Supply-Side Structural Reform

After the 18th CPC National Congress, the reform measures were proposed by the Party Central Committee in the comprehensive deepening of reforms. Starting from improving the quality of supply, it aims to adjust the economic structure to achieve the optimal allocation of factors, expand effective supply, improve the adaptability and flexibility of the supply structure to changes in demand, better meet the needs of the broad masses of people, and promote sustainable economic and social health development. On January 18, 2016, at the provincial and ministerial-level leading cadre seminar, Xi Jinping gave a detailed explanation of the supply-side reform. In May, Xi Jinping gave an important speech at the 13th meeting of the Central Finance and Economics Leading Group and make a major deployment on the supply-side reform. On October 18, 2017, Xi Jinping pointed out in the report of the 19th CPC National Congress that the fundamental purpose of supply-side structural reform is to improve the level of social productivity and implement the people-centered development idea. The importance of supply-side structural reforms is based on the most prominent structural problems in China’s economic development, whose main problem lies on the supply side. At present, China’s economy is going through a node of change. As our country moves from a middle-income country to a high-income country, various contradictions have intensively broken out.

And all kinds of contradictions are often caused by many shortcomings in development, which lead to structural problems. Long-term development has accumulated a huge economic aggregate, the base figure has been raised, and the double-digit growth for many years is no longer repeatable. Therefore, we must persist in shifting the focus of economic system reform to adjusting the economic structure. While maintaining total growth, we must achieve structural optimization, coordinate major relationships in the development process, and consolidate the original advantages while solving problems and filling shortcomings. The focus of structural reform is on the supply side. The current problem is mainly the overproduction of traditional categories. This is not due to insufficient demand or no demand, but a change in demand. However, the supplied products have not changed, but the quality and service cannot keep up, and cannot meet the changes in demand. For example, some lines and industries in China have serious overcapacity, and a large number of key equipment, core technologies, and high-end products still rely on imports; some agricultural products have a large production gap, while some agricultural products have increased production that exceeds demand growth; some consuming demands supported by a large purchasing power cannot be effectively met in the country, so consumers spend a lot of money on outbound shopping and overseas shopping. This structural problem is difficult to solve by simply relying on stimulating domestic demand. The supply structure must be improved to achieve a leap from a low-level balance of supply and demand to a high-level balance of supply and demand, and constantly create and lead new demands.

Therefore, advancing supply-side reforms is a decisive battle to deepen reforms in an all-round way. The focus of supply-side reform is to restructure. Xi Jinping pointed out that the supply-side structural reform we are talking about is not the same as the supply school of Western economics. The supply-side structural reform should not be regarded as a copy of the Western supply school, and it is necessary to prevent some people from promoting “neo-liberalism”, using their explanations. The Western supply school overemphasizes the role of the tax rate, and its thinking method is relatively absolute. It only focuses on supply but ignores demand, and only focuses on market functions but ignores government functions. In this regard, either we abandon the demand side to talk about the supply side or abandon the supply side to talk about the demand side is one-sided. The two must cooperate with each other and advance in coordination. The supply-side structural reform we are talking about emphasizes both supply and demand. It not only emphasizes the development of social productive forces but also pays attention to improving production relations. It not only gives play to the decisive role of the market in the allocation of resources, but also gives better play to the role of the government. The connotation of the reform is to enhance the adaptability and flexibility of the supply structure to changes in demand, and constantly allow new demand to generate new supply, allow new supply to create new demand, and achieve economic development through mutual promotion. To advance the supply-side structural reform, we must start from the production side, focusing on promoting the effective resolution of overcapacity, promoting industrial optimization and restructuring, reducing corporate costs, developing strategic emerging industries and modern service industries, increasing the supply of public products and services, and improving the adaptability and flexibility of supply structure to changes in demand. In short, it means to address overcapacity, reduce inventory, deleverage, lower costs and tackle areas of weaknesses

This is the focus of supply-side reform at this stage. To “address overcapacity”, we need to increase various thresholds for access, system construction and law enforcement. Do away with “zombie companies”, and those that should be “weaned”, those that should be cut off loan, resolutely unplugged their “infusion tube” and “ventilators”. To “deleverage”, we should not make supporting policies at the macro level, and break the rigid payments at the micro level. To “reduce inventory”, we should strengthen the reform of the household registration system, and establish and improve the fiscal, taxation, land and other supporting systems for migrant workers who enter the city. To “lower cost”, we need to lower the overall tax burden, abolishing unreasonable charges, and reducing administrative approvals. To “tackle areas of weaknesses”, we must focus on the accuracy of poverty alleviation, solidly promote technological innovation and ecological civilization, and improve infrastructure construction and the institutional mechanism of “where the money comes from and where to invest”. Advancing the supply-side structural reform, we not only shouldn’t weaken the government's macro-control functions, but we should also better integrates supply management and demand management, so as to complete the supply-side structural reform tasks and achieve structural adjustment and optimization at the least cost. As the backbone of national economic development, state-owned enterprises should play a leading role in supply-side structural reforms, be the model in the implementation of various reform decisions, and become the main force and pioneer of reforms. Supply-side structural reforms must be guided by the vision of innovative, coordinated, green, open and inclusive development. We should manifest the new development vision in all aspects of policy formulation, work arrangement and task implementation. To promote supply-side reforms, we must firmly establish the concept of innovative development, promote the vigorous development of new technologies, new industries, and new business formats, and provide a steady stream of endogenous power for the sustained and healthy economic development. Leading and driving development through innovation has become an urgent requirement for China’s development. Led by major scientific and technological innovations, we should accelerate the transformation of scientific and technological innovation fruits into actual productivity, and accelerate the construction of a new industrial system, so as to achieve “we have what they have, what we have are better than what they have, and what we have are excellent if what they have are good”. The vision of innovative, coordinated, green, open and inclusive development need to be run through.