Why has the stock market been so much in the spotlight recently? One of the reasons is the arrival of significant policies targeting China's capital market. Recently, Pan Gongsheng, Governor of the People's Bank of China, Li Yunze, Director of the State Financial Regulatory Administration, and Wu Qing, Chairman of the China Securities Regulatory Commission, jointly attended a press conference held by the State Council Information Office. The three major financial regulatory authorities provided different significant measures from different perspectives. All measures generally involve three aspects: First, Pan Gongsheng gave an expectation that capital liquidity will increase significantly; second, Wu Qing gave the direction of future stock market reforms, weakening the "zero-sum game" attribute of the stock market and strengthening the expectation of building a public investment market; third, Li Yunze gave an expectation that various financial institutions will strengthen equity and innovative investments.

For China's stock market, this is obviously a significant positive, but we should also see that the central bank is transforming from a traditional central bank - the bank of banks, towards a modern central bank system - the central bank of the entire financial market. Because of this, it may be a key node for China's financial reforms.

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Focus on the major changes in China's monetary policy.

To solve the fatigue of China's capital market, efforts can be made from two aspects. First, the China Securities Regulatory Commission starts from the level of stock market system construction to curb the "zero-sum game" trend and build a public investment market with strong people's nature. Second, the central bank provides ample long-term capital liquidity for the financial market, rather than only focusing on the short-term monetary liquidity of the banking system.

However, the problem is not simple. For the central bank to provide ample long-term capital liquidity to the financial market, it is necessary to thoroughly reform the past monetary policy methods. For a long period in the past, the main means for the central bank to increase M2 (broad money supply) was to stimulate banks to increase loans by lowering interest rates, and then to push up the growth rate of M2 through the cycle of "loans turning into deposits, and deposits turning into loans" repeatedly. According to the formula "M2 = base money × money multiplier", the past monetary policy method was actually that the central bank did not increase the supply of base money, but relied on expanding the money multiplier to push up M2.

Neo-liberal monetary theory believes that money is just a transaction tool, and any item or credit that can act as a transaction medium is money, so money should mainly be naturally derived from various credits in the process of commodity transactions - the so-called "endogenous money", and there is no need for excessive participation of national credit. Base money - money issued directly by the central bank based on national credit belongs to "exogenous money".

It is precisely because of such cognition that there is a set of practices where M2 growth is mainly driven by the money multiplier, not by the increase in base money. However, we should pay attention to: M2 growth is mainly realized by the money multiplier, that is, commercial financial institutions "loans turning into deposits, deposits turning into loans" repeatedly, which actually means that the "right to issue money" has been handed over to commercial financial institutions, leaving the national credit foundation, thus enabling financial capital to obtain the right to issue money.

After the 2008 financial crisis, while the world was denouncing the evil of financial capital, research found that the monetary policy set according to neo-liberal monetary theory would make the national finance fall into the trap of "short-termization and arbitrage". Because the continuous improvement of the money multiplier means that the speed of financial operation is continuously increasing; the continuous improvement of financial turnover speed means that the financial turnover period is continuously shortening; and the shortening of the financial operation period means financial short-termization.

Financial short-termization means that finance deviates from the needs of the real economy and is more suitable for "empty rotation arbitrage". Why? Because the ultimate profit of finance relies on the real economy to create, and the real economy needs more long-term capital, but after financial short-termization, long-term capital will become more and more scarce and expensive; in order to obtain higher profits from the real economy, financial capital will roll over through "borrowing new to repay old", turning "short money into long money", and in the process of "short money into long money", all short money "borrowing and repaying" are actually "empty rotation arbitrage".

What to do? Reform the monetary policy method and correct the fallacies of neo-liberal monetary theory. Specifically, it is necessary to significantly increase the base money, especially the supply of long-term base money, while correspondingly reducing the money multiplier. China's monetary policy should "add sugar and reduce water" as soon as possible. What is sugar? The base money issued by the central bank based on national credit is "sugar", which is the credit foundation of the renminbi as the national legal currency; what is water? The money multiplier is water, and commercial financial institutions dilute the base money to form derived money.Monetary policy "sweetening and dewatering" is the foundation for the long-term and capitalization of China's finance, which is the release of long-term capital liquidity to the financial market and the key to eliminating "more money but less capital" or "not lacking funds but lacking capital."

Previously, the central bank indicated that in the future, "it will gradually reduce its focus on quantitative targets and pay more attention to the role of interest rates and other price-type regulatory tools, enrich the monetary policy toolkit, improve the policy communication mechanism, and enhance the transparency of monetary policy." Does this mean that the central bank will no longer use M2 growth rate as the target of monetary policy and instead control interest rates through the issuance and withdrawal of base money? If the answer is affirmative, it will imply that China's monetary policy is undergoing significant changes.

Pay attention to the implementation of major measures.

Among the major information released at this press conference, there are two new monetary policy tools: First, the swap facility for securities, funds, and insurance companies. In fact, the swap facility for securities, funds, and insurance companies is a convenient tool to enhance the ability of securities, funds, and insurance companies to obtain funds and increase their stock holdings, that is, "qualified securities, funds, and insurance companies can use their own bonds, stock ETFs, Shanghai and Shenzhen 300 constituent stocks, and other assets as collateral to exchange for high-liquidity assets such as national debt and central bank bills from the central bank, and after cashing out, they can continue to invest in the stock market."

