In order to avoid this situation, the country must formulate a series of measures to deal with deflation, usually mainly in the following aspects.
- Emergency measures: implement an expanded fiscal policy and a loose monetary policy
Specifically, it can be implemented from the following three aspects.
(1) To prevent the further expansion of the imbalance between supply and demand of goods. To this end, the state must expand fiscal expenditures, specifically by increasing the national budget and increasing the issuance of treasury bonds to expand investment, and through investment expansion to increase the purchase of investment goods, so as to achieve the purpose of stimulating domestic demand, increasing employment and residents’ income. At the same time, it can also maintain residents’ income, stabilize residents’ propensity to consume, and stimulate the growth of private investment demand.
When investing, you should focus your investment on infrastructure investment. Judging from the actual situation in my country, the development of basic industries and infrastructure such as energy transportation and water conservancy construction are relatively backward, and large-scale investment can be appropriately made. In the process of investment, we need to pay attention to avoid duplication of construction. At the same time, the main direction of investment is in the central and western regions. There are two reasons for this.
One is the uneven development between the east and the west in my country. The gap between the two has gradually increased, resulting in an imbalance in the basic and processing industries, resulting in poverty, unfair income distribution and other problems, which will impair the implementation of national industrial policies, sustainable development and Regional economic cooperation and coordinated development have brought huge difficulties, and these problems must be resolved.
The second is that the country has implemented the strategy of large-scale development of the western region. Because the development of the western region is lagging behind, it still has broader development prospects. The western region is rich in resources and markets, which can attract a large number of investors. Through government technical funds, it can not only promote the development of the western region, but also drive some investors who are hesitant in the east to invest in the western region. To drive the upsurge of private investment.
(2) Accelerate the reform of taxes and fees, standardize corporate tax burdens, reduce corporate tax burdens, increase tax refunds, and promote exports. Establishing a corporate tax system that conforms to the market economy and practices will not only benefit the performance of government functions and the performance evaluation of enterprises within the system, but also help establish a level playing field for enterprises with different owners.
(3) Implement a moderately loose monetary policy. Specifically, this can be done: the current level of deposits and loans should be stabilized, and the current low interest rate should continue to be used to promote consumption by residents, stimulate investment, and reduce the burden on enterprises; at the same time, the reform of state-owned banks to commercialization should be accelerated to allow Commercial banks become economic entities that operate independently and are responsible for their own profits and losses, and get rid of administrative intervention in bank operations. This can truly realize the link between bank investment funds and efficiency; it is also necessary to pay attention to actively supporting non-state institutions to explore services for small and medium-sized enterprises New way. Relax the floating range of commercial bank loan interest rates, enhance the ability of financial institutions to participate in economic activities, timely adjust the financial supervision policy, and combine the prevention of financial risks with the increase of lending to small and medium-sized enterprises to solve the problem of bank lending.
- Fundamental measures: speed up institutional innovation, optimize industrial structure, and cultivate new economic growth points
To truly bring the economy out of the trough, rebound and recovery, and a new round of “take off” after the “soft landing” has been achieved, we must tackle the problem fundamentally-implement institutional innovation, adjust industrial structure, and eliminate investment The contradiction between the three aspects of, demand and supply, expand effective demand. Specific work can be done as follows.
(1) Adjustment of the state-owned economic layout at the macro level. When making strategic adjustments to the layout of the state-owned economy, we should follow the requirements of the socialist market economy, proceed from the function of the state-owned economy in the socialist market economy, and make a correct position for the state-owned economy so that it can be in the socialist market economy. Giving full play to its enormous role, only by strategically adjusting the layout of the state-owned economy can the state-owned economy get out of its predicament fundamentally and enable the socialist market economy to operate more effectively.
To this end, the direction of government investment and social investment should be separated and complemented, so that the state-owned economy can only occupy a dominant position in important industries and key areas related to the national economy. The main aspects of the state-owned economy are national security, monopoly industries, and industries that provide important public products and services. In these areas, China’s economy should play a leading role. The state-owned economy must be withdrawn from profit-making and competitive sectors, thereby reducing government risks, and at the same time guiding private investment into these areas.
