Huang Qi Fan (黄奇帆) previous mayor of Chinese province Chong Qing 30,000 Word Essay (July 11, 2017)

Translated by Kai Lam and Jeffrey Au on December 25, 2018 from Sina blog article https://cj.sina.com.cn/article/detail/1717257814/347571

Huang Qi Fan (黄奇帆) 30,000 Word Essay (July 11, 2017):                                                                                                                                               

(2010-2016 mayor of Chinese province Chong Qing)     

    

Why I was hesitant with Terry Gou’s (Foxconn’s founder)(郭台铭) project and didn’t proceed

Brother Ling’s Guide (Sina blogger’s introduction/summary):

This is an essay I highly recommend. It is extremely clear and easy to understand; it explains China's economic problems, stock market issues, financial issues, currency issues, supply-side reform issues, housing prices, and government’s issues with attracting investment.

The major issues mentioned are as follows: The economic theory of the west, which follows three major economic schools (capitalism, socialism, and communism), China’s actual economic situation, and a rational debate about the merits of a Marxism— the flexibility of its application, issues with continuous reform, and its compatibility.

The problem of China's stock market is the lack of exit mechanism. The IPO registration system has not solved this problem fundamentally. The fundamental solution to this problem is to have an elimination mechanism which relieves poorly performing companies.

China's financial industry has expanded more than the United States and has idle capital. This is why the central government must puncture the bubble and adjust to reality. In addition, every step of leverage in China's financial industry seems to be reasonable and compliant, but after four or five steps down the road, it will emerge as a big bubble. Brother Ling believes that this is the reason why the country has recently established a financial security committee. It will merge three parties in a unified manner ( 3 groups into 1 bank PBOC, CBRC, CIRC,CSRC ), in order to prevent ineffective policy and multiple leverage risks.

China's M2 (base currency, short term deposits, and money market funds) accounts for 200% of GDP. This is due to M0 (base currency) being over-issued. The root cause of M0 (base currency) over-issue is due to foreign exchange reserves. The reason why other countries do not have this problem is because their foreign exchange reserves are managed by their financial ministries/departments; it can be absorbed by issuing national debts without causing inflation. China’s fiduciary is the People’s Bank of China, which can only issue local currency. This surplus has caused a large increase in foreign exchange reserves, which led to a surge in the distribution of renminbi. China needs to carry out institutional reforms to solve this problem.

Supply-side policy reforms should not be blindly focused on production capacity, some industries have excess supply, and some industries lack demand.

Stable development in housing prices can be brought about by aligning with the structural reforms of the foreign currency reserves and the contraction in the growth rate of the local base currency.

The world economy has passed the era of global division of labor. The cost for cross border logistics and transportation costs cannot be equal to zero. In fact, the world economy has over extended their cooperation by concentrating on China being part of their industrial manufacturing supply chain. Huang Qi fan solved the industrial supply chain problem with investments in several industries such as notebook computers and automobiles in Chongqing, and formed several industrial chain conglomerates with several hundred billion in output value. The most important core duties of government are prudent investments to help solve problems in industry.

Everyone is welcome to carefully read this essay, and will benefit immensely.

  

The following content is based on the recording of Huang Qifan's special report at the Nantong Municipal Committee's theoretical center group study meeting on July 11, 2017. The full text is 33,000 words, including supply side reform, real economy, direct financing, capital market construction, de-leveraging, This article was originally published in the “Wei Shui Research” WeChat public account.

1. An important discussion of relevant theories of Western economics

From the principle of economics, from Adam Smith to various economic genres, one the first big category of the three major schools is a pure market economy, from Adam Smith. From the beginning to Friedman (Milton Friedman) of the 1960s, these are philosophers who believe in pure, free markets.

The second is an economy strengthened by government regulation, which was represented by Keynes, the regulation of the troika/3 horsed chariot (the country's fiscal revenue: taxes, government bonds, and issuing currencies), and playing the leading role by government. This regulation from the United States after the war in the 1940s formed this trend, and the world economy followed decades later.

The third is the school of the supply-side. This school was actually started by Adam Smith. It has always been in the Western economics. This supply school is about emphasis of small role of small governance as a market maker. On the other hand, he believes that supply and creation of the market, rather than Keynes concept of the government regulating the market. The supply-side can create the market, supply can create demand, and he emphasizes more in this regard.

Effective institutional supply produces productivity, and this concept is also attributed to the important principles of the supply-side. These concepts are mainly based on three points. A small government role has an effective system of supply, it is low-cost to companies, as the government collects less taxes. The government will be small. However, the government will not be able to maintain its normal operation due to inadequate taxation. Therefore, the government with low taxes and fees must be simple and decentralized. The source of innovation is not only comes from technological advances, but also since low taxation on enterprises allow for enterprises to constantly innovate, and more enterprises are created. These enterprises create products, more technological innovation, product innovation, and enterprise growth. From these perspectives, the so-called supply-side has been formed.

2. The issue of China's supply-side structural reform is fundamentally different from that of the West.

The supply-side structural reforms of the Central Party Committee and the State Council does not mean that the supply-side is utilized. The supply-side structural reforms proposed are fundamentally different from the Western supply schools in terms of three important principles.

2.1

The first difference is that in the private sector policy still revolves around public ownership policy, the principle of the Western supply-side/capitalism, the policy foundation of the supply school must be to promote private ownership, and that only private ownership can carry out the principles of the supply-side. Therefore, Thatcher (Margret Thatcher) had a very important measure to her policy. In the 1980s, the state-owned enterprises in the UK was sold due to Margret Thatcher’s insistence. Reagan (Ronald Reagan) did the same at that time. He believed that only privatization would engage in supply-side measures. China has always adhered to the public-owned economy and the private economy, walking on both legs and developing together; insistently invigorated the development of the state-owned economy with public ownership. At the same time, China also supported the development of the private economy and its healthy development. Therefore, China's supply-side structural reforms are carried out under the conditions of the coexistence of public ownership and private ownership. This is a very important principle difference from the Western supply-side economy.

2.2

The second difference is that the Western supply-side is a school that emerged from the confrontation with Keynes's demand side, which emphasizes supply and negates demand. In our current supply-side structural reforms, the central government believes that demand in the market has a demand side role, supply has a supply side role, and both sides are indispensable. Each of these two schools has its application, and at certain circumstances the demand side is dominant, while at certain stages the supply side is dominant. We need both sides, but the supply side is the main one. This is a non-extreme form of dialectic materialism mentioned by Marx (Karl Marx). The dialectical materialism of Marxism gives us a comprehensive global perspective of economic theory.

2.3

The third difference is that the Western Supply-Side School emphasizes the role of a pure market, emphasizing that the government only acts as an economic watchman at night, establishing some of the rules of the game, and applying some government regulation to the economy, which opposes Keynes’ talk about government regulation. So of course it denies any regulation by the government.  China's school of economics believes that the government plays a decisive role in resource allocation in the market. The government is better at providing goods and services. In some cases, the effective regulation of government can avoid blind irrationality of markets and prevent market economies from going to extremes. After a big disaster, there will be further regulation, and then the market itself will be adjusted to avoid more losses. China's supply-side structural reform corresponds economically with the Western supply-side school, but there are three fundamental differences.

The central supply-side structural reform, this supply side composes of many elements, including the elements of capital and financing, the demographic dividend in productivity or various labor shortages or sufficient elements, as well as various land, energy, etc. Economic factors. If these supplies are in short supply, for example, if the demographic dividend diminishes (China’s aging population and lack of young people due to the previous one child policy), then the economy will be brought down. If the price of land is high, there will be a shortage which will hinder the economy. Therefore, on this issue, the supply side first talks about the factors of necessity, not the conventional talk about the provision of hundreds and thousands of commodities; the supply-side requires strategic elements which are structural. Generally speaking, we when talk about the structure, we mean the structural reform of production and labor. Structural reforms are basically a system to direct the allocation of resources to increase productivity; including taxation, the country’s rule of law, etc.

3. Issues concerning the improvement of the market-oriented capital supplement mechanism in the supply-side structural reform

In our current economic structure, we must de-leverage. The debt ratio of the national economy is too highly leveraged. The debt ratio of enterprises are also highly leveraged. In some places, local/provincial governments have higher debts which needs to be de-leveraged.  During deleverage, if the proportion of debt remains the same, and if the capital of the enterprise increases, the equity of the society increases, then the debt ratio will fall, and the leverage and debt problem will be alleviated. Therefore, to de-leverage for enterprises, whether this is a government debt, or for companies, an injection of capital is required.  A market-oriented institutional arrangement for the supplement for corporate capital will save us. This is a market-based capital replenishment mechanism. When this mechanism is put together, the capital-liability ratio will fall and capital will expand.

For example, the debt to asset ratio of US companies is around 40%, and the debt to asset ratio of most Chinese companies is around 70%, which comprises of the entire nation. Therefore, the total debt of US companies accounts for less than 60% of GDP, and the debt of Chinese companies accounts for 150% of GDP. This debt is very high. The reason is that Chinese enterprises, whether private or state-owned, have high debt ratios and very small amounts of capital. Even if Wanda and Evergrande (Chinese property developers), claim to have 800 billion total assets, but 800 billion total assets in Evergrande are almost 700 billion in debt. If the debt is offset by the assets, the total capital (net worth) is less than 100 billion. If the real estate falls, these developers will incur bad debts. But the price real estate and land continues to rise, and which is what sustains these enterprises. Wanda is also like this. Wanda is also a company with a sales value of 300 billion yuan a year. It sounds huge but its debt is very high. To say this is to show that Chinese enterprises, regardless of their size, have a relatively high total debt ratio.

To reduce the debt ratio and enlarge capital, the most important market-oriented system is the capital market system or the stock market system. Our government should not decide which companies have inadequate capital and give them financial subsidies. This is redundant and useless; it should be allocated by a market-oriented capital supplement system. That is, for listed companies, the stock market. Of course, the stock market is not only a market; it is a multiple level capital market, such as our A-shares, there are GEMs (entrepreneurial, mid-sized listings) under the A-shares or OTC boards, and the US stock market has three or four boards for various stock exchanges etc., but no matter what kind of market, the final goal is the supplement capital.

Many people criticize China’s stock market seems to be unable to raise the capital. From the 1990s to the last decade of the new century and now, the current 27-year stock market, every time a new stock is issued, blood/funding is drained for half a year (people speculate in IPOs and sell stocks in the existing market). When the stock market declines, and the stockholders have complained that the index has fallen by 100%. When the index declines 20%, 30% or 40%, the government departments will be pressured to stop new issuances and continuously delay new listings due to the pressure. They will start to issue again in the first half of the year and the vicious circle will be repeated once every year and a half. The new shares have been issued ten times, and in a decade they have been suspended for more than ten times. In the past six months, suspension has been slowing down. It is said that the listed company's fundraising is justified. If the listed company does not have a fundraising function and there is no IPO listing, what is the significance of capital markets? These actions are justified by maintaining the stability of the stock market and safeguarding the interests of shareholders are crucial and essential. In fact, both arguments do not grasp the risk this brings. Any stock market capital market can’t eat and not pull its weight, it cannot have companies enter, but not exit; it is destined to die, sooner or later it will die.

