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Monetary authorities cleverly taken most of the residents’ 30 years of wealth

by Zhong Wei

Although the CPI in China 30 years on average 4.8 percent, however, there is no appearance of serious inflation, but the caliber of the speed of money supply growth, so that monetary authorities are still subtly, unknowingly took the majority of the residents of wealth, which species of the process is the so-called “monetization”

The early 1980s, China has been a popular vocabulary, called the “million households”, which was to become rich as a synonym for the “million households”, after 30 years of China’s financial baptism, their wealth may be growing and shrinking state?

We were selected 1981,1991,2001 and 2007 to study the four point, take a look at possible changes in monetary ways.

The first is: per capita income from the household perspective, the four time points are as follows: 500 yuan, 1700 yuan, 6800 yuan and 13,800 yuan. So “wealth million” to keep pace with growth in per capita money income, 30 years ago, a million, roughly 27-28 million, and now considerable. Of course there are other changes in caliber of the monetary income, for example, look at the average wage for urban workers, the four time points were 780 yuan, 2,300 yuan, 10,800 yuan and 21,200 yuan, so that the results of almost counts. The money wage workers in the past 30 years, every 10 years to grow by about 3-4 times, which in essence means that the savings up to 10,000 yuan inevitable derogatory followed. In other words, in 1981 1 million, was roughly equivalent to the wages of workers 13 years or 20 years per capita household income, according to the current level of wages or income projections should be roughly 10,000 yuan was equivalent to the current 270,000 — standard of 280,000 yuan.

The second, from the residents to see the per capita savings, the four point total household savings are as follows: 52.3 billion, 920 billion, 7.4 trillion and 17.3 trillion, after the changes take into account the population’s per capita savings of 52 yuan, 800 yuan, 5900 yuan and 13,000 yuan. This calculation, in 1981 the “million of wealth” was the equivalent of 200 times the per capita savings, equivalent to nearly 2.55 million yuan now.

Two from the above calculation is very rough, the “million of wealth” can not suffer a substantial shrinkage of time, it is assumed that China, like the United States with a similar inflation-indexed bonds (TIPS), then using 1981 as a fixed base, four of the CPI index point 100,199,390,440, respectively, that is to say, even if the Chinese people as early as 30 years ago will be able to purchase and CPI indexed government bonds, when 1 million to 4.4 now will only million. The assumption that the “million households” to take a rolling five-year regular savings deposits, even taking into account the preserve and increase the subsidies, when the 10,000 yuan into the bank today, it is difficult, at best, more than 100,000 yuan.

Examples may be rough, but the conclusion is obvious: the past 30 years, the money itself with the passage of time is indeed very “cheap” again!

Although the CPI in China 30 years on average 4.8 percent, however, there is no appearance of serious inflation, but the caliber of the speed of money supply growth, so that monetary authorities are still subtly, unknowingly took the majority of the residents of wealth, which species of the process is the so-called “monetization.”

The degree of a country’s currency and the related study on the effects of prosperity in the international arena in the 1960s to the early 1980s, after a significant cooling. A pioneer in studies of domestic Yi Gang was completed in 2001-2003, Yi Gang was determined by China’s economic reform, the process of monetary and exchange rate variations, currency and the relationship between price changes. For purposes of convenience, we may as well make things even more straightforward and certain.

The past 30 years, the process of China’s currency is the currency of a dimension of the use of the continually expanding. In the early 1980s, may only be useful goods money and other necessities of life, and rationing will have to have a ticket in order to send a on-purpose. At that time, education, housing, medical care is basically the public. With the economic and social reforms deepening, the above-mentioned areas are the currency of the whole, and your school, your doctor, more expensive houses. Not only that, but even many of the currency should not be fully monetized the field, and everything from bribery, buying and selling official posts, the money is the fundamental driving force behind. The expansion of the scope of the currency itself requires the monetary authorities to issue more currency, the original “high-welfare, low-wage” labor remuneration structure, and also gradually to a monetary income mainly as a supplement to Social Security’s structure has been tilted.

