Soft restraints exist widely in state-owned enterprises, and have become an incurable disease of state-owned enterprise reform, and this has basically become the consensus of the Chinese people! As everyone knows, the fundamental reason why the reform of state-owned enterprises is mired in the quagmire and cannot extricate themselves is the soft budget constraints and governance structure; in fact, the establishment of a modern governance structure also depends on the soft budget constraints. On the other hand, even if the modern enterprise management system is established, if it is still a soft budget constraint, the modern enterprise management system will become a tree without roots and water without a source, and it will suddenly come to naught! The soft budget constraint is the fundamental reason why the reform of state-owned enterprises has been hesitant for dozens of years.

Regrettably, however, this cancer does not only exist in state-owned enterprises, but has also extensively penetrated into the real estate and financial sectors, which are highly related to the national economy! Soft budget constraints have become the driving force behind high housing prices, high leverage, high investment, and high debt! Soft constraints have made the reform of state-owned enterprises helpless, and in the same way, soft constraints are also making or have made real estate and financial reform helpless!

So, what kind of thing is soft restraint so powerful? Here is a classic example from Kornai (1986) to illustrate the problem: if there is a son in a family, Lao Tzu naturally likes this son very much, and in his original words it is "paternalism". Pen ~ fun ~ Pavilion www.biquge.info Lao Tzu hopes that his son will not become a gentleman and not spend money lavishly. However, this Lao Tzu is so doting on this child. Therefore, every time this son asks Lao Tzu for money, Lao Tzu will give it correctly. Cornai said that with such an old man, it is estimated that nine out of ten sons will become gentlemen. This Lao Tzu is the government, and his son is the object of soft constraints such as state-owned enterprises, real estate, or finance.

To put it simply, we can understand soft restraint as not restraining or conniving, and not bearing responsibility or not being equally responsible for the results caused by one's own misconduct! For example, if a mistake is made, no responsibility or reciprocal responsibility is not pursued, if the law is violated, no reciprocal responsibility is not pursued, no reciprocal responsibility is not pursued for investment mistakes, and no repayment or less repayment is made.

In addition, it is also a kind of soft constraint for others to take responsibility, the most typical is the government's backing: once an enterprise incurs a loss, the government will make additional investment, increase loans, reduce taxes, and provide financial subsidies.

When a unit is not liquidated when its income cannot be offset by its expenditure, but is bailed out and continues to survive, this is also a kind of soft constraint! For example, state-owned enterprises are stiff but do not die; China's delisting system forms a soft constraint on listed companies?

The inaction of officials and the failure of employees of state-owned enterprises to work are also a kind of soft constraint. Logically speaking, if you occupy a pit and don't, you should have cleared out the ranks, and any work is the same, and if you don't do anything, of course, you will be fired, so how can you be justified in taking your salary for nothing and not doing anything! "In the Name of the People" Secretary Dakang is considered merciful, and he has even set up a study class to carry out ideological reform! The inaction of officials can become a major stubborn disease, and it is really ridiculous to think about it! But this ridiculous thing is the normal state of China's officialdom, public institutions, and state-owned enterprises! Because they are officials, public institutions, and employees of state-owned enterprises, the government should eat and drink all the money to death!

The opposite of soft constraints is "hard budget constraints": decision-makers have to bear the consequences of their decisions, especially the losses caused by bad decisions!

Soft constraints have been deeply embedded in China's economy!

1. Three highs: high investment, high savings, and high debt

Investment behavior is not constrained, regardless of the cost of investment, and regardless of the effect of investment (typical soft constraints), but it can complete the tasks of the superiors, contribute to GDP, improve their own political performance, and create rent-seeking opportunities. Here we need to clarify a concept for everyone: China's high savings rate is mainly contributed by the public sector (government + state-owned enterprises), and not by the private sector (residents + private enterprises), so you should not be rejoicing here! High investment pushes up high debt, because China's investment does not mainly come from accumulation (profits), but from debt! If you want to say that soft constraints are the root cause of China's three highs, I don't think many people are too opposed!

2. Big finance, high leverage

At present, the added value of China's financial industry has accounted for 9.5% of GDP, far exceeding the average of 4-6% in developed countries. According to the data of the first quarter of this year, the total assets of China's commercial banks have reached 236 trillion yuan, 3.15 times of GDP, and China's large financial assets (including banks and trusts, securities firms, insurance, funds and subsidiaries and other non-bank financial institutions) have reached as much as 300 trillion yuan, not including shadow banks such as pawns, finance companies, and private lending. The leverage of financial enterprises has reached more than 90% (Jiang Tao said that it has reached 136%), and the high leverage is worthy of its name! The bank is too big to fail, and the high leverage does not dare to undergo major surgery (Chairman Guo, who holds the sword of Shang Fang, originally wanted to do a big job, but it seems to be coming to an end before it really starts, see my blog post for details: Chairman Guo said that the leverage will be lowered when it is said to be lowered?), because everyone bets that the government will bail out! You keep your money in the bank, especially the big state-owned bank, are you worried that the money will be gone? Don't worry! Because the government will go to the bottom! If the bank lends money to a state-owned enterprise or an iron public foundation with huge losses, will they be worried that they will not be able to recover the money? Don't worry, because the government is backing up! Even if it is a wealth management product that has nothing to do with the bank (but it has been handled by the bank), you don't have to worry about it going to be lost, or because the government has a backing!

