For one thing, the mismatch between the supply and demand has become the biggest obstacle to constant economic growth of China. The redundant capacity makes it difficult for China’s economy to reform. Moreover, the excessive supply of low-end products and insufficient supply of high-end products reduce China’s supply-side efficiency severely. For another, other structural problems such as improper industry structures, investment structures and income distribution structures are limiting China’s further economic expansion.
In 2015, President Xi proposed the Supply-side Structural Reform to deal with the problems mentioned above accordingly. China’s Supply-side Structural Reform can be summarized in five aspects.
To begin with, the first task is to cut overcapacity. Those outdated enterprises with low efficiency will be eliminated by the market and will no longer obtain assistance from the government. In this way, the unfavorable situation where malign competition caused by excessive supply can be relieved.
The second task is destocking, which can be explained in two ways. In a narrow sense, destocking means to decrease stock of product, which can be realized relatively quickly. In a broader sense, destocking also includes solving the problem of overinvestment and deficient consumption, which might require a much longer period.
The third task is deleverage. After the 2008 global financial crisis, the authorities of Chinese government attach greater importance to the prevention of systemic financial risks. In recent years, regulations in the financial industry become much stricter than ever. For example, according to the guidance of China’s central bank, People’s Bank of China, commercial banks have tightened up mortgage policy to discourage speculation in the real estate market. The principle of China is that finance is used to serve the real economy.
The fourth task is to reduce enterprises’ cost. To improve the competence of Chinese enterprises in the world, China has come up with several methods to help enterprises cut their costs. For example, in May 1st, 2016, China reformed its tax system and changed all the business tax into value-added tax, which solves the problem of repetitive taxing and relieves the tax burden of enterprises, leading to more dynamic Chinese enterprises.
The last but equally important task is to improve weak links. Although China has made obvious progress in the past several decades, but China is well aware that as a development country, it still has a lot of weak links to fix, such as urban-rural income gap, regional differences and incomplete policies. Currently, China is approaching such problems appropriately.