The key to China's stock market has only been established for 30 years to 20 years until now, and has not established a delisting mechanism for inadequate companies. For example, in 2008, the US stock market’s Dow Jones index has hundreds of indices corresponding to the New York Stock Exchange, with nearly 3,000 stocks. Now, the number of listed companies in the NYSE is less than that of 2008. What does this mean? This means there are four or five hundred de-listings each year. What companies should exit from the market? It is definitely a company with an over inflated P/E ratio. The profit margin to market capital is 1%, and the price-earnings ratio is 100 times. If it is 0.1%, the price-earnings ratio is 1000 times, therefore, the higher the price-earnings ratio, the less profitable the enterprise will be. If, in theory, there are a total of two thousand companies in an exchange, 300 being listed and 300 being delisted, with the 300 poorly performing ones rejected, and the 300 adequate ones kept, this dish being cooked up will get better and better, which is evident in the price of the US stock market is from In 2008, it fell to more than 6,000 points, and now it is up 22,000 points. Americans are wealthy. The market value of the US stock market fell from $12 trillion in 2008, and now it is more than $20 trillion. The US stock market has grown by 10 trillion.

China (Shen Zhen and Shanghai Stock exchange) has delisted one or two companies in 20 years, no more than ten at most in any case. In this case, companies with a price-earnings ratio hundreds of times with many years of losses are lingering inside, squatting in the stock market, with new companies constantly being listed. This is like cooking a soup by diluting it, resulting in a flavorless soup. Therefore, what we have to solve is the withdrawal of companies and delisting, otherwise the new reform policies for IPO will be useless. Delisting is nothing more than four scenarios, and it is not complicated. First, if a listed company goes into the bankruptcy and is sentenced to bankruptcy by court, the bankruptcy law will require this proceeding to happen. After declaration of bankruptcy the general enterprise is still unstable. The bankruptcy of the listed company still has liability to shareholders. Second, if you do not withdraw from the market, you can restructure. For example, during the financial crisis, the three major auto companies, Ford, GM, and Chrysler, all went bankrupt, but since they were famous, it simply couldn’t allow this to happen. The board of directors decided to pass on to reorganization, including debt restructuring, and cleared a batch of accounts. Compromise was required, give them a batch of bad debts were written off, and the corporate structure was also adjusted, some things are sold, some things are disposed of, and after more than a year of treatment, the three major cars have resumed listing after 2010, this called production suspension for rectification. During rectification, which lasted for a year or two, the stockholders can’t do anything, but the operation was ultimately restored and everyone is happy. The third type is backdoor listings, with the withdrawal of inadequate companies, and the acquisition of shares by another company as a strategic way to get listed. The fourth is to retreat from the main board to the secondary board or to the third board, retreat to the OTC market board, etc., the enterprise can still trade, but is no longer a liquid stock transaction, but limited to the bosses and companies within the OTC market.  

Therefore, the four types of delisting, which should be delisted if they don’t meet the policies or qualifications. They should not be audited by an official; if they do not meet the conditions, they should retreat. There won't be any officials to take you out of the market.  Without this, there is no system. As long as this matter is acknowledged and executed, the registration system can proceed, and listed companies can continue to go public, so this is the key. If this problem is not solved, all other problems cannot be solved. We always go around and avoid this problem. As a result, IPOs which should not be listed are listed companies. If use our brains, we will be able to solve the problem. Originally, a company had to go public and issued 1 billion yuan. However, I am afraid that too many funds raised would be taken or stolen away. So I restrict you to 200 million yuan. However, after three years, old shares will be piling up and will be traded less and lose liquidity, while the new issuer’s shares are well circulated and still have liquidity. This will have an impact on the stock market.

In this section, I would like to explain the problem of solving the capital markets and the supplement of corporate capital. It is the most important core proposition of the supply-side structural reform in the financial and capital category in the category for our country. It doesn’t matter whether it is a state-owned or a private enterprise, the market-oriented economy has developed to a certain stage where reform and opening up is crucial. To solve this problem effectively, it is not a simple discussion of the reasonable and unreasonable policy reforms or IPO listings; hunger is no longer a problem; the problem is of delisting.

In addition to this, other subjects which need to be further strengthened in the construction of our system include: market regulatory issues, supervision of securities companies, law firms, accounting firms and other intermediaries, the service and supervision of listed companies, as well as various types of funds with compliance issues. If these things are done well, then the conditions for the registration system for being listed will be mature. With the registration system, the four conditions mentioned above must also mature, and the capital supplement mechanism of enterprises will be there. After this mechanism has been established, China's national securitization will accelerate economic development. This accelerated development is ultimately manifested in the market value of listed companies and GDP which should be 1:1. This is a sign of the securitization of the national economy, that is, the market value of listed companies and the GDP of your place is roughly 1:1.

Our country's GDP is now 70 trillion; the listed company's market value is more than 40 trillion, and sometimes we frantically/desperately try to list 300 ineligible companies. After the listing, there is one more market value, but the stock market has dropped 200 points. The result is that an additional 300 companies have gone public. If we keep on doing this, we may have increased listed enterprises from 3,000 to 4,000, and the market value may have changed from more than 40 trillion to more than 30 trillion, as these poor quality companies cause the index to fall. It is very important to solve this problem. If the market value of our listed company is the same as GDP, what does this mean? It means that the capital of the listed company’s enterprise is roughly equal to GDP. Therefore, for the non-listed enterprises which have capital, are debt-free, and are business-oriented companies may have equity worth more than GDP; possibly 1.5 times of GDP. If capital is 1.5 times of GDP, debt is also several times of GDP, and the asset-liability ratio is 50 to 50, the leverage has gone down. Therefore, if we can't get the equity of enterprises to go up, we will only leverage on bank debt, and the national economy will shrink. That will not work, and it will become a vicious cycle. This is part of what I want to talk about, a bit of theory actually related to investment and financing. If this cannot be solved, the problem of trying to solve the investment and financing cannot be solved. This is the logic behind macro investment and financing.

4. The issue of deleveraging and avoiding the financial reality

De-leveraging is the removal of debt. In recent years, the amount of financial funds has been excessive, while these financial assets have been faltering; this flooding of financial funds in all aspects of are unreliable. Whether there is a bubble forming and whether there is excessive leverage is seen from several indicators.

4.1—1

The first one is that M2 is the currency in which society is in circulation. Our current M2 is more than 150 trillion at the end of last year. It is currently more than 160 trillion in June. GDP was 67 trillion last year, so M2, currency in circulation, is 2.4 times GDP. The total GDP of the United States is now 18 trillion US dollars, and the US M2 is 13 trillion US dollars. The total circulating currency of the United States is smaller than the total amount of its GDP, which is about 70% of aggregate GDP. We are over the total GDP by 150%. So if we have more money in circulation, there will naturally be inflation. For example, real estate has risen 8 times, 10 times, etc. in the past ten years, and it has something to do with this currency phenomenon. This is one concept.

4.1—2

The second is the inflated value of the financial industry as a percentage of GDP. This is an indicator that everyone will be proud of, but in the case of the insider, this indicator is exactly the performance of the bubble. If you pay attention, in the decade before 2008, China’s financial industry as a percent of GDP of as an industry by itself, accounts for only 4% of the total GDP of the national economy. But by 2016, the GDP of the financial industry has reached 8.4% of the national economy has doubled. In many of our provinces or cities, the proportion of financial GDP was only 3% and 4% 5-10 years ago. It is now at 8% and 9%, which itself has also boosted the growth of GDP. If the financial proportion is 8%, and this year's financial GDP has increased by 15%, then this 8% to 15% is equivalent to an increase of 1.2 percentage points in the entire GDP. If GDP rises by 7%, 1.2 is the contribution of the financial industry. If there is no actual contribution from the financial industry, the rest of the secondary and tertiary industries will not be able to pull their weight of 7% of GDP.  They may only contribute 6%, or only perhaps 5.8%. So everyone generally thinks that this indicator that we are developed and wealthy.

I want to give you some numbers. The United States holds the most financial resources in the world. The headquarters of multinational corporations and financial companies are all in the United States. The stock market of Wall Street is the stock market of the whole world. The GDP transaction fees that everyone speculates on stocks are counted on Wall Street, counted in New York, counted in United States. In the past 10 years, the proportion of GDP in the financial industry in the United States has never exceeded 8%. Last year, it was 7.6%, which is one point lower than ours. Then, is it correct that we are truly one point higher? Are we better than them? In fact, this is the performance of a bubble. The financial GDP of all European countries accounts for only 5% of European GDP, and the financial industry in Japan's GDP is only 5%.

Then, how can we have 8 percent, and will it grow rapidly in a few years? Everyone even said that the proportion of GDP financials will be 10% nationwide, and every place is trying to generate this indicator. Everyone knows that the financial industry does not contribute to the actual economy in a substantial way; it is fictitious. The bank lends money to the small bank, the small bank lends the money to the leasing company, the leasing company gives the money to the small loan company, and the small loan company lends money to various financial industries, which leads to self-circulation. Money goes around through the transfer of channels; at multiple positions, every financial enterprise must have a little profit, and they must have the cost of labor. These are the frictional costs of the financial industry as part of the GDP. Therefore, if the financial GDP is doubled, it means raising the financing cost on the real economy. It has turned into their profits, turned into taxes, and turned into the GDP of the financial industry. Therefore, these three additional points are about the fictitious contribution of finance in our real economy, the frictional costs it bears on the real economy, the increasing difficulty of obtaining proper financing, and the expensive performance of financing. We rarely criticize this statement from this angle. This is a classic second indicator.

4.1—3

The third is the overlapping of many financial companies. The insurance company took a premium to the bank to leverage it. After the bank leveraged it, they leverage (bought on a margin) the stock market. Finance must have leverage, and without this, there is no finance. The financial industry is a lever, for example, overdrafts and borrowing money; borrowing money has risks, and debit must match credit. Therefore, the essence of finance is not a one-to-one financing, but a leveraged financing based on trust and credit. The more financings with leverage, and more risk there is. It is necessary to guard against the emergence of risks. Therefore, financing leverage, risk prevention and control, are the keys to finance. Leverage should be straightforward. Any financial company, generally serving certain entities, should provide leverage which is straightforward, whether it is for an agriculture business, an industrial enterprise, or a real estate enterprise. If a financial enterprise lends money to you, on a debt to equity of one to three, whether is for the construction of a bridge or a road it should be clear and direct. The most feared is that the five major financial institutions are connected to each other and finally lend money to the real economy. If there are too many intermediaries, there are multiple channels and multiple leverages, which finally results in high risk and interest rates, and a lack of transparency and effectiveness.