(2) Reform of the property rights system. In the process of reform, state-owned enterprises must reform their property rights. The abstract property rights of state-owned enterprises must be transformed into clear investors after reforms. The property rights of other state-owned enterprises except for a few state-owned enterprises with public product attributes can be changed. Property rights are transformed into collective or private property rights. This method can implement the responsibility of the enterprise to the individual, thereby linking the interests of the enterprise with the interests of the owner, and separates a certain percentage of the residual claim rights from the owner with personal wealth, salary, and share options. Through this method, the consistency of the interests and utility objectives of the operators and the owners can be enhanced, and the enterprise can become an economic organization that truly pursues the owner’s wealth and value maximization, so that the enterprise can truly realize the marketization of production and investment and eliminate the government. Excessive intervention of administrative actions in production and operation.
(3) Industrial structure adjustment. Because of the irrationality of the industrial structure, companies cannot be market-oriented, so that they cannot produce marketable products, and they will gradually lose their competitiveness in the market. At the same time, overcapacity will arise. Therefore, we must use the “invisible hand” of the market to optimize the allocation of resources, reduce excess supply in terms of output and production capacity, and gradually alleviate the current imbalance of oversupply.
To this end, some non-technology-intensive industries with serious low-level redundant construction and low production capacity can be vigorously adjusted to reduce ineffective supply, achieve a balance between supply and demand, and lay the foundation for alleviating deflation. At the same time, we must also pay attention to strengthening the primary industry, improving the quality and competitiveness of the secondary industry, expanding the scale of the tertiary industry, improving the quality of the tertiary industry, and promoting industrial restructuring.
In addition, from the technical aspect, we must increase the intensity of technological transformation, increase the technological content of products, and cultivate new leading industries and new economic growth points. After the structural transformation is carried out, technological progress, innovation capabilities and efficiency improvements can be used to change the serious overcapacity problems currently faced by my country’s heavy industry and processing and manufacturing industries, as well as the weak foundation of high-tech and information industries. It is very important to change the current industrial structure of our country.
The invention and application of new technologies can make the economy a source of expanded growth under the new structure. Through innovation to cultivate new leading industries and new growth points, many new investment opportunities can be generated, and the scale of production and employment will also expand accordingly, so that there will be a gradual economic recovery, so as to maintain a sustained and effective economy To grow.
From the perspective of the market, many consumer products with oversupply in the market are almost old products. These products are far from satisfying the higher-level needs of consumers in terms of quality and use value, so they cannot stimulate consumers. After improving the technology, the products are marketable and the effective needs of consumers are met. This will inevitably make consumers’ enthusiasm for buying rise. In this case, it will promote the expansion of demand and make the economy heavy. Revealed vitality, and turned into a state of recovery and recovery.
- Long-term measures: increase the income of urban and rural residents and improve the social security system
To promote the development of consumption, it is necessary to increase the income of residents first, and only when income increases can there be capital for consumption. Therefore, increasing the income of residents, especially the income level of the middle and low income groups, will gradually narrow the income gap between all social classes, vigorously promote the western development strategy, and continuously narrow the economic gap between the east and the west, so that the living standards of the western residents will be improved and changed. The current situation of insufficient consumption among residents in this area has allowed the average propensity to consume in the whole society to be improved as a whole, thus truly raising the consumption level of residents.
In addition, the tax management system for high-income groups should be strengthened. At the same time, a taxation plan for inheritance tax should be promulgated as soon as possible, and the increased tax should be subsidized to low-income laid-off workers and retirees through transfer payments, so that their spending power It is necessary to improve the social security system including pension, medical care, unemployment, etc.; it is also necessary to expand consumer credit to stimulate consumer demand; it is necessary to organize the production of agricultural products in a market-oriented manner, so that the income level of farmers can be improved; speed up urbanization We will vigorously develop the tertiary industry and establish a rural social security system to cultivate and develop the vast rural market. Give strong support to township and village enterprises, promote them to carry out institutional innovation, improve their management level, vigorously promote the construction of small towns, and promote the common development of rural, agricultural, processing, commerce, transportation, and service industries, thereby creating more job opportunity.
How do individuals deal with deflation?
Deflation is not a good thing for everyone. With the advent of the deflationary era, the supply of social goods, energy, labor services, etc. has exceeded demand, prices have fallen, and corporate profitability has also been on a downward channel, and wage income has also been greatly affected. How can I keep my money bag from shrinking?
How do individuals deal with deflation
- Cash is king
Financial experts pointed out that in the era of deflation, all assets will depreciate, and the most important thing is to ensure the safety of stock assets, so cash is king.