The process of China’s currency is the currency of another dimension of the phenomenal expansion of the scale. Running an annual net cash of view, in 1981 50 billion in 2007 compared with 330 billion yuan, an increase of 66 times the cash in circulation grew from 320 billion to 2.7 trillion, which also does not take credit card for cash great penetration and substitution effects. To the balance of broad money M2, the 1.9 trillion for 1981, 2007, compared with 40.3 trillion, an increase of 21 times in the past 20 years, even the lowest in the M2 growth rate in 2000, it reached a year-on-year increase of 12 %. Credit and broad money continue to run faster than the income growth faster than GDP growth, the past 10 years, China has always been M2/GDP ratio the highest in the world.

After sub-loan crisis, as the first half of 2009, M2 reached a balance of 57 trillion, up 28.5 percent growth rate, the credit balance of 37.7 trillion, up 34 percent growth in circulation up to 3370 billion cash balance, up by rate 11.5%. China’s economy seemed to be loose monetary supply and equally difficult to curb the over expansion of industrial scale, the economy was over-lubrication is similar to the wheels, fast forward. Unfortunately, the distribution of the labor factor in the proportion of GDP, the growth of monetary income workers, as well as distortions in the distribution of income has been difficult to conceal. In any case, growth and income growth can not keep up with the pace of the note-issuing.

China’s currency speed the process of bringing a lot of lucky things, First, the monetization of financial resources to enable the Government to concentrate in practice is not conducive to holding long-term government bonds or bank savings, which to some extent alleviate the deterioration of income distribution problem. The second is to enable the monetization of the total assets of the banking system continues to expand, is not conducive to rapid expansion of banks maintain a healthy capital adequacy ratio, but diluted to a large extent even in the banking system to cover up the problem of non-performing assets, Zhou Xiaochuan, has pointed out that the Before 2003, the banking system to resolve non-performing assets, to a large extent due to the expansion of asset size, and then the improvement is the management structure. From the past 30 years, China speed the process of currency is the government to continue to guide the economic reform of the very important factors lucky.

Economic and financial operation of the fun lies in the fact that this is often between the government and the private sector you have a policy, I have the game process of countermeasures. On the million households in the 1980s, if he indulge in consumption, in very rare at that time to buy color TV, refrigerator and tape recorder, then to the residual value of these assets today, close to zero; if he is looking to preserve the value of the buy and hold gold at that time since the 1980s, I remember about 60-70 grams of gold per million, is currently about 270 yuan, less than 5 times the value; if he had to buy rice and rice can be assumed that the long-term non-degenerate, then 30 years, the price per kilogram of rice has increased by about 0.5 yuan to about 3.5 yuan. Even if the choice of savings or bonds, the erosion of the currency under 30 years will still be eroded the value of 2 / 3.

Rapid monetization in the process of holding cash or low-risk low-income savings, bonds and other financial assets, and to give up most of the wealth difference is not significant. Currency can be used to purchase large-scale industrialization of consumer goods, is almost equivalent to extravagant spending.

China speed the process while the currency has been going on for 30 years, but it is hard to imagine another 30 years, the financial system of over-bank and investment in economic growth is too prominent position in technological innovation can be slow poor structural adjustment, income distribution can hardly be genuine concern for reform. Of greater concern is that local governments, businesses and even residents have been in more than three decades of personal experience, have taken note of the use of “long-term financial liabilities” and even to use to counter the rapid monetization of its basic concept is nothing more than fortune today is not money, the debt is not debt tomorrow.

In my view, China’s monetary policy must be returned to a large extent to the classical quantity theory of monetary return, so that economic growth, income growth and money supply remained relatively stable and reasonable relationship between the monetary policy tools should not rigidly adhere to the so-called indirect control, but should the price of tools and simultaneously the number of tools, internal balance and external balance, and attention to asset prices and inflation expectations may be the risk of abnormal changes.