The monetization process in China during the economic reform in the past 40 years can be roughly divided into two phases. The first half is from the beginning of the reform and opening-up in 1978 to the early 90s of last century, focusing on products marketization and commodities monetization. The second half is from the late 90s of last century until now, including the establishment and development of the stock market, as well as the commercialization and monetization of land and housing. On the occasion of the 40th anniversary of China’s reform and opening-up, reconsidering the issue of " monetization process” raised by Yi (1991), as an important main line that accompanies China’s economic growth and development, is very meaningful. Actually, for us, there are still two important issues worth exploring. The first is to scientifically calculate the proportion of monetized economy at the first phase of this process. And the second is to conduct a more in-depth study on the " M2 missing puzzle” that exists at the current period. Obviously, the former can contribute to summarizing the experience and lessons of China’s past monetization, and providing a strong practical reference for current narrow monetization process of the Asian, African and Latin American developing countries along the " OBOR”. The latter can help to understand China’s current monetary creation, monetary policy, and the important reasons for leading those resources to " be shifted to virtual economy from real economy”. However, if we cannot provide a more accurate and clear answer to the core question, namely how to measure and calculate China’s monetization rate, then it will be very difficult for us to give any substantive advice on the monetization process in these developing countries. Therefore, for the former’s remaining problem, by considering those factors such as generalized trading technology, structural mutation and underground economy, this paper improves the monetization theory of Yi (1991) and creatively proposes a new theory and scientific procedure of directly calculating monetization rate, according to the " V-shaped” turning point of the time series about traditional velocity of M0. And for the latter’s problem, this paper also analyzes the causes of the " M2 missing puzzle” and its impacts on the real economy. Our calculation shows that the proportions of monetized economy were 31.7% and 42.0% in 1952 and 1978, respectively. And this proportion eventually achieved 100% in 1993. In addition, the growth of this proportion experienced three stages: the average growth was 4.7−6.1% and 6.0−6.7% per year from 1952 to 1960 and from 1978 to 1992, and minus 0.7−1.2% from 1961 to 1977, respectively. Obviously, China’s experience about this proportion of monetized economy with around 6.5% average annual growth can provide a strong practical reference for the current monetization process of those developing countries along the " OBOR”. The two other contributions of this paper are as follows: firstly, it corrects the inaccuracy of velocity of money by traditional definition from 1952 to 1992, and provides the same period’s data about the monetization rate and these real velocities of money defined at different levels, which is consistent with the documentary evidence; secondly, by utilizing the theory and method of this paper, it finds that there may be an undervaluation to use the M2/GDP indicator to show the degree of monetization from 1952 to 1992 in traditional literature. Furthermore, we also find that although the narrow monetization factor is controlled, the average velocity of M2 in China still presents a downward trend, indicating that the " velocity of money falling puzzle” and the " high monetization mystery” for current Chinese economy remains valid. And further evidence shows that commoditization and monetization of land and housing may be one of the new important factors. After the crisis, excessive financial resources in China have been running into the land and real estate markets. And it suggests that the over-monetization of the land and housing may have already harmed the real economy. In addition, a further international comparison shows that, the completion of the narrow monetization process means that there is a " V-shaped” inflection point of the time series about traditional velocity of M0 is a universal rule in both developed and developing countries. However, the " velocity of M0 falling puzzle” of those developed countries in this century has still not disappeared, suggesting that exploration, analysis and interpretation of those causes of its formation may be another possible direction in future related research.
The Direct Calculation of Monetization Rate & the Monetization of Land and Housing: A Reconsideration of the Monetization Process in China during the Economic Reform
Journal of Finance and Economics Vol. 44, Issue 06, pp. 31 - 49 (2018) DOI:10.16538/j.cnki.jfe.2018.06.003
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Cite this article
Liu Jianfeng, Xu Zhiwei, Pan Yingli. The Direct Calculation of Monetization Rate & the Monetization of Land and Housing: A Reconsideration of the Monetization Process in China during the Economic Reform[J]. Journal of Finance and Economics, 2018, 44(6): 31-49.
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