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A Brief Discussion on the Market-Based Expression of National Economic Will

2007/11/11 17:13:00

Under planned economy conditions, the state's economic will can be proclaimed through multiple channels — the only thing lacking is marketization. Under market economy conditions, relying solely on hard measures such as administrative directives and policy interventions for regulation is clearly out of step with the times. Under market-based mechanisms, the deployment of state assets such as state-owned shares, foreign exchange reserves, and social security funds will inevitably embody the state's economic will. How to properly manage the relationships involved truly deserves serious exploration and research, as it concerns national economic security and the ultimate realization of the national economic development strategy.

The state's economic will is not an impulsive whim, nor can it be based on short-term interests or moral impulses. The state's economic will must be built on the foresight, comprehensiveness, and systematicness of national strategy. Without foresight — thinking like a retail investor tailing a market maker, following other major powers' playbook — that is absolutely unacceptable. China is a major power, and its economic will must carry the bearing of a great nation. It must exert a Chinese-style gravitational pull on the global economic and political landscape, project a Chinese voice, and ultimately realize Chinese strategic objectives. Without comprehensiveness, it likewise won't work. The strategic orientation of China's national economic will must be comprehensive, not serving the interests of some particular time, place, or person. Its ultimate economic benefits must embody and realize the greatest and ultimate interests of the entire citizenry. As for systematicness, it means China's national economic will must and inevitably will manifest as an organic system with rigorous internal connections, multi-layered architecture, operability, and achievability.

Currently, looking solely at the practical deployment of specific assets: state-owned shares have already become the single largest absolute controlling force in the stock market — the current index is entirely dominated by "China-prefixed" stocks. Social security funds will ultimately play an extremely important role in the transfer, reduction, and eventual operation of state-owned shares. And the establishment of China Investment Corporation has given the deployment of foreign exchange reserves in domestic and foreign capital markets a coordinated and strategically implicit significance that at least transcends mere swing-trading.

But the state's economic will is not merely reflected in specific stock operations or market-based transactions. More importantly, the expression of the state's economic will must absolutely not degenerate into a market-maker-style control operation — that would be extremely dangerous. The state's economic will should become an important — even the most important — component force in the market, but it cannot become the market's resultant force itself, much less the market's sole force. Once things evolve toward such a dangerous state, the so-called market-based expression of the state's economic will becomes empty rhetoric. Such "market-based expression" would instead become the very force that destroys the market's foundation.

Furthermore, the state's economic will must also be expressed through the protection of national economic resources. National economic resources include not only narrowly defined physical and material resources, but also — under virtual economy conditions — all resources capable of generating market and capital effects. For example, China's excellent companies are the greatest economic resources of China's capital markets. How to rationally utilize these resources, rather than letting them be sold cheaply, drained abroad, or excessively exploited for short-term gains — this is a very real and heavily lesson-laden major issue.

Standing at the level of capital deployment, the excessively market-oriented and excessively "rat-infested" funds can no longer independently serve as the economic embodiment of the state's will. A new absolute balancing force must be introduced to strengthen regulation. Since at the physical level, the state maintains absolute controlling stakes in industries vital to the people's livelihood, then at the virtual economy level, this absolute controlling nature is beyond question. That is to say, this absolute controlling nature must also necessarily include macro-level control over the overall trajectory of stock prices.

As the state gradually withdraws from hard policy-level regulation, it must and inevitably will maintain an absolute regulatory force at the economic level. Otherwise, capital's challenge to policy would spiral into an uncontrollable situation — something completely at odds with China's national conditions. Strengthening the state's economic regulation encompasses both the physical and virtual dimensions. And strengthening the state's economic regulatory leadership position at the virtual level is a problem that must be resolved as soon as possible.