Everyone knows that a classic case that occurred during the year which GuangDong BaoNeng used more than 40 billion yuan to acquire a 25% stake in Vanke at the end of 2015. The entire market value of Vanke is 200 billion, and the 25% stake is almost 50 billion. It used 45 billion. Then everyone debates on the funding of the acquisition. In fact, the whole debate on this matter is not at all on these issues, but on the compliance and legitimacy of funding sources and the leverage of these funding sources. BaoNeng's acquisition of Vanke’s first consists of the billions of dollars in Vanke’s insurance. What consists of Vanke’s insurance, is not normal premiums, health insurance or other risks premiums, being paid for each year for the next few decades, in case I am sick, I have insurance to compensate me, etc., a normal life insurance. It is actually a type of financial management fund.

All of Vanke’s insurance is sold to you by the sales department of commercial banks, and the interest is higher than the bank savings. When common people saw it, there was originally 100,000 yuan in the bank in savings, but the bank counter now said that when you buy Vanke’s insurance, it is the equivalent to savings, which contains paid interest with two or three percentage points higher than the savings. You pay for your life insurance, and you can pay within one or two years, or take the money back. Most common people are willing to move their savings to buy this, so as long as the China Insurance Regulatory Commission agrees that the insurance company will issue these type of products; once Vanke gets a billion in premiums, they have access to use 10 billion, with a leverage of one to ten.

This money is a wealth management fund. It is a type of short-term fund financing. This type of speculation will eventually fail. The chairman or the board of directors will issue capital only to find it has immediately disappeared; it has been withdrawn. The listed company should not tamper with premiums or capital, it is a violation of regulations; there is a basic policy of having capital reserves. The money of the shareholders is long-term capital, and it is not be treated like short-term funds that can be used every day. Moreover, this deal itself uses leverage of one to ten since it is buying up capital which is leveraged on premiums. After getting the money, it goes to the bank. The bank understands that it is the money that the normal insurance company brings.

The premium is long-term capital and funding. If you take 10 billion yuan as collateral, the bank will allow you to borrow 20 billion yuan and take a loan of one to two to become 30 billion. From the perspective of the bank, it is only one to two leverage. From the insurance company, it is reasonable to say that the leverage of the Vanke insurance is one to ten. Basically with this rule, the borrowing beyond the collateral has become 30 times, and then the true collateral is 1 billion. It has become 30 billion yuan. If you buy 30 billion shares, you can finance and lend, and you can change it by 60 billion yuan.

You can borrow 15 billion yuan for a leverage of one to five, so it will become more than 40 billion and uses 40 times leverage. High leverage buyouts are the result of funds from various channels. If the acquisition succeeds, the acquirer will certainly make a fortune. If it is unsuccessful, this high leverage poses a high risk. In one to two years, the interest on the insurance premiums will have be returned to the people. The bank here will also force you to return it, so it is an issue of compliance. I use to explain that China's high leverage is not a financial instrument with direct face-to-face businesses using high leverage. Leverage is basically standardized; separately, each of the three channels is reasonable; when merged together, it is sloppy, highly leveraged, requires multiple intermediaries, and a poor financing process emerges.

The central government criticized China's financial chaos. Last year, in the Economic Work Conference, Xi Jin Ping (General Secretary of CPC) said that the Chinese economy now has three imbalances. The first is the imbalance between supply and demand in the product economy. Some things are needed and demanded, while production is not available, and supply on the supply side is insufficient. Some of the things that are produced are not needed by everyone, and there is more inventory and excess capacity. This is in the production field. The second is the financial sector, the imbalance between finance and the real economy. The third is the imbalance between real estate and the real economy. The imbalance in finance is manifested in the economy.

Everyone must think about and comprehend the cause of imbalance. It may be that some bank’s president having ethical problems, done bad things in order to reap with the huge benefits, or some private enterprises plundering social wealth. However, it can't be attributed simply to the ethical issues of a company or the manager or supervisor. Any problem that arises universally must be related to the institutional arrangements or mechanisms. Therefore, the structural reform of the supply side must adjust the institutional arrangements that cause the phenomenon of bubbles and stagnation and the realization and formation of an effective system of supply.

What is the system here? Is that why our M2 will be so much? With careful analysis, the central bank manages M0, M0 is the printing currency, which is the total amount of currency in issuance. In 2008, China's M0, the accumulated currency for the whole year was more than 3 trillion, and in 2016 it was 30 trillion, which has risen 10 times in 8 years. M0 and M2 have a multiplier effect, generally 1:5, 30 trillion by 5 becomes 150 trillion; in the end, approximately 160 trillion will come out. Therefore, the currency has increased.

When it is issued, it will come out 150 trillion yuan and 160 trillion yuan. This money is specifically reflected in the bank. Commercial banks have deposit funds of hundreds of trillions in yuan. If it lends 150 trillion yuan in loans to industrial and commercial enterprises, the whole society will have an inflated value. Therefore, the People's Bank of China knows that there is an excess amount of money, and has adopted four very specific and effective methods.

4.2—1

The first is to increase the deposit reserve ratio by a very large percentage. Originally, the people saved the money in a bank and saved one million. The bank reserve ratio is 10%, that is, 900,000 can be loaned out and 100,000 is handed over to the People's Bank of China. After a company has loaned 900,000 yuan, it will not be immediately depleted in one day. It may have used 50,000, or 850,000 in the bank, and the bank has deposited 10%. Having these additional layers will have a multiple effects. Generally, 1 million yuan is deposited in the bank. Finally, the People's Bank of China will withdraw 20% of the funds as deposit reserve, and 70,000 yuan will be loaned out. Now the People's Bank of China has mentioned the deposit reserve ratio to 20%, 21%, and 22%. In this case, basically 1 million yuan will be put into the bank, and the bank can only allow borrowing of 600,000 yuan. This is equivalent to consolidating the bank funds which are to be released.

4.2—2

The second is that even if 60 trillion can be loaned out, but the loan is still a high proportion to deposits; there will an annual window (limiting) policy. The People's Bank of China and the China Banking Regulatory Commission set up a loan policy, restricting every bank to only borrow 10 billion yuan and increase the loan to 10 billion yuan, regardless of how much money it has. Many commercial banks have used up their annual quotas in less than half a year. They will not lend money afterwards. Even if they have money, they can’t lend any more money. They can only lend more money when the loan has been repaid. This is also a type of administrative control.

4.2—3

Third, the People's Bank of China issues many short-term convenience loans. There are many monetary instruments in operation which banks take many measures to control. The result of control is that inflation will not be caused by M0 and M2, resulting in various social unrest. It is a very effective way to control inflation without causing confusion in the national economy. But the result of this approach will increase the interest on finance, as there is always a cost. When a bank clearly has, for example, one trillion yuan of money which can be loaned, and only 600 billion yuan can be loaned out, then what is to be done with the remaining 400 billion? Banks will definitely change from the inside out. In recent years, banks have generally issued off-balance sheet loans, off-balance sheet operations, entrusted loans, subcontract loans, and wealth management funds, and turned non-loanable money into wealth management funds. If you want to pay interest in a bank, the person who deposits is required to take interest. He wants to lose money, so he goes to work outside the table. These off-balance-sheet operations, to whom is the bank going to transfer this money to? It is to trust companies, leasing companies, small loan companies, various large banks to small and medium-sized banks, etc., so that financial order becomes complicated. Then thousands of companies receives the bank's money. All these operations already contribute to GDP, so GDP will rise further. So if you analyze this carefully, this is related to the increase in the circulation of M0.

What is the reason for the increase in M0? Originally the increase in currency circulation calculation has an iron rule— Find the GDP growth rate, add the inflation rate and account for a correction factor. For example, if GDP is 6.7%, inflation is 2%, and currency issuance is at most 8.7%, add in the correction factor which brings it to 9%. But why do you see a currency growth rate of 17%, or even 27% between 2008 and 2014? It is not that our bank does not know the rules, nor does it operate indiscriminately. It is passive. That is, we are tied up by foreign exchange. If any country has a surplus of foreign exchange, it is equivalent to foreigners helping you to issue money. We are working hard to micro-manage issuance and the introduction of foreign capital. China’s foreign exchange reserve has reached 200 billion. If we invest 50 billion, we will have a surplus of 150 billion. This 150 billion in US dollars is equal to 1 trillion yuan, which is equivalent to M0. This money is deposited as a foreign exchange reserve. Why does the People's Bank reserve such an amount of foreign exchange currency? They don't have the money to finance themselves. They can only print money. The money is used to buy foreign exchange reserves is equivalent to foreign exchange.

From 2008 to 2014, our national foreign exchange reserves suddenly climbed to 4 trillion, more than 3.8 billion US dollars, and the exchange rate was approximately one to six, which makes it almost equivalent to 20 trillion, so we have 30 trillion, 70% or even 80% of the M0 is to buy foreign exchange reserves, resulting from foreign exchange. This is a forced act. You said that foreign exchange has more money, more foreign exchange, trade surplus, and good capital surplus. Good things bring these troubles. Therefore, everyone analyzes such a source and generally understands the macroscopic, microscopic, and socially intuitive phenomena of the national economy, and the mechanisms behind it. Then understand this and know these things in the institutional mechanism.

How to solve it? It is not complicated. There are foreign exchange reserves in every country. Other countries reserve foreign exchange. Why didn’t their foreign exchange reserves cause inflation and why it did not trigger the multiplier effect of M0? That is because other countries have their own the ministry of finance to manage the reserve of the foreign exchange. Their ministry of finance reserves foreign exchange; foreign treasuries have their own balance of money for settlement, or they can issue special treasury bonds without a balance of money. They can bring national debt to 20 trillion; the people and enterprises now have the money in their hands since inflation is dampened and bought on by the national debt. Then he buys more than $3 trillion from this national debt of 20 trillion yuan. Then the foreign exchange will not expand, there is no multiplier effect, he is not printing banknotes. Therefore, if the system and incentives are adjusted, this issue will be resolved.

This is the case in Europe, Japan, Singapore, the United Kingdom, and Hong Kong. Reform is necessary and the only way to solve all contradictions, all difficulties, and all long-standing institutional phenomena. Why did the Third Plenary Session of the Central Committee propose to deepen reform and openness? This is essential. Any long-standing contradiction, which is widespread, is often related to the system, and the solution starts with the system. If you don't solve it from the system, don't solve it from the source, and don't solve it from the institutional arrangement and the supply-side, then the problem will continue to bubble up, and then you will continue to bathe in the bubble, instead of repairing it. In fact, the key to deleveraging is the issue of capital expansion in the market, the problem of capitalization of enterprises, and the de-leveraging of the financial system. The source is at M0, at M2, the amount of currency in circulation.

5. The issue of attracting investment under the new normal circumstances

Everyone is busy attracting investment in order to develop the local economy. From the Shenzhen Special Economic Zone in the 1980s to the coastal areas in the 1990s and during the beginning of the new century, China was talking about attracting investment. At present, there are three characteristics of attracting investment. The first characteristic, under the new normal circumstances, is that there are not many industrial and commercial products that are effectively supplied. It’s hard to get approval for a little projects, every place is very tightly restricted; so it’s difficult to attract investment inland. It’s difficult to attract investment in small cities compared to the coastal areas like Shenzhen, Shanghai and other big cities. When the economy is hot, investments, like the sea, rushes over with all kinds of fish and shrimps are stacked on top of each other. The big city has all the big investments, and the remaining medium to small fish, and shrimp have to migrate to the big cities too. If it is not big, it will take the extra initiative to transfer investment and funding into the inland areas.

