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【Global Times】Lack of clarity in supply-side reform hinders China's rebalancing efforts
发布时间:2017-04-20 浏览次数:8348次

著名经济学家吴敬琏16日在以“研究中国真问题”为主题的8040comSAIF·CAFR新普京娱乐上发表演讲。4月18日,《Global Times》对此进行了报道。

Lack of clarity in supply-side reform hinders China's rebalancing efforts

Economic scholars often consider questions relating to China's economic performance, but many of them fail to study the basic problems thoroughly. A new economic phenomenon is usually accompanied by heated discussion but only basic analysis. Sometimes, due to some accidental, or minor or short-term factor, another new phenomenon emerges, again leading to another wave of attention.

Instead of rushing to answer specific questions raised by some new phenomenon, we should study the basic problems behind it.

For example, a question I just received says, "Last year, supply-side reform was mainly concentrated in industries, only for there to be an overall rise in prices of coal, steel and other ferrous metals, with no improvement in other sectors. So far, the effect of the reform is not satisfactory. How can we effectively push forward with the supply-side reform? And what is the biggest obstacle?"

What is supply-side reform? In 2015, President Xi Jinping proposed supply-side structural reform. The proposition somehow then became supply-side reform and then the five priority tasks of cutting overcapacity, reducing excess inventory, deleveraging, lowering costs and strengthening areas of weakness. As all these terms are mixed together, it is impossible to answer the question. To answer it, we need to make clear the basic problem. Why was the supply-side structural reform introduced? Why supply-side? Why structural reform? Since these questions were not answered clearly when the reform was launched, it is hard to find an answer when there is a problem in the implementation process.

From the perspective of China's growth model, from 1981 to 2015, the Chinese government formulated many economic strategies, which all seemed right but produced only limited effects. For instance, when the top leadership said China should avoid the middle-income trap, few people really understood the meaning of it or why there is such a trap. The World Bank offered a relatively good explanation about the middle-income trap - that is, growth impetus that propels a country from low-income to middle-income status could lose its strength unless new sources of growth are found. In fact, the new momentum is to improve efficiency.

The subsequent strategy to enter a "new normal" faces a similar problem. Different from the "new normal" in the West, which points to a long period of recession, the "new normal" in the Chinese case features two things: slower growth and improved efficiency. But due to the lack of a clear explanation of the basic problem, many people and the media misinterpreted it as "we are already in a 'new normal,'" but this excluded the meaning of improved efficiency.

Then comes the supply-side structural reform, which, based on my understanding, includes two parts. First, we should find the problem from the supply side. Second, structural reform is needed to resolve the problem. For a long time, the Chinese government used to find the problem from the demand side. Whenever consumption, one of the key elements that drives economic growth, appeared to falter, the government would find ways to increase demand. Many economists have opposed this approach, saying that to achieve long-term growth, one should take a look at the supply side instead of the demand side.

Once the supply-side approach is set, the key solution is to improve efficiency, optimize structure and correct the improper distribution of resources, which requires letting the market play a decisive role. And to play the decisive role, the market needs structural reform.

Similarly, due to the lack of a clear understanding, this latest strategy somehow becomes known as supply-side reform as opposed to demand-side reform, and many believe it involves the five measures of cutting overcapacity, reducing excess inventory, deleveraging, lowering costs and strengthening areas of weakness. As the essence of the reform is not clear, economists are overwhelmed by the appearance of various problems during the implementation process.

To sum up, we should study the basic problems in terms of the supply-side structural reform. The first part focuses on structural optimization for the purpose of correcting improper distribution of resources and improving efficiency. The second is to let the market play its role, which will not only achieve efficient resource allocation to improve efficiency, but will also establish a compatible incentive mechanism to stimulate people's innovative and entrepreneurial instincts. In other words, by letting the market eliminate those that are unfit and stimulate innovation and entrepreneurship, we may perhaps achieve a better result.

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