An explanation of President Xi Jinping’s hallmark economic policy, in his own words, was published in People’s Daily yesterday – one day after it printed an interview with an unidentified “authoritative” source repudiating China’s debt-fuelled growth policies.
Xi’s explanation – a 20,000-character transcript of a speech that occupied two pages in the newspaper – was the most comprehensive elaboration of the president’s thinking on the Chinese economy’s past, present and future and its role in the global economy since he became the country’s leader more than three years ago.
Xi made the speech in January to principal ministerial and provincial officials.
“I need to be clear, the supply-side structural reform we are talking about is not the same as the supply-side economics school in the West,” Xi said.
“[We] must prevent some people from using their interpretations [of supply-side reform] to promote ‘neo-liberalism’,” he continued, drawing a line between his policy and those of Ronald Reagan of the United States or Margaret Thatcher of Britain in the 1980s.
China’s supply-side reform was more than “an issue of tax or tax rate” – it was a slew of structural measures to seek innovation, prosperity and well-being.
Xi said some Chinese officials did not understand the point of supply-side reform.
“I highlighted the issue of supply-side structural reform at last year’s central economic work conference, and it triggered heated debate, with fairly good endorsement from the international community and various sides at home,” Xi said.
“But some comrades told me that they didn’t fully understand supply-side reform ... I need to talk about this issue again.”
Xi said the concept could be implemented by “cutting capacity, reducing inventory, cutting leverage, lowering costs, and strengthening the weak links”.
“Our supply-side reform, to say it in a complete way, is supply-side structural reform, and that’s my original wording used at the central economic work conference,” Xi said
“The word ‘structural’ is very important, you can shorten it as ‘supply-side reform’, but please don’t forget the word ‘structural’,” Xi said.
As China’s economy splinters along provincial lines, nuanced policy becomes key
The key problem for the Chinese economy was “on the supply side”, though China could not afford to completely neglect managing demand.
China could not rely on “stimulating domestic demand to address structural problems such as overcapacity”, he said.
“The problem in China is not about insufficient demand or lack of demand, in fact, demands in China have changed, but supplies haven’t changed accordingly,” Xi said.
He gave the example of Chinese consumers shopping overseas for daily products such as electric rice cookers, toilet covers, milk powder and even baby bottles to show that domestic supply did not match domestic demand.
Xi’s emphasis on supply-side change was part of a global trend, said Li Yang, a former vice-president at the Chinese Academy of Social Sciences, a government think tank.
“The economic problems cannot be solved by demand-side policies. Macro economies around the world, including China’s, are changing toward supply-side policies, paying attention to the real economy, structural factors, and eyeing innovation as the major driver,” Li said yesterday.