 The second feature, is to invite people for an open meeting for investment opportunities. Generally, I am willing to invite manufacturers from all over the world to come to a conference, lead a speech, introduce the investment environment, and this kind of extensive activity which I find will not be effective now. Recently, this type of activity has been greatly reduced everywhere. It is not that everyone has no enthusiasm. This activity is simply not practical. The third feature, before any company invests, everyone wants an investment that lowers their cost. We cannot cut off their arms and legs, and tax extensively tax companies, the price of land has to be very low money, pressure from labor unions has to be minimal; these are all aspects to help others. Nowadays, companies that do a good job are not the ones most in need of such a kind of vicious low-cost investment. These methods are not the most effective now.

However, investment promotion is still required. How do we open up reform and innovation? How do we attract investment? This is the current conundrum of all mayors and general secretaries have. General, the mayor, the deputy director, the vice chairman of the CPPCC, the deputy mayor, and even the member of the municipal party committee have several projects which they want to pursue and go out for investment and funds. This is the outdated work of the 80’s and 90’s. Which angle is not reasonable? Therefore, when I talk about this kind of investment, I have to avoid it. I have to give it away and eliminate it. On the other hand, there are now good projects, funded industrial projects, strategic emerging industry or service projects. They generally have their own special characteristics, or they do not do it. It is said that the raw material parts system of the upstream and middle reaches of the manufacturing industry, the downstream sales service logistics system and the manufacturing industry are a cluster. The right method would be to approach the industrial clusters, it is a quick method and is easy to attract investment, and it will attract tens of billions or even hundreds of billions of industrial chains.

At present, the world economy has entered the stage of vertical integration, and only such vertically integrated and integrated industries have core competitiveness. When the book "The world is flat" came out in the 1990s, I was very happy after reading it. I wanted to buy hundreds of copies. Every company and every aspect was great, but in fact, after 2005, I realized this. This book can only be read, it does not resemble industrial reality, because industry is not only about vertical integration, it is horizontal integration, it is in material processing and enhancement of products which makes the world go round. The person who makes the product, the raw material parts which can be bought from all over the world. The logistics cost and fuel cannot remain zero, but it is actually unreasonable. So, a few things that are better now.

5.1.

The first way is to use the industrial chain to attract investment. For example, when I was in Chongqing in my first few years, not a single computer in Chongqing was produced. Why are Chongqing’s computers the best in China now? The sales and production volume of notebook computers in the world is 180 million units a year, half of which is manufactured in coastal cities such as Shanghai, Suzhou, Fujian and Guangdong, and not in the western inland of China. There is a processing trade along the coast. It is very convenient to transport the raw materials of parts and components from the coastal area to outside. I know a lot about these things since I have seen the processing in Shanghai. After I went to Chongqing, I found that I would like to explore and understand more about the coastal processing and manufacturing trade of the world. To bring this kind of industrial cluster to the inland we must solve the logistics problem, and must vertically integrate the industrial chain in one place. So, I went to Silicon Valley to negotiate with a few large laptop companies. I said that you come to Chong Qing to work on tens of millions of computers.

I will promise to put tens of millions of computers with 80% of the raw materials and components in localized in Chongqing within two years which can have everything reaching your warehouse within half an hour  by truck; if we can’t meet your logistics expenses, we will reimburse you, this is a gamble for us. But I also thought that if tens of millions of computers are produced here, all the parts and components manufacturers must come to me, I don't need to recruit them, because one third of the world's computers are produced here, it makes sense to set up a factory here. But if you only engage in only production of 5 million units, a parts and components factory can only supply two or three million units, which does not make sense for them economically to come over. Therefore, it is the integration of notebook computers and of raw materials, and parts and components. With the whole machine factory, there are parts and components manufacturers all located in Chong Qing.

The whole machine/ assembly factory agreed to go to the meeting with the parts and components factory annually. A few hundred new manufacturers came each time; and from the three times in three years, it came down to a total of a thousand manufacturers. Therefore, Chongqing now has a thousand parts and components manufacturers of notebook computers. It has been producing for four consecutive years, producing 60 million units per year, which is equivalent to one third of the world’s output. This production base is setup, and there is approximately 400 billion in total possible output value of machine assembly and part components. This investment is based on the complete industrial chain, including sales and settlement; the whole supply chain must have clear instructions in how it will be setup.

Another example is the car production in Chongqing. Chongqing originally only had a Changan Automobile Company. China's automobile industry is very strange. Once they belong to a certain province, they won’t expand to another one. Once Shanghai has SAIC; FAW and Beiqi(Northern Auto) won’t expand to Shanghai; automobile companies don't go to Shanghai to open factories. SAIC will not go to FAW or any other secondary automobile location, and everyone will have just have one. Then if the provinces recruit SAIC, they will not go to recruit FAW and second automobile provinces. Because this is a matter of saving face and territorial ideology, your greatest staff will be recruited and if they don’t come to your province you can't recruit their staff either. This is not right, automobiles should cluster also.

Therefore, since we brought in the mid-to-bottom industrial chain integration on laptops, recruiting all the computer-making enterprises in the world, clusters of the same kind can be done for automobiles. Then, this cluster can serve both the company and the company, so the scale effect will better. Cars are also such clusters. There are more than a thousand automotive raw material factories in Chong Qing, and more than 80% of the raw materials for automobiles are made locally. In addition to Chang An, there are 12 domestic and foreign automobile manufacturers. SAIC, BAIC and Secondary Automobile are all doing well in Chongqing. Each has done hundreds of thousands of them, and there are 5 foreign-funded enterprises. Clustering brings done the cost for car manufacturers. The components are also piled up for supply, the cost is relatively low, and the lower the cost, the more people are willing to come, forming a 7,000-700 billion automobile industry cluster.

Chongqing's automobile production has ranked first for three consecutive years. Last year, it produced 3.3 million vehicles, the second was Shanghai, with 2.4 million vehicles. The third and fourth were Jilin and Hubei where FAW Second Automobile was located. This is precisely because of clustering and centralizing the location of the industry chain. A cluster of similar items are formed and manufactured in the same area. The two examples above show you that the industrial chain cluster is a reasonable way of attracting investment.

5.2

The second way is to adapt and allocate our natural resources market for proper energy investment. For example, Chongqing produces shale gas and natural gas, so enterprises that dig and explore shale gas are a target investment, because many places want to engage in natural gas processing but are without natural gas resources. Natural gas is similar to the era of food stamps. For example, a province may actually need 500 billion cubic meters of natural gas to meet the current needs of their city. The proportion of natural gas in our country to total energy output is only 7%. For the United States and Europe, it is more than 20%.

Our pollution from coal and other energy pollution requires natural gas to solve. Therefore, we have adapted tens of billions of shale gas investment according to local conditions. Last year, the total output of shale gas in the country was 6 billion square meters, and Chongqing had 5 billion square meters. This year, the national output is expected to reach 10 billion square meters. Chongqing can produce 7 billion square meters. It is estimated that by 2020, the country will have 30 billion square meters. Chongqing can at least From 20 to 25 billion square meters, we have invested tens of billions of dollars in shale gas, which is the main battlefield for investment and development of shale gas in the country; accounting for two-thirds of the country. Similarly, once we adopt shale gas, natural gas will be used much more also. Natural gas is a good fuel and chemical product. Any high-tech chemical plant that requires natural gas as a fuel, or natural gas as a raw material, can follow this investment strategy.

5.3

The third way is that some good high-tech projects which lack of capital; can be financed by government investment. But we will have to use our brains to avoid risks. These companies have technology, products, and markets, but have no money. You want to cooperate with them. But this high-tech project and strategic emerging industry projects often cost 30 billion yuan, or even 40 billion yuan, 50 billion yuan. You helped him to invest, but if there is profit, they have all the upside, if they lose money and take a walk, who will compensate you for your losses? Sometimes the investment always have the same theme— the project is good, and the companies aren’t tricky or deceitful, how do you make decisions? At this time, we must mobilize our domestic funds, but this money must be used in places where there is trustworthy people, good credit, and areas where there is a return on capital, otherwise no one will lend you money. It requires a lot of brainstorming in this respect.

Chongqing has a project with BOE technology group. In 2014, I called the BOE CEO and said that we have tens of millions of computers in Chongqing, and we need hundreds of millions of mobile phone LCD panels. If you come here to do this, there are current LCD panel which are in short in supply. He understood that the national and international markets are in short supply. In addition, he said that he had the technology, but lacked capital; he couldn’t get tens of billions of dollars at once. I said that we will give you, but we can't offer you three or four billion yuan. We have to invest. If you fail, I will lose money. That won't work. We took more than three billion yuan to buy his stock, BOE at that time was a little bit more than two yuan a share, we bought 10 billion shares of private placement, and $2.1 yuan per share is equivalent to 21 billion. We paid 210 billion in a month. I started to help private enterprises out.

I think it is very profitable. Private enterprises have been studying this for almost a month. A large number of entrepreneurs from private enterprises of the Federation of Industry and Commerce have met and finally shook their heads. If I don't do it, I will let the state-owned enterprises take the 210 billion. Seven companies will be shareholders and buy 10 billion shares of tradable shares. After the listed company has received 10 billion shares, it has borrowed another 10 billion from the bank, which brings us to more than 300 Billion. All strategic emerging industries are now able to spend 10 billion, 20 billion, 30 billion yuan in half a year to a year, unlike glass factories, steel plants, chemical plants; 10 billion yuan, 20 billion yuan are expenditures which will be spent over a long period of 5 years.

Nowadays, electronic and high-tech enterprises can spend tens of billions of dollars in a one-year cycle, and buy 20 billion yuan of equipment. When they buy it, they will immediately install it in half a year. Therefore, BOE was put into operation in Chongqing at the end of 2015. Now it is full-load production, and there is still a great demand and inadequate supply; therefore, prices are rising. When it was put into production that year, there would be more than 30 billion yuan worth of production value in Chongqing. Although this factory is not a wholly-owned company of BOE, the benefits of BOE are good, and our 10 billion shares of stock has risen to more than $4 yuan per share from $2 yuan. It has become more than 40 billion since we have sold, so this is a great concept.

With this concept, this original investment of 20 billion will be recovered. I still have 20 billion. What should I do with this money? I will reinvest again. This will cost 20 billion not to buy his stock, but to make a joint venture. The current LCD panel phone can be bent, such as the wearable is the flexible LCD panel. This panel is now in short supply worldwide. For this project we will invest 48 billion yuan, 10 billion in loans, and an additional 30 billion in investment, with more than 30 billion investment each half year, we will take 20 billion to invest, there is no pressure in this decision. If our allocate 20 billion yuan to finance BOE failed as an investment, are these bad debts? Are you going to jump off the building or jump into the Yangtze River? When you combine decision making, behavior, and capital market operations, it's a very simple matter. It is necessary to give funds to people but we take into consideration of prevention of dealing with crooks, with safety, fairness and overall interests in mind.

