Capital Policy: The Third Instrument of Macro-Control

Epigraph —— The "easy money, tight credit" dilemma that has beset the West since 2008 is not a failure of monetary policy;
it is a failure of the two-pole monetary-plus-fiscal framework itself.

I · The Failure of the Binary Framework: Starting from Global Financialization

The mainstream framework of macro-control divides "policy instruments" into two kinds: monetary policy (which governs "liquidity") and fiscal policy (which governs "transfer payments"). This binary framework derives from the postwar Keynesian consensus and ran with considerable stability under the Bretton Woods system — it rested on two assumptions: that the commercial banking system is the principal channel of financing, and that sovereign currency is the principal anchor of international settlement.

Since the 1980s, both assumptions have been eroded by financialization — the share of direct financing has risen continuously, the international standing of sovereign currencies has been disturbed by exchange-rate maneuvering, while shadow banking, PE/VC, capital markets and private funds outside the commercial banking system have gradually grown into a de facto third financing channel.

Confronted with this third channel, the binary framework fails. The West's financial crisis of 2008, its pandemic easing of 2020, and the rate-hike wave of 2022 are three outbreaks of one and the same syndrome — central banks print money, the intermediation efficiency of commercial banks declines, the real economy cannot obtain loans, while capital markets, bond markets and private credit move in the direction opposite to monetary policy.

This "easy money, tight credit" dilemma is not a failure of monetary policy as such; it is a failure of the binary framework itself: the central bank has only one tap, yet must serve two pipes — every time it adjusts one side, the other side runs into trouble.

"When one instrument faces two opponents, the choice is either two instruments or abandoning an opponent."

Abandoning an opponent is not an option — China faces the same "easy money, tight credit" predicament: the symptoms of costly and difficult financing for small and medium-sized enterprises bear a strikingly similar shape to the global trend of financialization. Therefore, adding a third pole is necessary, unavoidable, and theoretically grounded.

II · "Finance = Relations of Production" as the Underlying Proposition: Why a Third Pole Is Indispensable

In Proposition 1 of Civilization Structure Theory, "finance" is defined as "the relations of production of modern society" — it simultaneously rewrites three things: who owns the means of production, who disposes of labor power, and who distributes the surplus.

Accepting this underlying judgment means the following: "finance" is not a static material object, not a balance sheet, not the sum obtained by adding a set of balance sheets together — it is a process that continuously rewrites the relations of production.

Since "finance" is a relation, it is not merely a matter of liquidity, nor merely a matter of redistribution; there is a further and more decisive layer — "subject building". This is something that neither the monetary nor the fiscal side can reach.

In the table above, the unfamiliar term in the "direct object" cell of capital policy is "phase-transition threshold" — a concept borrowed from Proposition 2's "gas · liquid · solid three-state phase transition": it denotes "the critical conditions required for capital to convert from one form of existence into another." Sometimes that condition is trust, sometimes information disclosure, sometimes an exit mechanism, sometimes cash return, sometimes the tempo of regulation — no single instrument is sufficient on its own; they must be used in combination in order to modulate "the speed of subject building."

III · The Capital-Policy Toolbox

The "instruments" of capital policy are not one newly added instrument but a set of combined instruments. The five items below are, in the author's judgment, the five most critical pieces in this toolbox:

(1) The stabilization fund · the modern version of "leveling." Stabilization is not a new concept — Han-dynasty China already had ever-normal granaries to regulate grain prices. The contemporary stabilization fund refers specifically to an instrument that, when the capital market undergoes violent non-fundamental volatility, intervenes counter-cyclically through open-market operations. The point of a stabilization fund is not to "rescue the market"; it is to block the spread of vaporization at the critical point, forcing capital in its gaseous state back into liquid or solid form. This is the instrument the author values most highly within Proposition 3 — the detailed argument appears in Chapter 4 of the present volume, Capital, Finance and the State.

(2) Deepening the registration-based IPO system · the modern version of "dredging." The original intent of the registration system is not merely to lower the IPO threshold; it is, more importantly, to make the issuer accountable for the truthfulness of information and to hand the market's judgment of value from the regulator to investors. Deepening the registration system treats the capital market as floodwater — the "dredging" of water governance corresponds to the "expansion of the trust zone" under the registration system: the wider the trust zone expands, the more alive the IPO channel; the narrower the trust zone, the more clogged the IPO channel. The concrete meaning of deepening the registration system is not to lower thresholds again; it is to raise the price of false information disclosure to an unbearable level.

