The Impact Of Fiscal Contraction Is Spreading.

On the economic side, based on our recent economic data, we would like to put forward a basic view or an explanation: from the available data, since August last year, the Chinese economy has been hit by a financial contraction, and the impact of a sharp decline and contraction of various financial expenditure has led to a sharp decline in economic growth after August of last year. This decline seems to have damaged the balance of the economy in the past two quarters.

From February to August last year, as a whole, the economy has established such a balance state, after continuous supply adjustment and contraction.

And demand appeared to be in a state of balance before last August, and even the growth of supply was even slower than that of demand.

Before August last year, the economy seemed to establish such a benign situation, which is conducive to economic self recovery, and is conducive to the recovery of corporate profits, and also conducive to the promotion of market recovery at the profit level.

But after August last year, this balance was broken because of the impact of fiscal contraction. In the past two quarters of time, it seems that the growth of economic demand is likely to fall back to the growth of supply capability. Under such a background, the profits of enterprises are showing a more obvious deterioration, and the deflation pressure of the economy has begun to increase considerably in this context.

At the same time, the impact of fiscal contraction in other sectors of the economy is likely to begin to proliferate from today's data from 1 and February. The so-called diffusion refers to the investment activities of the private sector and the impact of the private sector's optional consumption.

Due to the impact of economic contraction and the deterioration of economic growth expectations, private sector investment and consumption expenditure has also seen a marked decline this year. In other words, the impact of fiscal contraction has begun to produce some secondary diffusion effects, which have begun to show more clearly in the data since the first quarter of this year.

For most of the year,

And economic policy will be in such a state, on the one hand, the impact of fiscal contraction and the secondary effects caused by it.

The growth may be under the growth of supply capability, thus forming a period of exacerbation of deflation and profit deterioration.

Faced with such a situation, at least on the surface, the whole fiscal and monetary policy has been forced to turn to a more positive direction than before to support the growth of aggregate demand.

Although it can play a relatively short and phased role in the short term by improving the expectations of the market participants and the expansion of the fiscal expenditure, the new balance requires the supply growth to continue to shrink and fall at the current level.

Because we see that the trend of demand growth at a very weak level and the resumption of trend recovery to the level before last August will appear to be more and more difficult in the context we have just discussed. Although support policies can be expected and may have some impact in the short term, the more important force for economic reconstruction will be realized on the basis of the continued contraction and adjustment of supply, and such a situation may be able to be established in the first half to the second half of next year or even at some time next year.