But there is a project I hesitated to do, which is the project of Guo Tai Ming (Terry Guo, Foxconn’s founder). He told me to build a generation line, costing more than 40 billion, and said that I would first pay for the project, and he would repurchase it from us in three years. 40 billion yuan with 8% interest, means more than 2 billion a year; in 3 years the interest payment would be 7-8 billion. He gave me the 7-8 billion plus the principal, and then I would have a 40 billion project. But the money was lent to him.

He did not give us his shareholding guarantee. In case of bad debts, I would lose everything. If the operation fails, it will constitute a loss of state-owned capital. I hesitated for a month last year with the temptation of bringing him back. What I mean by this story is that we must judge each situation and ask the local leaders and big companies to understand the situation and come to compromise. In short, critical thinking from both sides— when there are really good projects with great technology, great backing, and an opportunity to go international, if these companies lack funds, we have to think about how to solve these funding problems, and supply capital. Proper allocation of capital requires you to use your brains. You can't simply give up so easily.

5.4.

The fourth way is to give preferential policies. Preferential policy in general, do not make sense. Unreasonable preferential policy is similar to cutting off my arms and legs and hurting myself. If it is a one-time absolutely meaningful strategic event, then the municipal party committee, the municipal government, or the finance and development and reform commission will make a collective democratic decision after comprehensive research. It may be worth a try. For example, Nanjing and Taiwan Semiconductor Manufacturing Co., Ltd. have built a total of 8 billion US dollars (the first phase of 3 billion, the second phase of 5 billion) of integrated circuits on the Yangtze River. The first phase is 14 nanometers, and the second phase is 8 to 9 nanometers. It is one of the best project in the world.

I went to TSMC and saw that Zhang Zhong Mou and was amazed. He had three $15 billion companies in Hsin Chu (city in Northern Taiwan), and he accounted for a large share of the global Integrated Circuit supply. So if he came to you to do integrated circuits, of course, you will have preferential policies, give him preferential taxation, think about how to give land, and how to subsidize him. At this time, a comprehensive set of plans should be carried out. This integrated circuit project has potential, and you can give him preferential policies. If you settle the account, the government will give him about 10 billion preferential policies in 5 to 10 years. This 10 billion yuan has produced hundreds of billions of chips. Production value, is the chicken and egg problem – If you want eggs first, you will have to get the chicken to hatch first. If you kill him and turn him into a piece of meat, you will not make money and other places will finance him, so it is critical to understand system integration, I think Jiangsu has been very successful in this matter.

5.5

The fifth way is direct acquisition. Now that Chinese companies have the financial ability, let's buy foreign controlling stakes. After we buy it, we can make our own decisions. Move his company to your local resources and optimize and configure his company, which will save you money from recruiting and brining in new factories. This is up for discussion. One of the things we did was to buy an aero engine factory in Ukraine. The whole machine is assembled together in Russia, the engines are all in Ukraine, and the Ukrainian engine is still continuously supplying to Russia. After Russia and Ukraine quarreled four years ago, Russia did not acquire the Ukraine engine factory as they could manufacture the engine themselves.

Although Ukraine is better than Europe, Europe still has Airbus and has its own engine supply. It is very powerful and does not need him. This company was closed down. This enterprise was state-owned in the 1950s and 1960s. After the Yeltsin reform in the 1990s, the party secretary and chairman became the private boss. The general manager was his son. We bought his stake in a billion dollars, and then spent more than 10 billion to move his company to Chongqing, making Chongqing a factory that produces thousands of engines a year. The sophistication and technology level of the Ukraine engine is many times higher than that of the domestic engine. They have been advance engines for many years, so the domestic market has this need, and we are already sourcing their engines, and now it can be made better locally. Acquire them for our own use.

Of course, there are some companies which come to you. You also hope that their product comes over, but has special requirements. For example, I hope to have some kind of resource licenses in our country. At this time, the government holds a license or holds certain licenses. Some resources, require the local government to help foreigners apply for the national license, you help the country solve a problem in the east, the nation rewards you a project in the west; the two sides mutually help each other. We have to strike a balance, of course, these are not monetary exchanges; these are transparent, mutually beneficial operations with other companies and the government.

5.6

The sixth way is to optimize the investment environment. For example, for logistics, there are now extra requirements for mass-produced products. If certain industries reaches billions, tens of billions or even hundreds of billions, we must consider global logistics. For example, in Chongqing's electronics industry, apart from the vertical integration, it is very important that we have brought up the channel in Europe. Because tens of millions of products are from the inland market, 30% are in North America, 30% in Asia, and 40% in Europe. If they are shipped to Shanghai, Guangdong, and shipped to Europe by ship, they will have to double their time and cost. On the one hand, the cost is high, on the other hand, shipping at least increases the distance from the inland to the coast by more than 2,000 kilometers.

So we promoted a new European railways from Chongqing to Europe, because the railway was originally connected, so when it was promoted, it mainly solved three things. One is the customs of six or seven countries to be integrated. If you don't have integration, the train will drive to every country and take your container down and check it out. This will not work. You must check once only in Chongqing. No country will repeat the customs inspections, and the things that are inspected in Europe should no longer be redone in Chongqing. It is called a mutual inspection, mutual law enforcement, and information sharing. This is an approach to the integration of a free trade economy.

We have spent time negotiating with various countries for more than a year is to solve this problem. The second is that the railway departments of various countries having different railway running schedules. It is necessary to unify the timetables and not wait for other trains. Time is wasted. Therefore, it is necessary to open the railway department coordination meeting with various countries. This coordination meeting has also been opened many times in my office, forming a five-shift class. The starting point is Chongqing, the final destination is Germany, and only one of the 100 train stations in the middle stops. The 12 stops selected are to be further discussed. The third is the fixed price. Every country has different railway freight. When it is connected, each country will pose a very high rate. The price of this railway for one container for one kilometer is one US dollar from 2011, and 12,000 kilometers is about 12,000 US dollars. This type of railway transportation will definitely lose, and if we can drop the rate to 0.8 US dollars in 2012, to 0.7 US dollars in 2014, and to 0.6 US dollars in 2015, we have a chance. At $0.50, more than 10,000 kilometers is $6,000. If we ship from Lianyungang or Shanghai, Shenzhen, a container to Europe for more than a month, it will be approximately $3000. If a container contains 5 million goods, the interest rate for one month will be $30,000 to $40,000, which is equivalent to four or five thousand dollars. At this time, if you add 3,000 dollars to 4000-5000 dollars, it will become 7000-8000 dollars. Everyone is willing to use the railway to transport.

What I mean by this is that we have to solve these specific things. Why did we try to do this at that time, that is, those big manufacturers said that 40% of our things were being shipped to Europe, if you transported them to the coast and then to Europe it is not cost-effective, it can't be done by their side. But if you can help them transport goods directly to Europe by train, I will move the goods/supplies from the coastal area to Chongqing, so our strategic pattern. In the face of contradictions, encountering difficulties, you must continue to be persistent, you cannot detour. We have now solved these logistics problems, 400 million mobile phones, 60 million computers, and other products; 30-40% of the logistics problem to Europe is solved. We must help enterprises solve the problems it particularly wants to solve. Think about what you can do for them, as long as the issues are objective, economic, not political or otherwise unreasonable. We should all take all of enterprise’s problems as our own, play our part of configuring things by utilizing the government's unique service functions.

5.7

The seventh way is to fight for national policy. For example, the free trade zone, such as the bonded warehouse zone, and so on, are also one aspect. Chongqing has an additional benefit. We provide a 15% income tax to any foreign-invested enterprise, including the real economy (not only tax free zones or bonded zones). But this is not our violation. The Western Development is a 15% income tax. This is still very important because you go to see it. Hong Kong, Singapore, Taiwan, including many development areas in Europe, are subject to 15% income tax. In the free trade zone, free port, and development zone, the international level is 15%. Then our country, the former SAR is 15%, and now it is 25%, but now The Western Development has a 15% discount and encourages 15% of the industry, so we use this. Some of the country's particularly good new districts, development zones, special zones or free trade zone bonded areas, any good platform is indeed useful, and can play an important role in attracting investment.

These are all measures. The fundamental thing is that the government must have the desire to serve the enterprise. The most painstaking task of the current prime minister is to simplify the administration of power, to help enterprises reduce barriers to entry, to improve efficiency in terms of equal national treatment of foreign-funded enterprises, national treatment before admission, improve service quality, and improve various convenience of services. Reduce the transaction price of the service, the price of the system, etc., and lower the cost of the enterprise.

6. Issues concerning government and social capital cooperation investment and financing (Purchasing Power Parity).

This is something that every level of government may have to consider now. The government's money is always limited. What additional projects should we choose? The government cannot afford to pay for the public service projects and infrastructure projects it wants to engage in. I hope that various enterprises at home and abroad will help such investments. This is Purchasing Power Parity. Under the premise of fairness and justice, benefit sharing, and risk sharing, PPP is very important to make five balances. These five balances must be well done, PPP must be true to PPP, there will be no current Ministry of Finance, the National Development and Reform Commission issuing a notice all day that there are fake PPP everywhere, to prevent the occurrence of PPP cheating. The five input-output balances are:

6.1

First, if a project is chargeable and the price can help the investment break-even, then the project is completely market-oriented, and PPP can be used to attract investment in a market-oriented manner. For example, for express highways, if the toll charges require 20 years to 25 years to break even, and it can return the previous investment back 2-3%, the return rate is a little more than the bank interest, therefore, as long as the enterprise has an ability to fight, this kind of PPP It is a fully marketable PPP with a balanced input and output.

6.2

The second is that a project is also charged, but the fees are not in place, and it is semi-market oriented. If the fees are in place, the reforms will have to adjust the price, but there may be a process to adjust the price, and it needs to begin as soon as possible. Therefore, the government can partially operate in such market, and where enterprises decide on what to charge. The local government realizes that there is still a gap will fill up that gap through a subsidy or purchase. After a few years, the government has raised the charging standard through system and price reform. It is balanced.

For example, the price of tap water in the old city of Chongqing was more than 2 dollar per ton, and the sewage treatment price is almost 80 cents, so it is balances out at 3 yuan (Chinese dollars) per one ton. It can fully balance the market PPP and we can let foreign joint ventures come and do it. However, when it comes to the reservoir area, the original water supply is 40 cents, and the sewage fee is not collected. Now even if the price is adjusted, it will be adjusted from 80 cents to 1.2 yuan, but this is still quite a gap from the actual cost, so we have an internal timeline, for every 3 years, the water price in the reservoir area will be raised once, and after 3 three years (9 years), the it will break even in the market. This is a principle. Similarly, the sewage treatment price is also the same, starting with 20 cents, and then increasing the price to 40 cents, then 60 cents. In this process, the accounting has to be clear—how many tons of sewage you have treated? How many tons of tap water has been treated? How much will you have subsidized? This is the account of the price reform, and then subsidized during the transition period. Balance is finally achieved through reform.