(3) Tiered cultivation · the modern version of "channeling." Tiered cultivation refers specifically to the multi-level cultivation system running from regional equity markets → the New Third Board → the Beijing Stock Exchange → the Shanghai and Shenzhen boards, so that enterprises at different stages of development accept different intensities of regulation at different tiers. This is the concrete execution mechanism of Proposition 4's "test field for inclusive finance" — any attempt to "push small and medium-sized enterprises straight onto the main board in one leap" is wrong.

(4) Dedicated legislation protecting minority shareholders · the modern version of "discharging." Once a listed company runs into trouble, minority shareholders can often do no more than "vote with their feet" — that is not exit; that is being vaporized. China must establish dedicated laws protecting minority shareholders, including class-action litigation, reversal of the burden of proof, minimum-return commitments by controlling shareholders, and the phased release of mandatory lock-ups — a whole series of systemic protections. This is "discharging": making risk visible, and giving the pressure of capital an outlet through which it can be released.

(5) The patient-capital guidance fund · the modern version of "impounding." A guidance fund is not a subsidy — it is the concrete instrument of Proposition 8, "sunlight is the best disinfectant." A guidance-fund system built on a closed "raise–invest–manage–exit" loop settles the patient capital that private entrepreneurs need most into solid form. See the dedicated essay on Proposition 8.

IV · The Boundaries and Complementarity of the Three Policies Combined: Not Substitution but Mutual Conversion

It must be emphasized: the establishment of capital policy does not substitute for monetary and fiscal policy; it supplies a new fulcrum outside the binary structure, enabling the three to convert into one another under different economic conditions.

For example: when aggregate demand is insufficient, monetary policy leads and fiscal policy supports, while capital policy stays relatively dormant; when liquidity is excessive and credit is tight, monetary policy loses effectiveness and fiscal policy is constrained by debt — at that point capital policy should take over as the main instrument; under exogenous shocks (pandemic, geopolitical conflict), monetary and fiscal policy start up simultaneously, while capital policy provides the hedge (stabilization fund, buyback constraints, delisting pressure), averting a triple sell-off across equities, bonds and the currency.

This capacity for "mutual conversion" is the fundamental advantage of the ternary framework over the binary framework — when one instrument fails, another can take over; when two instruments work, the third can keep them from colliding; when all three are deployed at once, a combined package can be assembled.

"The essence of the three policies combined is to turn "fighting on separate lines" into "fighting in three dimensions.""

V · Institutional Support: Who Executes, Who Evaluates, Who Corrects

Any new instrument, once put into service, faces three institutional questions: who executes it, who evaluates it, who corrects it. On this the binary framework has mature answers — an independent central bank, fiscal policy subject to deliberation by the people's congress. The ternary framework still needs further refinement, but the author offers three points:

• Execution: the execution of capital policy requires an inter-ministerial joint mechanism — for instance a joint conference system bringing together the securities regulator, the central bank, the ministry of finance, the state-owned assets supervisor and the development and reform commission. This is a natural possibility within China's institutional structure; no new body need be created, but the joint mechanism must be upgraded from a meeting form to a decision-making form.
• Evaluation: the core evaluation indicators of capital policy should not be "index gains and losses," but rather the evolution of the gas · liquid · solid distribution of capital, the raise–invest–manage–exit record of guidance funds, and the win rate of minority-shareholder protection cases.
• Correction: a "correctable in process" mechanism must be established — for example ex-post disclosure by the stabilization fund and full-process transparency for guidance funds — which is Proposition 8's "sunlight is the best disinfectant" applied at the level of policy.

VI · Conclusion: Returning from the Functional to the Relational

Beginning in the 1980s, the dominant narrative of world financial theory has been the functional one — finance is the intermediation of funds, and the more efficient the better. In the decade after 2008 this narrative was contradicted by reality again and again, yet it has still never been thoroughly displaced by an alternative narrative.

The alternative narrative supplied by Civilization Structure Theory is relationality — finance is the relations of production of modern society. Once this alternative is accepted, the framework of macro-control is upgraded from "binary" to "ternary": beyond monetary policy and fiscal policy, a new "capital policy" is identified — institutionalized, filled with a toolbox, and equipped with mechanisms of evaluation and correction.

The value of this upgrade lies not only in solving concrete economic problems; it also lies in changing the way economics and policy science pose their questions — from "how to do better" to "better for whom," from "is it efficient" to "efficiency that bears risk for whom." These are the framework conditions that allow Proposition 9, "patient capital and subject building," to take root.

The author is willing to accept all the uncertainty that this relational perspective brings, and equally willing to accept readers picking contradictions out of this framework and proposing improvements — that a theory remains vulnerable to attack is precisely the sign that it is still growing.

Zhang Keliang · Civilization Structure Theory · 2026