006). However, since there is no data on the proportion of state-controlled enterprises' loans with a term of more than one year in the total loan amount, if this proportion is gradually reduced, then there is uncertainty about whether the state-owned credit bias will necessarily lead to an increase in FA / GDP. However, from the data of short-term loans, the proportion of short-term loans of non-state-owned economy (including township enterprises, private enterprises and foreign-funded enterprises) in the total short-term loans of banks never exceeded 20% from 1994 to 2006. State-owned holding companies have always accounted for 80% of short-term loans. Judging from this data, on the one hand, financial control policies have led to more credit for state-owned enterprises and increased the proportion of FA / GDP in the economy; at the same time, this policy has caused significant financing constraints on non-state-owned economic components (see the following section) Analysis), and also reduced the FA / GDP ratio in the economy.

If we look at the changes in the marginal productivity of capital, as the marginal productivity of capital is steadily declining, from 16% in 1990 to less than 13% in 2004, and investment efficiency is decreasing (IMF, 2005), then at least we can judge This investment and financing system has caused capital inefficiency to a certain extent, and has led to the separation of the financial sector from the real economy.

The third specific manifestation of the financial control policy is that under the financial control policy, the stock market has become an important platform for management departments to support the reform of state-owned enterprises. Prior to the share reform, state-owned enterprises had always occupied a larger proportion of listed companies, and the stock market became one of the main financing channels for state-owned enterprises. At the end of 2005, there were 532 listed A-share listed companies in China with more than 50% of shares, and 912 listed companies with state-owned shares over 20%. Residents and various investors participate in various transactions under the leadership of the management department through the stock market to achieve the purpose of using direct financing channels and risk socialization in the state-owned economy. The development of the stock market has changed the structure of financial assets in the Chinese economy and increased the number of financial assets in the economy. The data in Table 1 shows the changes in the capitalization ratio in the Chinese economy. Stock assets have become important financial assets in the Chinese economy, and the stock market has greatly promoted the formation of financial assets in the Chinese economy. At the same time, recent research has shown that the variable directly related to stock prices (Tobin'sQ) is not a factor that explains the investment decisions of listed companies (Wang Jinbin, Wang Jiajie, 2007), which has led to the inability to form financial assets at the same time. Expected corresponding physical assets have led to the separation of the financial sector from China's real economy.

The above discussion shows that financial control policies are uncertain about the changes in FA / GDP in the Chinese economy. The state-owned economy credit bias has increased the FA / GDP ratio in the economy, but has made non-state-owned economic components face stronger financing constraints and reduced the FA / GDP ratio in the economy. The regional capital market segmentation caused by financial control policies is uncertain for changes in FA / GDP in the economy. At the same time, the rise in stock prices is not a signal to guide corporate investment. Therefore, the rise in stock prices due to excess liquidity has further promoted the separation of the financial sector from the real economy in the Chinese economy.

In 2012, the latest data from the National Bureau of Statistics of China showed that in the first quarter of 2012, industrial enterprises above designated size realized profits of 1044.9 billion yuan, a year-on-year decrease of 1.3%. ^{[2] The} slump in the real economy is the main cause of industrial hollowing out and the financial crisis.