6.3

Third, the government pays for a project. There are circumstances where the government may pay for a project. There is no price reform; it is a government public service. However, if the government wants to invest, it may invest short term with 10 billion yuan in the next two or three years. The government does not have so much money, but things needs things done, and any one-off investment can be turned into an investment which lasts 20 years, 30 years, or even 50 years. Every year, there will be an annual purchase fee, an operating fee, just like renting. Originally, the government invested in equipment and built a factory. Now the industrial factory and equipment is invested by the enterprise. The government then leases and continues to leases; this is the concept of bringing liquidity into production and operation, rather than the concept of one-time investment in fixed assets. The government’s fiscal revenue is getting bigger and bigger. After 10- 20 years of development, the money which couldn't be paid is now easier if the annual purchase rate is lower. Recently, we have seen that various purchasing projects do not engage in PPP enough. While criticizing this aspect, the concept I am talking about is a strict classification of different methods for different scenarios.

6.4

Fourth, any project is a huge investment. Even if it is solved by purchasing in a 10 or 20 year time frame, it will be a huge burden to the annual government expenditure. Investment and purchasing must be balanced from the concept of daily procurement by the government, but the fee is charged. The price can't be balanced. If the company can't get the money, then it will exchange with other companies with other resources that the government has.

For example, the Hong Kong subway (MTR) has repaired more than 200 kilometers and spent 300 billion Hong Kong dollars. How can it still have more than 80 stations with more than 200 kilometers? These 80 stations have 200,000 square meters of property for development for each station, which is equivalent to rewarding them with 1600 square meters of land for 80 stations. The 10,000 square meter capped property is equivalent to 16 million square meters of land. With a floor price HK$20,000 per square meter, this is a gift of more than 300 billion yuan, so the government approved the plan for the company, and appointed them the property. The land allows for Hong Kong’s MTR/subway system to breakeven.

Every place cost the same, whether it is Shanghai, Beijing or Nantong because the subway costs 7 to 8 billion per kilometer, so 100 kilometers is 70 to 80 billion. Chongqing just started late; it had only built 16 kilometers in 2006 and 2007. Since then, it has built 40 kilometers every year. Now it has reached more than 200 kilometers, and more than 200 kilometers are under construction. By 2020, it will reach 400 kilometers. That is to say, this year is 40 kilometers per year. This 400 kilometers requires two or three billion yuan. It is said that it is 300 billion yuan, and government procurement pays 30 billion yuan a year. Whoever pays this, there must be resource/capital allocation.

If the government does not have the resources/capital to allocate, and the government tells CEOs in charge to fork out 300 billion yuan, and then let the government buy back share a few years later, who would sign such a contract?  This is fraud and the government will incur a huge debt. After a few years you may have bought it, but you are still in debt and it’s not going to be a huge investment you intended. Unless you fix the subway slowly, don’t fix 400 kilometers all at once, repair 40 kilometers instead, etc. it would still be a problem. So the fourth most crucial aspect is balanced resource/capital allocation.

6.5

The fifth kind, there is always a government development projects, the benefits will be very good, but since it is so beneficial, why should the government do it? An investment company can do it. For effective projects, if the government directly invests its own investment platform this may result in a real shortage of government funds. This kind of profitable project will allow the market to engage in PPP. The government should not be engage in it, and it must not be transferred. Therefore, a clear upper limit must be set for such projects. This kind of project requires 10 billion yuan for enterprises to invest, giving a fixed return.

For this investment, interest from the principle cannot return more than 7%, because all PPP projects cannot allow investors to lose money, because since enterprises are profit oriented. Enterprises should not have outsized profits, because this is PPP, it is a public service project, infrastructure projects, should not be profiteering. If you want to get higher profits, you do not engage in PPP. This should be a safe, long-term, return on investment interest which is balanced, with profits that are suitable. You hold onto this concept, sign a contract with him, enterprises invest in this project for a certain amount of years. When this resource is developed, the government acquires it and goes on to do other things. The benefit of implementing this resource allocation is relatively high.

We do not need to PPP for school, infrastructure, municipal construction, public service, these classification are meaningless. The most important thing is to use your brains to understand financial situation and their economics. No matter what type of project, there should be an accountant, actuary, and financial staff to calculate this PPP.

How will the project break-even? Can a market-oriented price reform balance the fees? Or whether it the project will break-even through by resource exchanges; what kind of project is required? As mentioned above, every project can be divided into these five categories, and then we sign the contract.

After the opening of the Third Plenary Session in 2014, Chongqing engaged 130 billion PPP in the same year. In total, we set up for 800 billion PPP. From 2014 to 2020, we used 130 billion and 140 billion yuan per year, almost totaling 800 billion. We will have 18,000 billion government projects by 2020, of which 800 billion are PPP, and 100 billion of them should be done by the government. For example, the railway has 200 billion yuan, which is done by the Ministry of Railways. The government directly removed this piece and it became market oriented. This 800 billion yuan aggregate; containing 130 billion yuan a year, was launched every June and each project has succeeded immensely. Recently, the Ministry of Finance and the NDRC have criticized various problematic PPPs in the country. The four batches of Chongqing are almost more than 500 billion yuan, and basically are not associated with these bad projects. In other words, as long as five balances are possible, project become an investment or financing issue.

7. Questions about government guidance funds.

The government has always had funds to support the development of industry every year. The entire Chinese government has a total of 17 trillion yuan a year, and the central government plus local governments have helped the enterprises to increase their economic development incentives, with more than 1 trillion a year. The central government receives 7 trillion yuan a year, and its military expenditures and foreign affairs expenses are more than 2 trillion yuan. More than 4 trillion yuan and nearly 5 trillion yuan are transferred by the central government to various provinces. There are people's livelihoods at stake here. There are all kinds of transfers, but the central government has transferred most of the funds to the locals. There are also 670 billion yuan in encouraging economic development, including scientific research and development or various economic inputs. Local governments also make contributions in funding development too. This contributes to an aggregate of 1 trillion yuan.

Like Chongqing, which subsidizes social enterprises for one year; it is almost 10 billion a year. There are several situations which may happen when the money is at the government’s office. The first one, after three or five years after the money was approved but the effect was invisible, the money went out, it was squandered. Second, some commissions have taken the money, and 10 billion yuan was to be issued. Only 7 billion yuan was approved this year. The money was squeezed. It is also possible to squeeze out the entire 10 billion yuan in a few years. The third type is the power trading, the gray trading, and the corrupt incompetent units. Fourth, the government's functions are bureaucratic and fragmented; daily tasks are only a symbol of power and going through the motions— managing projects and approving projects. This is actually turning government services into an approval mechanism. Therefore, it is very important to remit this money out and send at least one half. It is important to turn the money into a guiding fund in the future by sending about two-thirds of the money or more.

The guiding fund does not need government management. The government must hire a few accountants to look at the finances. The accountants decide where the projects should go, based on an annual review, with each commissioned department, some are industrial, some are agricultural, and these commissions should put the guidelines and give direction. But the daily management is recruited by the GP team. Since there is bidding and selection, if there are two hundred funded GP teams in the city, you will find 20 good ones inside; you should fund these 20 teams. The fund should offer 200 million each; with 10 teams this will total 2 billion. Therefore, the concept should be to create a fund company for the society.

After the funding, your enterprise’s size will be enlarged by 3, 4, or 5 times. In other words, this fund team came to become your money manager because he brought in 2 billion and asked for 500 million of your capital. The fund team didn’t take away your money; they went to the bank to borrow 1.5 billion from the market and became a joint venture company or a joint stock company. This is should not be the case because there is debt involved; it is a bond. Therefore, the GP team looks for LPs in the market, and if the equity investors are genuine, then the government's money is placed in this private equity fund. If you can’t have this selection process, it means that you have a problem in bidding, which proves to be an internal dysfunction.

How do we determine which project to invest in? How and when should we retreat or quit? Because everyone was not familiar with this, government officials started a group of companies. Therefore, the Ministry of Finance and the National Development and Reform Commission recently criticized some private equity funds and guiding funds, mainly for approving this. However, from a work oriented perspective, this is the performance of the government's investment and financing system reform, which helps the fight against corruption, helps transform the functions of fiscal and government funds, and helps to optimize the allocation of our investment funds in a more market-oriented manner. We need to play a bigger role to help make financial investment which takes three to five years before there is visible and tangible return, and help leverage the government's funds, to 2, 3, and even 4 times the size. The role should be well grasped, and the relevant departments should be balanced.

8. Questions about the government's investment and financing platform.

There are some investment and financing platform companies in each province and city. These platform companies are under scrutiny by everyone. How is the capital of the platform company injected? The government should have a clear scope. They can't be too stubborn and not give money to the platform companies; without funding, enterprises will become a debt company. Once this debt gets to a certain size, it becomes the government’s obligation; it becomes the government's debt. So you can't cover your ears and pretend you don’t hear anything and don't give companies any money. By disputing this by claiming it is a market-oriented enterprise, and then the government has nothing to do with him, is only being ignorant.

8.1

So in general, the government has to do provide a lot for such platform companies. It is vital to public services and infrastructure. One crucial point is that the government should not over do this. Generally, one or three platform companies in a municipality are enough. Also, one or two platform companies in the provincial capital cities or separate cities. When you arrive at a prefecture-level city, you only need to do one. This is amount is enough; it is already tens of billions, or even hundreds of billions. It may be necessary to reach the district and county level, but one place should only have one, don't do more; you end up do more work, and finally opening foolish accounts. Opening one account is fine; the state permits it.

8.2

In the second respect, the source of capital for theses platforms can be thought of a one-off financial start-up fee; it is nothing but a one-off payment— giving them a piece of land, physical assets, resources, and state-owned capital of state-owned enterprises. Each piece is injected into the platform companies. In Chongqing, I used to call these five injections, injecting taxes and fees, injecting a piece of land as capital, injecting financial resources, state-owned assets, and other idle assets or effective assets, etc.

8.3

In the third aspect, it is necessary to maintain the credit of the platform and protect it as if your life depended on it. This is your investment and financing platform and it is necessary to borrow money with banks and big companies, and to have credit. Credit is mainly about "saying NO to 3 things." The platform company does not guarantee any enterprise. The full credit of the platform company only finances the government's infrastructure and major investments. It cannot guarantee the other state-owned enterprises or enterprises that go bankrupt. Once you guarantee it, you are no longer functional, and this immediate binding will ruin you.

Therefore, the platform company should never guarantee other companies. Some of the platform companies are government-subsidized projects. The funds for public service projects are earmarked for special purposes. You can't use this fund to guarantee the credit in the financing platform. Once you get there, the accounts should be separated. The platform company should control the debt ratio to be within 50% at any time. That is to say, the platform company is going to raise funds, so it is unreasonable for you to ask him to have a debt ratio of 20%-30%, but never let the platform company exceed 70%-80% of debt. The range within 50%-60%, always allows you to be flexible.

8.4

The fourth aspect is the cash flow of the platform company. Maybe you have invested in a long term project, and the cash flow could not immediately come back. The government should always maintain the platform company’s cash flow and liquidity with long-term debt, short-term debt, some long-term bonds, some two or three years of bonds, and some short-term loans. The cash flow return should be balanced, and the cash flow must not be broken, that is, there should be a balance of cash flow and the debt ratio of assets. This is an issue of financing guarantees.

