$6T Stimulus: Can It Push A-Shares to 4,000 Points?

Introduction

Six trillion, not a small number!

But the real eye-catcher is that this six trillion must be spent within three years!

Because this six trillion is to be raised through the issuance of government bonds, and it's all in the form of super long-term bonds.

Moreover, it's not just about these six trillion, as some analyses point out that by 2030, the term of our country's government bonds will significantly increase, with an increase of up to 800 billion.

It seems to be a promising thing, attracting a lot of attention, with many people expressing that they have seen hope, just like the 4 trillion stimulus plan in 2008, which is enough to give investors hope.

The 6 trillion big gift package.

The stimulus policy is mainly used to stimulate and boost the economy. According to relevant statements, our country's Ministry of Finance is planning to issue 6 trillion super long-term special government bonds within the next three years.

More than 50% will be used to support economic recovery, while the rest will mainly be used to solve local government debt and other issues.

On the one hand, the purpose of the fiscal funds raised by the government is to help the economy recover as soon as possible.On the other hand, the decision to address local government debt is made out of consideration for the finances of local governments. There are many reasons behind this decision, the first being the current heavy burden of local debt, which has caused difficulties in the cash flow of local governments.

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In this situation, if the 6 trillion yuan of funds are allocated to local governments, it could help them solve their arrears issues, allowing the money to be quickly recirculated and then used for investment in other projects. This also conforms to the laws of normal economic operation.

However, the stimulus scale of 6 trillion yuan is only half of that in the 1990s, and not even a fifth of the 4 trillion yuan stimulus plan in 2008. The economic environment at this time has undergone significant changes, and the scale of 4 trillion yuan at that time ensured the stable development of China's economy.

So, with a stimulus scale of 6 trillion yuan now, it is enough to attract everyone's attention. But without the guarantee of supporting policies, the scale of 6 trillion yuan is just a nominal figure.

Is the money being used where it is most needed?

So, what stories lie behind this?Firstly, it is necessary to explain why there is an issue with the pledge of land transfer fees paid by local governments. In fact, land transfer fees are one of the important sources of income for local governments, which include various expenditures such as infrastructure construction, education, and health. At the same time, local governments also have debts to repay. However, due to the unstable economic situation, these revenues have not increased as expected. In addition, local governments also need to spend a large amount of money to pay for agricultural subsidies, infrastructure construction, and social security expenditures. At the same time, the growth of local fiscal revenue has not been guaranteed in a timely manner due to the fluctuations in commodity prices and the impact of the epidemic. As a result, the income of local governments has begun to show a clear insufficiency, and even wages and necessary expenditures cannot be paid in a timely manner. In fact, since 2013, the economic development situation in various places has been generally unsatisfactory. Although some places may "beautify" data in pursuit of false economic data, this also cannot change the fact that fiscal revenue growth is slow and expenditures are increasing rapidly. Therefore, the fiscal revenue in various places is generally in a state of negative growth, but expenditures continue to rise.Especially in the field of social security, due to the increasingly severe phenomenon of population aging, the demand for pensions among the elderly is also continuously increasing. Therefore, in order to meet the basic living needs of the elderly, local finance must invest more funds. This makes local finance have to face a huge expenditure. However, the common people will not refuse their demands because the government has no money. As a result, the contradiction between the pressure of national finance and the financial payment obligations of local governments has become more prominent. To deal with this kind of problem, local governments can only alleviate the current financial difficulties by borrowing new money to repay the old. However, if all this money is used to repay debts, it will not be possible to ensure the normal progress of various government work and public services. What needs to be done now is not only to repay debts but also to ensure the normal operation of public services. However, if the land transfer fee is pledged, it is equivalent to mortgaging future income in front of us, which is not cost-effective. Moreover, when local governments pledge the transfer fee, they still have to pay a high interest for it.Only when the land use rights are re-allocated in the future can the full amount of the transfer fees be collected, but this requires a long waiting time, and this approach does not effectively solve the current problems.

Moreover, the land held by local governments is mostly in remote urban areas, or even gullies and wastelands, where no one would be willing to build houses and buildings. Therefore, it is also difficult for local governments to sell and cash out.

This makes the measure of local governments using mortgaged land as collateral a mere talk and cannot truly play its due role.

Comparison between 6 trillion and 4 trillion.

There is a significant difference between the two numbers of 6 trillion and 4 trillion, and there are multiple reasons for this situation.

Firstly, although the 4 trillion of that year was larger in amount, compared to the current 6 trillion, at that time, it was enough for local governments to bear this huge sum based on their fiscal revenue alone.

The fiscal revenue at that time was also relatively abundant, so both the collection of supporting funds and the later capital turnover were relatively smooth.

But now it is different. Under the current financial pressure, local governments no longer have sufficient supporting fund capabilities.

In addition, there is another reason, which is that local governments are facing greater pressure than ever before.

In order to repay debts, local governments use a large part of their fiscal revenue to repay debts, which results in insufficient funds being invested in the field of economic development.This has made the economic development process slower, and as a result, economic growth has declined, and local governments' fiscal revenues have also decreased.

Therefore, the pressure on local governments is increasing, and when it comes to repaying their debts, they have no money, so they can only borrow more money to repay the debts. In this way, a vicious cycle of borrowing new money to repay old debts has been formed.

At the same time, the external environment has also changed greatly, and the fluctuations and uncertainties in the global economic situation have increased.

This has led to a decrease in China's export orders, which has had a great impact on China's export trade.

Moreover, as the economy develops to a certain stage, the phenomenon of the disappearance of consumption dividends will occur.

The growth rate of consumption will slow down first, and then fall to negative growth. This phenomenon is also determined by the overall environment and is inevitable.

Therefore, China's economic growth rate will inevitably show a downward trend.

Conclusion

Although the 6 trillion yuan stimulus policy is not a large stimulus measure, it also determines whether many local governments can resume normal financial operations.

If the funds can be reasonably used in the construction projects of local governments, it will be of great help to the capital turnover of local governments.Additionally, it will also enable local governments to have better funding for project construction and economic development.

However, the real domestic demand lies in the reform of income distribution.

Only by ensuring that everyone has higher disposable income can we truly stimulate domestic demand and promote economic growth.

Therefore, the current focus should be more on people's income distribution issues.

Similarly, long-term economic development also requires more innovation and transformation.