The central bank introduced: "Compared with other assets held by market institutions, national debt and central bank bills have a significant difference in credit rating and liquidity. Many institutions have assets, but their liquidity is relatively poor. By exchanging with the central bank, they can obtain higher quality and higher liquidity assets, which will greatly enhance the ability of relevant institutions to obtain funds and increase their stock holdings."

Second, for the repurchase and increase of listed company stocks, the central bank provides re-lending policies. That is, if listed companies wish to repurchase their own company stocks, or their major shareholders wish to increase their holdings in their own company stocks, as long as they meet the conditions, they can use their own company stocks as collateral to directly obtain re-lending from the central bank.

Where are the highlights of these two policies? First, stocks, as high-risk securities, could not be used as collateral for central bank re-lending in the past, but now it has started, which means that the central bank will release base money through stock pledge, which is unprecedented; second, monetary policy has begun to pay attention to the liquidity of the capital market and has started to release relatively long-term capital liquidity.

At present, the scale of the first operation of the "swap facility for securities, funds, and insurance companies" is set at 500 billion yuan, and the scale of the "re-lending policy for listed company stock repurchase and increase" is set at 300 billion yuan. More importantly, according to the news from the scene of the press conference, the central bank and the China Securities Regulatory Commission have reached a tacit understanding. According to the central bank: "As long as this matter is done well, the first phase of 500 billion yuan can be followed by another 500 billion yuan, and even a third 500 billion yuan can be implemented." For the re-lending of listed company stock repurchase and increase, it is also "if this tool is used well, another 300 billion yuan can be added, and even a third 300 billion yuan can be implemented."

Of course, there are also policies to release long-term capital liquidity to the market: the central bank will recently reduce the reserve requirement ratio by 0.5 percentage points, providing about 1 trillion yuan of long-term liquidity to the financial market. According to the central bank: "Within this year, depending on the liquidity situation in the market, it may further reduce the reserve requirement ratio by 0.25 to 0.5 percentage points." Such a large number of heavy policies are rare, which may imply that the decision-makers have fully realized the importance of long-term capital liquidity to the high-quality development of China's economy, and it will also constitute a strong positive incentive for the confidence of Chinese investors and the economic expectations of the entire society.

Vigorously issuing long-term base money and vigorously increasing the capital liquidity of the financial market is undoubtedly a key policy that will benefit China's economy in many ways.Focusing on the Shift in Overall Socioeconomic Expectations

In addition to the aforementioned significant policies, the central bank's monetary policy has also employed some general monetary tools, such as lowering the 7-day reverse repo operation interest rate (policy interest rate) by 0.2 percentage points, from the current 1.7% to 1.5%. In the future, it will guide the loan market报价 interest rates and deposit interest rates to move downward in sync, reducing the credit costs across the entire financial market while maintaining the stability of commercial banks' net interest margins.

Furthermore, in response to the current housing market situation, the central bank has not only reduced the interest rates on existing mortgages but also uniformly adjusted the minimum down payment ratio for mortgage loans (whether for first or second homes) to 15%. It guides commercial banks to lower the interest rates on existing mortgages to a level close to that of newly issued mortgages, with an expected average reduction of about 0.5 percentage points. This policy is expected to benefit around 50 million households and 150 million people, reducing household interest expenditures by approximately 150 billion yuan per year on average. This will not only reduce the burden of housing loans on families but also strengthen the foundation for consumer spending among residents.

The implementation of a monetary policy that walks on "two legs" from the perspectives of base money and policy interest rates has long been eagerly anticipated, and it appears that the policy is progressing in a more effective direction.

What we pay more attention to is the shift in overall socioeconomic expectations. Such a shift can effectively impact the stock market and increase the wealth value of the people, coupled with the optimization of the business environment for enterprises, the possibility of a significant improvement in the overall economy will greatly increase.

On September 26th, the Political Bureau of the CPC Central Committee held a meeting. The meeting, based on a summary of the national policies and economic relations this year, pointed out that the fundamentals of China's economy and favorable conditions such as a broad market, strong economic resilience, and great potential have not changed. At the same time, some new situations and problems have emerged in the current economic operation. It is necessary to view the current economic situation comprehensively, objectively, and calmly, face difficulties, strengthen confidence, and truly enhance the sense of responsibility and urgency in doing economic work.

In terms of macroeconomic policy, in addition to demanding positive fiscal policies and new housing policies for the future, the meeting further proposed to "reduce the reserve requirement ratio and implement a strong interest rate cut." It also emphasized the need to "strive to boost the capital market, vigorously guide medium and long-term funds into the market, and unblock the capital market entry points for social security, insurance, and financial management. Support mergers and acquisitions of listed companies, steadily promote the reform of public funds, and study and introduce policy measures to protect small and medium investors."

The meeting specifically pointed out the need to help enterprises through difficulties and further standardize law enforcement and regulatory actions involving enterprises. It is essential to introduce a law to promote the private economy and create a favorable environment for the development of the non-public sector of the economy. This is very important, a key measure to boost the confidence of entrepreneurs, especially private entrepreneurs, and it is also an important basis for "combining consumption promotion with people's livelihoods, promoting income growth for low and middle-income groups, and upgrading the consumption structure."