The government has to maintain the platform's credit; that is his entire purpose, it is to help finance, and solve some things at a critical time. In addition, the platform company undertakes some important projects of government infrastructure. Once the central government has the replacement debt, if the platform company borrows money, if there is trust money, there is higher interest, 7%-8% loan interest, or 9 %-10% of the trust interest, there is a replacement debt to be taken care of first. This is not a malpractice. The platform company is of national interest. It is the interest of your local government. First of all, it should be replaced. The central government's replacement debt is generally 3%-4% interest, and there are enterprises, called development loans, special project loans, this project loan is about 2% interest, for 10 years. So you borrowed 10 billion yuan, which is 3-4% interest is lower than normal bank loans. For 10 billion, that would be 300 million to 400 million, for 10 years. But the cost of 3 to 4 billion is declining, so this platform company is carrying national preferential policies. The first carrier is justified. This state-owned enterprise is a public service enterprise for all citizens and the whole society. Therefore, everyone must understand this truth and the platform is to be maintained. But the platform should not be messed with. Don’t do more. If you do more, it will become a place for all kinds of cadres, relatives, and cronies. Then your seventh and eighth aunt will receive high wages from the inside, and they will be useless. There will be a lot of debts. Mutual guarantees always get messed up later. These things must be guarded against.

9. Issues concerning the balance of funds in the government land reserve.

The land of our country, the land of the city is state-owned, and the land in the countryside is collective. If it is not state-owned, it must be collective. Our country’s method of privatization is very different from the rest of the world. The land is still valuable, but there is also a difference. Because the most cities are in early stages of development, from a basic assembly; the land of a large number of cities are progressing to the stage where the infrastructure has not yet been developed. In this process, the government must first engage in infrastructure in order for land to appreciate.

At least 1.5 billion yuan needs to be invested in a city's infrastructure to develop one square kilometer. For example, if a 100 square kilometer hypothetical city is built, which can't be seen or touched, has no halls, bridges or sewers, this will at least cost us 150 billion. If it hasn't been developed yet, we don’t have that much money to finance it. Of course, I have to be financed in debt. What is the balance of this debt? If the tax balance is achieved, and the city develops rebalancing after 50 years, then your debt will be in risk of a huge crisis, so land financing has to be another option for local governments.

However, if local governments choose to finance by selling land; this method of generating profits will appreciate the land price and the higher the price of the city, the more expensive it becomes. In my opinion this is short-sighted. The land price should be stable, and the land price will be low. In general, the trend of housing prices should indeed be based on the growth rate of GDP, the growth rate of ordinary people's income. As long as GDP doubles, and the income of ordinary people doubles, then it would be reasonable for the price of land per mu (Chinese unit for measuring area, one mu is 0.16 acres) to double. Ten years ago, it took seven to eight years of family income to buy a suite, and this should grow in sync, seven or eight years later, even if housing prices doubled, the land price should double, but you income is aligned also, it has also doubled. This means that land finance is under control— stable and reasonable land prices are offered. However, under the premise of reasonable and stable land prices, the land price will be doubled every five years and every ten years. If you do not control well, it may double or even quadruple in three or five years. This scenario keeps occurring.

In this case, the government does have to reserve some land. For example, in Nantong, the city is now a built area of ​​about 200 square kilometers. I am not talking about the countryside, nor the suburban county, but the core city. If the population of the city has five million people in the future, it will require more than 500 square kilometers. In the next decade or so, the 200 square kilometers to be developed which are now farmland. You may have to levy it in the future. This can be used as a land reserve to be stocked. If you want to use the land next year, and then use it next year after the land is levied, this is not called land reserve. This is called timely cashing, timely collection and timely use. The land bank is always a reserve for the land to be used in three to five years and ten years later.

There are several basic principles of controlling a land bank.

9.1

First, reserve the land that may be used in ten or even twenty years. There are three kinds of reserves, one is the land where the land acquisition is moved on hand; the second is the land requisition. If the “seven-link/connection/basic necessities/ development to one standard” (land development, HVAC installation, water, 7 basic necessities” is well done; land can be sold at any time. The third type is neither the “seven-basic necessary land development”, nor is it land requisition. It is freezing/stopping the planning of an area/development, implementing freezing red lines/limits/restrictions to any building permits. The land to be used in the next few years can no longer have sporadic household registration permits for both enterprises and buildings. This is also a type of “red line” (zoning for cultivated land) planning— freezing development to reserve 200 square kilometers for future use. I think that the most valuable land is frozen for one hundred square kilometers. The government planning has the capability to do this. This is called frozen, one-time, long-term reserves, which must be used in batches. It is impossible for a mayor to implement a reserve by himself during his term. In three years, the reserve will be used up and sold. The land of general reserves must have a long run 20-year vision plan. That is, you reserve 10,000 mu of land, and you only use 5% per year. You use 200 mu of land or 500 mu of land every year. Anyway, it is a few percent. It is used in 20 years. It is called one-step use and phased use.

9.2

Second, the land of reserves is not all used for profit-seeking; it may be used for renting commercial houses. About 50% of the government reserves are used for infrastructure, public facilities, schools, hospitals, etc., which the government may use in the next few years, that is, the land that the government itself needs. This place should be low-cost, under the utilization of the government’s reserve land. But you can't use all of the reserve for public services; that is, half should be for public services, and the other half should generally be used for commercial housing, office buildings, land leases, central business districts, residential leases, and market-based leases.

9.3

Third, the land to be requisitioned must be requisitioned, and it must be under the “seven-basic land development necessities to one acceptable level/standard”— it must be sold after the land becomes mature. What is most frightening is that the government has drawn a tight circle of inside connections, and then the land acquisition has not been levied, including the location of some dangerous old and dilapidated houses. If the government lacks money for land acquisition, renovation, demolition; they tell the private enterprise bosses to pay, allow them to go to the land acquisition, they bring in the transformation and renovation, and then everyone settles the bill. In fact, it is impossible to calculate the bill precisely. In the end, this kind of account is either ends in corruption or gray trading. The only solution is to let the boss suffer, kill the boss, nail the households inside, and finally the cost is greatly improved. This way the funds come back, they finally come back. When bosses collude with government acquaintances, the result is a violation of national policy; a variety of problems will appear.

Therefore, the reasonable/rational approach must be to reserve the land. The government will make basic, primary-level development of the land, that is, the land acquisition and relocation, “seven-basic development necessities up to standard.” Where does this money come from? The reserve can be mortgaged. In the past, it was possible to get a loan with bank mortgage. Now it can also issue land reserve bonds. The central government has specially opened this branch. This money, everyone remembers, the land reserve loans or bonds can only be used until the land mature— when it is ready to turn the reserve land into a useable land. The land reserve money cannot be used for urban development, or for various financial investments. Otherwise it could result in a Ponzi scheme— the reserve itself has not has a single penny invested in, nor has it been developed or sold. You have borrowed 2 billion yuan from the reserve of 10,000 mu. When you have to pay back, you will go to get 20,000 mu, and then go to borrow another 4 billion and 5 billion. The new account will still be the same as the old one, and will turn into a Ponzi scheme. Therefore, the company in the reserve area is entrusted with the government's huge credit and resources. The first wave of credit is used for financing. It is used to develop land and engage in primary development. After the first-level land is developed, the land bureau will rent land.

After the land lease, the primary-level development may cost 10 billion yuan, but if the land was leased at 10 billion yuan, you may sell it for 30 billion. With 30 billion inside, 10 billion are still costs, 20 billion are financial revenues, and the government uses infrastructure to fund investment. So it has two cycles, one is the primary level development of the land reserve. Another is the resulting revenue for financial supplements for infrastructure and public facilities.

9.4

Fourth, the reserve may have 100,000 mu and 200,000 mu of land, and the corresponding amount of funds may increase by 50 billion. It cannot be like a big pot with 50 billion inside, where you let the reserves correspond to various infrastructure and public facilities projects. Then you will have batches of confusing accounts against each other, which is not acceptable. Your reserve may have roughly 100,000 mu on the side, this 5,000 acres is facing a batch of 200 kilometers, 100 kilometers of subway projects, that 3,000 acres corresponds to or what bridge, like your Hutong Bridge 15 billion, this 150 Billion, if you want to use 10 billion, you need to know how much, or how many acres should correspond to it. Including PPP— if the PPP Company needs resource/capital allocation, 2,000 acres of this land will be allocated to this PPP. In other words, a large pocket has many small pockets, and each small pocket basically has their own unique responsibility. As long as the finances are open and fair, and no one is engaged in malpractices, adjustments are irrelevant. This is not a loss of state capital or financial mistakes, but individual, compartmentalized management is also very important.

So land reserve is very important. I arrived in Chongqing in 2001. In 2002, Chongqing had a population of more than 3 million people, but less than 4 million people, with about 300 square kilometers. I thought Chongqing should be a metropolis with a population of 1,000 square kilometers and a population of more than 10 million. It should not be dispersed with about 10 million people in 80,000 square kilometers, but should be a dense and centralized city, where there should be more than 10 million people in 1,000 square kilometers. As for Wanzhou Fuling(a district in the Chinese province of ChongQing), it belongs to other cities in the urban cluster. This is more than 700 square kilometers. 700 square kilometers cannot be all reserved, and other places in the district and county which are inhabitable; at least half, which is 350 square kilometers, that is 500,000 acres. 500,000 mu of land is used 5% and 20,000 mu per year. In the past ten years, 300,000 mu has been used, and there are 200,000 mu. For this 300,000 mu, Chongqing has, in various years and from various platform companies engaged in infrastructure reconstruction. The government has spent more than 10,000 billion.

Is the Chongqing government a heavy debt platform? Our highways require more than 100 million yuan per kilometer, and since for every 100 kilometers of expressway, 60 to 70 kilometers requires bridges, trench, or a cavity. Due to Chong Qing’s geography, for every 70 kilometers, bridges and tunnels are required; the cost for infrastructure is higher than the cost of Shanghai and Jiangsu. Very high. Our various investment companies and infrastructure have spent more than 1 trillion yuan, but now the government debt balance of the Ministry of Finance and the provincial level is 300 billion in Chongqing, and with almost 1 trillion, it has been balanced. The balance of 1 trillion yuan is nearly 300,000 mu of land. More than 100,000 mu is allocated for infrastructure and public facilities.

The real market-oriented commercial housing is 150,000 mu, and there are always six or seven hundred acres in one mu. With a basic profit of 10,000 in mind, that is more than 100,000 mu, it is almost 900 billion, one trillion to break even; it must break even, otherwise there will be high debts. In turn, there is a high amount of cash flow during the construction process. This cash flow is transferred to us hundreds of billions a year. Because when you have land reserves on this platform, there is credit. Without credit, your reserve becomes government debt, a system of repayment, a system of bad debts. Therefore, in this respect, the debt rate of the Chongqing government, that is, the general account of fiscal revenue, the numerator is the balance of debt, the total debt balance of the district and county plus municipal governments are at 70%. In general, the security, the Ministry of Finance is required to be within 100%. So this reserve definitely plays a key role.

