What does the top leadership's four mentions of the "supply side" in ten days have to do with you?
Release Time:
2015-11-20 18:42
Source:
China Broadcasting Network
CNR Beijing, November 20 (Reporter Wang Wei) Recently, the new term "supply-side reform" has become a hot keyword in China's economy. The editors of Tianxia Finance briefly summarized that in the past ten days, national senior leaders have mentioned supply-side reform at least four times.
Frequent statements from senior leaders mark the opening of the "supply-side reform" curtain.
On November 10, President Xi Jinping first proposed "supply-side structural reform" at the Central Financial and Economic Leading Group meeting. The next day, the State Council executive meeting reiterated the need to "cultivate new supply and new momentum." On November 18, at the APEC meeting, President Xi delivered a keynote speech emphasizing supply-side reform, pointing out that to solve deep-seated problems in the world economy, relying solely on monetary stimulus policies is insufficient; structural economic reforms must be promoted to make the supply system better adapt to changes in demand structure. On November 17, Premier Li Keqiang also emphasized at the "13th Five-Year Plan" drafting meeting the need to promote industries toward mid-to-high end by exerting efforts on both supply and demand sides.
While senior leaders speak frequently, the curtain of "supply-side structural reform" is also being drawn, with policies being implemented one after another. Following last week's State Council executive meeting deploying policies to accelerate consumption upgrading, this Wednesday's State Council executive meeting issued three measures to accelerate enterprise technology upgrading and transformation, including simplifying preliminary procedures, speeding up project implementation, and strengthening fiscal, tax, and financial support, to promote industries toward mid-to-high end.
What exactly does "supply-side reform" aim to do?
As an economic term with a somewhat "academic flavor," what does the frequently mentioned "supply side" actually mean? Regarding supply-side reform, President Xi's original words are, "While moderately expanding total demand, focus on strengthening supply-side structural reform and improving the quality and efficiency of the supply system."
To explain this "new concept" in simple terms, previously China focused on demand-side management; to stimulate the economy, the first thought was to expand demand and increase consumption. But the supply side also has much room for improvement. For example, simply raising taxi fares and increasing fuel subsidies without increasing the total supply of taxis does not solve the difficulty of hailing a taxi. Regarding this, Yao Jingyuan, a special researcher at the State Council Counselor's Office, said that the frequent mention of supply-side reform by senior leaders aims to shift the focus of future economic development from primarily demand-driven to a joint effort of supply and demand.
Yao Jingyuan: Overall, we still need to balance total supply and total demand. But now there are urgent problems on the supply side that need to be solved. For example, we are not only facing demand issues but also unreasonable supply problems. Using new development concepts, we should not only expand demand but also focus on the supply side to identify existing problems and improve supply accordingly.
Core of "supply-side reform": eliminating backward production capacity.
The current reality of China's economy is that not only does the transformation from old to new driving forces take time, but the economy also faces triple risks of overcapacity, real estate inventory, and high debt, and resolving these risks cannot be done overnight. Regarding the strategy and tactics of China's structural economic reform, President Xi has given a clear stance: strategically persist in a protracted battle and tactically fight decisive battles. So, where should supply-side reform start? Wu Qing, a researcher at the Financial Research Institute of the Development Research Center of the State Council, believes that currently, the core of "supply-side reform" is eliminating backward production capacity.
Wu Qing: Eliminate backward production capacity and intensify industrial restructuring. Some particularly backward capacities should be allowed to go bankrupt. In some industries, appropriately increase industrial concentration and eliminate zombie enterprises. Only then can many overcapacity industries be revitalized.
In addition, Jia Kang, former director of the Fiscal Science Research Institute of the Ministry of Finance, emphasized that "supply-side reform" should also strengthen "institutional supply." For example, the ongoing implementation of streamlining administration and delegating power, reducing approvals, can stimulate institutional potential and vitality through supply-side structural reform.
In the future, people won't need to go abroad to buy things.
If supply-side reform is a timely remedy for China's economy, for ordinary Chinese people, it means more benefits and convenience in the future.
During the recent "Double Eleven" shopping festival, a large foreign supermarket sold 2.24 million liters of imported milk on its Tmall flagship store, nearly 10% of the daily liquid milk demand of Chinese people, becoming the most popular cross-border product that day. Meanwhile, Japanese diapers, American nuts, Korean cosmetics, and Australian infant formula were among the best-selling "overseas shopping" items. The reason people choose more foreign products ultimately lies in the fact that some domestic similar products cannot meet demand quality. Therefore, beyond "Double Eleven," we also see various "overseas shopping" phenomena: buying toilet seats in Japan, infant formula in New Zealand, razors in the Netherlands, and so on. Behind this fact is that the supply side's products do not fully meet consumer demand. Yao Jingyuan said that as supply-side reform gradually produces results, people will no longer rush abroad to buy things:
Yao Jingyuan: Through continuous reform and improvement on the supply side, consumption can become the fundamental force driving China's economic growth. Why do people go abroad to buy things now? Obviously, there are two reasons: one is the quality of foreign products is good, and the second is that their prices are cheap. I think if our own products can meet these two criteria and gain recognition from our people, then people will not travel thousands of miles abroad carrying large and small packages back.
Brief comment: supply-side reform does not negate the "three driving forces."
"Supply-side reform" is a new approach seeking new momentum for economic growth. Under the new normal of the economy, the "three driving forces" have indeed shown signs of decline: investment returns are falling, international demand is sluggish, and domestic demand urgently needs upgrading. Therefore, "supply-side reform" aims to improve efficiency by reallocating resources but does not negate the "three driving forces."
In economics, supply and demand coexist simultaneously, and their harmony promotes economic development. Supply-side reform ultimately also creates demand and addresses demand issues. For example, reducing capacity and mergers and reorganizations actually adjust the supply structure and create market demand. Similarly, relaxing market access also expands investment. If economic development is likened to a person, developing the demand-side "three driving forces" and promoting supply-side reform are like the left and right feet of a person; only by mutually promoting each other can progress be smooth.
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