3. Big real estate and high housing prices

Real estate already accounts for 8.3% of GDP, and this does not include real estate-related industries. According to relevant estimates, 2.4 percentage points of the 6.7 percent GDP growth in 2016 was driven by the real estate industry in a broad sense, contributing as much as 36 percent to GDP growth! It is also true to the name of big real estate! China's high housing prices are also known to women and children! Does the government know? You know. As early as 28 years ago, in 1989, the "People's Daily" published a report on the second page entitled "Housing Prices Have Soared? The People Look at the Towers and Sigh? The State Is Drafting Laws and Regulations!" The government knows that housing prices are very high, but it still keeps pushing them up, because this is what the government needs! While real estate sales and sales growth rates have declined from January to April this year, real estate investment has climbed to a year-on-year increase of 9.3 percent! Real estate developers are not only confident, but also more confident, because real estate developers are not worried that housing prices will not rise, let alone that houses will not be sold, and it is a big deal to cover it for another year or two, because the government will always go to the bottom, this is a typical budget soft constraint! According to the cycle of China's real estate market in the past ten years, almost every round of sales of the rise and fall of the inflection point is caused by policy changes, Chinese buyers are not stupid, anyway, there is the endorsement of the government, why not fear that housing prices will not rise!

Fourth, large enterprises, low efficiency

Half of the assets of central enterprises are concentrated in the upstream fields of energy and basic materials, and the problems of state-owned enterprises have always been that they are exhausted of resources, have serious redundancy, and are inefficient. For example, in April this year, the State-owned Assets Supervision and Administration Commission (SASAC) convened a meeting of five major central power enterprises, saying that due to long-term restrictions on coal price fluctuations and power surplus, the loss area has been increasing. However, some power plants still ignore the actual situation, as long as they can get approval and loans, they will continue to build, and banks are more willing to lend to central enterprises, anyway, there is a national endorsement!

On May 15, the National Bureau of Statistics released data showing that private investment increased by 6.9 percent from January to April, although this growth rate increased by 3.7 percentage points over last year and 1.7 percentage points over the same period last year, but it fell back from last month, which was the first decline since the negative growth bottomed out in July last year! Small and medium-sized enterprises that do not have soft budget constraints do not need someone to help them clear their debts, and they cannot repay their expenditures and cannot borrow money, and when their personal savings are exhausted, they will run away and clear them themselves; but what about those zombie state-owned enterprises that are inefficient and have a gloomy prospect but consume a lot of resources? It is impossible for you to clear them!

To put it more broadly, the reason why corruption, corruption, and fraud are so rampant and forbidden is not a kind of soft constraint!

Where are the roots of soft constraints?

In the final analysis, soft restraint is still "the poison (or product) of the planned economy"! A significant difference between the planned economy and the market economy is that it is soft constraints. The drawback of the planned economy is that soft constraints exist extensively, while the advantage of the market economy lies in the pervasiveness of hard constraints! China's reform is not yet thorough, leaving too many things from the planned economy!

How to get out of soft constraints?

Here are four directions:

1?? Thoroughly turn the market economy into a market economy and let the market economy play a decisive role in the allocation of resources! This sentence is easy to say, but it is even more difficult to do! It is also strange to say: China's planned economy has only been practiced for less than 30 years, so why does it have such a profound impact! This may have something to do with China's "fine tradition" of more than 2,000 years: The importance of power! The reason is very simple: The planned economy has power, but the market economy has few powers! Once power is combined with the planned economy, it is as inseparable as magic! If you want to separate them, you may not be able to use the power of the two tigers!

2?? Further decentralization to the market.

3?? Comprehensively integrate into the world system and let the "reversal mechanism" play its role! On the other hand, the long-term existence of soft restraint is also the result of the connivance of the developed countries in the West for the sake of their own interests! Let the external restraints be compulsively lost, so that the reversal mechanism cannot play its role!

If none of the above three recipes work, the final result is 4?? It can only be ruthlessly liquidated by the laws of the environment and the economy, and forced to clear it in the form of a hard landing and an economic crisis!