Reserves also have a role, because you need to have reserves in hand to control land prices. Land supply is the killer of housing prices. If the land price is 10,000 yuan, the housing price must be 20,000 yuan or 30,000 yuan. Therefore, in general, the government should not push up the land price, but if the land price clearly shows that the five thousand, the government sells it to three thousand, then you cannot transfer the benefits. Therefore, the government's behavior is to follow the market; if the market demands and follows a certain amount, then the government's land price should reflect this. The government should not willingly push up the land price. This function can be achieved through land reserves.

Generally speaking, if the current house price is 20,000 yuan, then the land price should be one-third of the house price, which is at 6,666 yuan. Then when you are auctioning the land, if the land supply is less, and the real estate agent requires more, you set the land price at 8,000, 9,000, or 10,000. You have the reserve in your hand, but you put fewer pieces of land for offer at the same time. The price must be down. If you know that there is land, you can sell 500 acres, if you only put up 300 acres for sale, then you just bring the prices up, this is a common and prevalent phenomenon.

It seems even if the income is high at one time, but if the land prices are high, then people are not happy, the cost of the enterprise will be higher, and eventually the investment environment will be destroyed, and the long-term economy will not go up. I personally think that Chongqing's current housing prices are reasonable, basically buying suites at the same price for the last 6, 7 or 8 years. The income of Chongqing people is not high, but in the last 7-8 years, Chongqing's commercial retail sales have always been the nation's first in growth rate. Commercial sales include retail, food and beverage, and immediate consumption. Not all of Chinese citizens have traveled to Chongqing, but commercial retail sales are always higher. I think that because their real estate liabilities are relatively low, there is more money for personal expenditure and consumption.

This is a killer that the land reserve can also be regulated in balancing land prices. The greatest fear is that there is no land in the hands of the government, and the land is reserved in the hands of real estate developers. If they do not develop in five or ten years, and the government does not have any reserve for land. In the end, the housing prices will soared and the land price will be high. You transferred the land and you are now dragging a rope of dead weight. For example, Wanda properties, which is engaged in cultural entertainment across the country— everyone thinks Wanda engages in real estate, purely according to market prices, auctions, but it engages in cultural entertainment.

Everyone will use the idea of ​​cultural entertainment to be granted more land. If the land of real estate is originally 1,000 In the case of an acre, the project of cultural and entertainment may be changed to one million mu to give the property developer a lot of land. After he takes it down, he really wanted to develop millions of dollars, and this cost a lot of money. He suddenly thought about clearing assets and selling dozens of cultural projects. These cultural projects are downtown. These various places give him hundreds of acres of cultural project land.

From this land value, these dozens of projects are worth more than six billion, the land account must be deducted. Therefore, Sun Hong Bin’s (chairman of Sunac property development) purchase is not bad, he did not lose, and he is not stupid. However, after Wanda sold it, the original cultural project occupied these places, and at least 200 billion was used to bid and invest for this land. Now he does not bid. He wants to cast this to Sun Hong Bin for him to invest. He will manage it and make it asset light. Nowadays, a company with hundreds of billions of dollars has almost no capital and no assets in China. It has become an output manager. Hundreds of billions of capital are really abroad.

In this sense, with regard to land reserves, is it reasonable or unreasonable for a company to reserve tens, hundreds, and thousands of square kilometers of land? The government can sell some land reserves, but the government must never sell an entire city; slowly let several real estate developers buy it. These are a few things about the government's own investment and financing. If you do these things well, basically the situation will be better.

10. On the issue of investment and financing of the society.

I conclude that local governments must abide by the "ten nos." Obeying the "ten no", the investment and financing environment of this place will not be bad. If you don't follow it, there will be a lot of chaos when things go wrong.

10.1

First, basic investment consulting companies or funds should require special approval. Because there aren’t over 100,000 investment consulting company within all provinces. In the Qian Hai Financial Experimental Zone in Shenzhen, 7000 investment consulting companies were approved. In the year from 2012 to 2013, Chongqing suddenly took more than 3,000. In the past ten years, there were six or seven thousand in Chongqing. This is true of all provinces. This is meaningless, since 99% of investment consulting companies are liars. If you are a person of insight and wisdom, you don't register with the name of an investment consulting company. If you register, you are a good person. It is like examining the skin of a leprosy patient to cure him, why do you even bother?

When I was in Chongqing, I discovered a county under Luoyang River in the Henan Province. There was a town under that county. There were more than 100 farmers in a town. Each person in the province had registered 2-3 companies. A total of hundreds of investment consulting companies were registered in each district. Everyone goes to register. After the registration is over, he will swindle money from the bank. The people will also be fooled. When people see him next the bank, people associate him as part of the convenience service of the bank. Once he swindles tens of thousands of dollars, he will leave the store. Then he will register another company. Such companies now seem to be everywhere. If the Trade and Industry Bureau considers that such investments companies should have more registrations, when the number of companies registered every year grow by 20%, then they are fooled. As the economy goes down, how can such investment companies grow so much? Close down a lot of them, reduce this large number. Whether there is an increase or decrease in the number of these companies, who cares? A decrease in a few percent is normal. The 10-20 percent increase of all these garbage company are useless, and only do more harm.

10.2

Second, don't engage in peer to peer Internet finance. Don't believe in Internet finance, the Internet is most suitable for financial settlement. A variety of bank settlement, clearing, and trust are the strengths of the Internet. But Internet companies, if they want to engage in loans, P2P is a loan. If you want to invest, then use crowdfunding as an investment. But if you have to manage money, insurance, and say Internet-based insurance, you can't do it. Because these are just traditional loans, investments, and insurance, wealth management companies only use Internet tools, but currently Internet information is transparent, and 99% of P2P is going to go bankrupt.

At present, there are 6000-7000 P2Ps in China, half of the bad debts are closed, and are waiting for hundreds of billions of dollars in compensation, and half of them die basically. So if anyone says that my P2P will win, if the government believes in him, then I believe in a very small probability event, you can't say that they can't do it, maybe there might be an accident. But as long as they start doing these things, there will be chaos. So for this matter, do not try to attract investment, it is troublesome, and it should be banned. In fact, the country should have already banned it, but many negative lists make them unable to do it.

10.3

Third, we should be careful in the exchange and auctioning of cultural products. Cultural products are either auctioned as real objects or property. Anyways, in one-on-one auctions, one is willing to buy and one is willing to sell. Even if one is cheated, the fake object still costs money. If there is a market for exchange, what is the exchange, and what is being exchanged? The first is standardized shredding. A stamp is cut into hundreds of copies. If a stamp is worth 500 pieces, it is sold to 50 people. One person has 10 pieces. Everyone is broken further down, until you can't see the stamps. The price is soaring. This is called the stock market and speculation.

The second is high leverage. Originally, there are ten yuan to buy ten, and ten thousand to buy ten thousand. He has leverage to get ten thousand, which can become twenty times and become 200,000. In fact, this fragmentation and high leverage make it easy for everyone to get stuck in it. If someone says this is very standard, don't listen to it, don't believe in it. Even if there is no accident now, there will be an accident in a few days, it is a Ponzi scheme. There are many things happening in the Tianjin Cultural Exchange, and there are also other places. When the officials who control these powers hear about this, and don't worry about it, and instead think about opening it up, to attract investment and are optimistic about this, don't be fooled.

10.4

Fourth, we must guard against the phenomenon of indiscriminate fundraising. If there is a random fund-raising in the society, that is, the lending house practices usury amongst ordinary people, which is not approved by the Trade and Industry Bureau, yet most people believe it. This is to report. Report one, and you can be rewarded 10,000. When the lending company lies to you, it may ask you to pay 20,000 yuan or 30,000 yuan, giving you the benefit of 10,000 yuan. If you report it now, you will be sent 10,000 and they will reward you with 10,000. If the government really takes out one million, don't be reluctant. One million is equivalent to one hundred cases, one case is one billion, that is, one hundred billion, one case is one hundred million, that is, one billion. The government must guard and be vigilant against this matter by relying on reports. It is necessary to rely on the masses and let everyone report.

10.5

Fifth, don't engage in PE and PPP and mistaken them for real stocks. People frequently mention PPP, private equity funds, when the actual scene is actually not equity; it is, in fact, bank loans, or drawer agreements, leveraged loans, and so on. Sometimes people use a lot of good names, calling it reward and punishment funds, when in fact, it is all disguised terms of leveraged loans.

10.6

Sixth, in terms of macro-management of the government, we must never let our own investment, the investment of the whole society, invest more than GDP. This means that if your GDP is 600 billion, your investment should be within 600 billion a year. In the long run, we must have this control. We are in a good position now. I estimated the accounts and we are probably at 60%. The overall debt ratio of JiangSu is still relatively better than the national average. Such a large province can control it at a level of less than 60%. This concept I am talking about is that all counties, township, and provinces should never exceed 100% investment rate.

10.7

Seventh, the government's debt ratio should not exceed 80%, which is the national average. The national red line should not exceed 100%. Generally, it would be better if we do not exceed 80%. It can be well within 80%.

10.8

Eighth, the bank's non-performing assets, the non-performing assets of various small loan companies, or the non-performing assets of trust companies must be controlled within the national average. There is an average in the country. For example, the current bank’s non-performing loans are 1.8%. You should not exceed the national average in this place. This should be a goal that everyone pursues.

10.9

Ninth, don't let a company pair up with several financial instruments, and don't stack financial products. There are various kinds in the local financial institutions, financial units— banks, leasing companies, various mortgage companies, trusts which uses small loans, bonds, coupon tickets, and, financial instruments, to finance the real economy.  Yes, financial leverage and financial instruments exists, and it has a reasonable value for its survival. But never let government enterprises, state-owned enterprises or private enterprises, a company go to the top five or six varieties of financial instruments. For example, on your loan, which the bank did not directly lend you; was first lent from the bank to the trust, which the trust lends you; or the trust was even transferred to a small loan company and finally to you. In other words, if your financial instruments are connected in series, stacked together, refinanced, you have to stop. Financing should be clear and direct, face-to-face, and not convoluted or mixed up.

10.10

Tenth, beware of companies with various financial institutions' funds and their liabilities. If the government sees a real estate company, or a company, with a debt ratio is 70%, 80%, 90%, with more than half of their liabilities coming from non-bank loans, seven or eight varieties are leased, fundraising, small loan companies, trusts. This company's debt has many miscellaneous homes, chaotic high-interest varieties; this business will surely have a survival crisis. You can either help him with it, or smash him. In short, don't stick too much with him. If you stick it, just help him rectify it. If you still go to finance with him, or with a state-owned enterprise, or if a financial unit is still working with him, and if you think his credit is still good, you are the one who is confused. So if they put together a variety of financial instruments, you should be careful to have connected transactions with them or finance them. For a company borrowing from a variety of financial instruments, dozens of accounts, or if a company has dozens of fund accounts, or  if 50% or more than 60% are a variety of high-interest sources of funds, these kinds of companies are basically ill/sick, be very careful.

In short, these are the aspects which I remind you of to prevent you from harm. In general, these my words of advice, and I can’t offer more due to time constraints. 

Thank you!