The analysis believes that in the era of negative interest rates, the interest income of bank deposits is lower than the increase in prices. People may be more willing to use money to find better asset appreciation channels, such as buying real estate, stocks and other anti-inflation products. If there is deflation, for example, the CPI is negative. In this era of positive interest rates, everyone should deposit money in the bank. That is, under inflation, no matter how high bank deposit interest rates are, if the CPI remains high, deposits may also become negative interest rates. Under deflation, no matter how low the bank deposit interest rate is, if the CPI is negative, deposits will still increase in value.
- Configure bond products
Financial experts pointed out that during the deflation cycle, idle assets will be allocated as much bond products as possible, including government bonds, corporate bonds, and bond funds.
Analysis believes that deflation has a tendency to increase bond prices. Investors tend to buy bonds to withstand the impact of price changes. During deflation, any interest-bearing government bond can bring returns that exceed the deflation rate. This positive return increases the demand for bonds and therefore increases prices. The rise in bond prices also reflects the lack of economic uncertainty during deflation. In times of uncertainty, people are less willing to invest in stocks and will choose bonds because the latter are considered safer assets.
In addition, in a deflationary environment, government bonds with longer maturities tend to perform better. Looking back at several deflationary environments in history, investors have bought treasury bonds to hedge, pushing yields down, while prices have soared, leading to higher overall returns.
Either interest rate cuts or RRR cuts are conducive to causing the bond yield curve to fall, thus benefiting the bond market.
- Stocks, must be careful
Generally speaking, deflation is bad news for stocks, because falling prices and weak demand over a period of time will reduce corporate profits, thereby weighing on stock prices. However, this does not mean that investors worried about deflation should completely withdraw from the stock market.
Industry insiders believe that due to factors such as the decline in international oil prices and weak domestic demand, the Chinese economy is facing severe deflationary pressures. For A-shares, the profits of upstream raw materials industries and highly indebted companies will be squeezed, but at the same time they will also be squeezed. Structural opportunities: Downstream companies will benefit from the decline in raw material costs under deflationary pressure; the increase in real interest rates brought about by deflationary pressure will help promote the exit of backward companies and provide opportunities for superior companies to expand against the trend; deflationary pressures Further easing of fiscal and monetary policies will bring benefits to sectors such as finance and infrastructure.
Some analysts have suggested that if you want to invest in stocks under deflation, you need to choose companies that have sufficient cash, low debt ratios, stable dividends, and products that will be purchased even during economic downturns, such as consumer staples companies.
- Invest in the property market cautiously
Generally speaking, deflation means that the prices of commodities, real estate and other hard assets will fall. In 2014, China’s housing prices in first-tier, second-tier and third-tier cities all experienced a general decline. Recently, Political Commissar Lu, the chief economist of Industrial Bank, stated that the golden period of rapid growth in real estate prices and rapid investment growth in the past 15 years is over. The latest data shows that real estate investment continues to decline. The number of real estate sales units and area tracked by high-frequency tracking in January 30 cities have both weakened year-on-year. In January, both Vanke and Poly announced negative growth year-on-year. There is continued downward pressure on real estate investment.
Analysts said that in a deflationary environment, investors should pay special attention to commercial and residential real estate, as well as real estate trust funds that invest in this area. However, investors should note that in a deflationary environment, the government will take some measures to stimulate real estate in order to stimulate the economy, which may promote housing prices. Faced with the threat of the global economic crisis in 2008, China implemented some stimulus measures on real estate, and China’s housing prices ushered in a sharp rise in 2009.
V. Gold is also a weapon
Is gold worth owning? Analysts say that gold is seen by many investors as a weapon against inflation, but it can also be used to combat deflation. The government often prints more banknotes to respond to deflation concerns, which will trigger fears of future inflation and push up the price of gold.
- Prudent loan consumption
There is no doubt that with the increasingly severe economic situation, the decline of exports, the downturn of enterprises, and even the bankruptcy, if people are still taking a loan to buy a house and a car, they will face huge repayment difficulties in the future. In addition, if you owe 300,000 yuan and prices are falling, the debt you have to repay could have been exchanged for more goods and services.
If you have to take on some debt, shorten the loan period as much as possible. The Wall Street Journal recommends that if investors expect deflation, they should pay off their mortgages and invest in longer-term bonds. “Don’t lock yourself in a higher loan interest rate.”