Fo­cus on the “Sup­ply-side”, and De­velop “New Econ­omy”

China's Foreign Trade (English) - - Contents - By Ada Clozy

Nowa­days, the struc­tural dif­fer­en­ti­a­tion of Chi­nese econ­omy is get­ting clearer. In or­der to adapt to the change, there is an ur­gent need to im­prove sup­ply- side en­vi­ron­ment through sup­ply-side re­form, op­ti­mize sup­ply- side mech­a­nism, mo­ti­vate mi­croe­co­nomic units and add new driv­ing forces to sus­tain a long and steady ec­nomic de­vel­op­ment in China. There­fore, “sup­ply side re­form” and the de­vel­op­ment of “new econ­omy” are ma­jor top­ics of the NPC and CPPCC this year.

Sounded the horn of sup­ply side re­form

“Sup­ply side struc­tural re­forms”, a word was en­listed into China’s po­lit­i­cal dis­course a few months ago, but it was men­tioned five times in this year’s gov­ern­ment work re­ports at NPC & CPPCC. It means the sup­ply side struc­tural re­form is not only a hot topic un­der “dis­cus­sion”, but a sign for com­pre­sive im­ple­men­ta­tion.

Ac­cord­ing to the re­ports, “to solve acute prob­lems in key ar­eas, we must work faster to re­move in­sti­tu­tional ob­sta­cles and carry out sup­ply- side struc­tural re­form to im­prove the qual­ity and ef­fi­ciency of the sup­ply sys­tem, and fur­ther stim­u­late mar­ket vi­tal­ity and the cre­ativ­ity of so­ci­ety”.

Mov­ing from the three driv­ing forces of in­vest­ment, con­sump­tion and ex­port, to “sup­ply side struc­tural re­form”, this change de­liv­ered a clear sig­nal: China’s mak­ing a ma­jor trans­for­ma­tion in macro-con­trol ideas, mean­ing trans­fer­ing reg­u­la­tion and con­trol on de­mand side to sup­ply side.

Liu Yingjie, di­rec­tor-gen­eral of In­for­ma­tion De­part­ment of the State Coun­cil Re­search Of­fice, and mem­ber of the gov­ern­ment work re­port draft­ing group, said, boost­ing the sup­ply side struc­tural re­form needs not only sub­trac­tion but also ad­di­tion.

“The ‘three cuts, one re­duc­tion, and one strength­en­ing’ is a whole. ‘ Three Cuts’, re­fer to cut over­ca­pac­ity, cut ex­cess in­ven­tory and delever­age, and these are of sub­trac­tion; ‘one re­duc­tion’ refers to re­duce costs and im­prove the prof­its, and it in­volves both sub­trac­tion and ad­di­tion; ‘one strength­e­ing’ is of ad­di­tion, mean­ing strength­en­ing the points of weak­ness and in­creas­ing the sup­ply, in­clud­ing both mar­ket sup­ply and es­pe­cially the in­sti­tu­tional sup­ply. Talk­ing of the sup­ply side struc­tural re­form, Prime Min­is­ter Li Ke­qiang men­tioned three tasks, namely stream­lin­ing ad­min­is­tra­tion and del­e­gat­ing more pow­ers, stim­u­lat­ing busi­ness star­tups and in­no­va­tions by the gen­eral pub­lic, re­duc­ing taxes and fees for en­ter­prises. All the three are of the sup­ply side struc­tural re­form, and in­no­va­tion in in­sti­tu­tional sup­ply, too, aim­ing at in­vig­o­rat­ing the mar­ket and the cre­ativ­ity of so­ci­ety,” he said.

Liu Yingjie men­tioned, it had to fol­low the fol­low­ing three prin­ci­ples at least to fol­low the idea of struc­tural re­forms. First, em­pha­sis on the sup­ply while fo­cus on the de­mand. In other words, it does not mean car­ry­ing out the sup­ply side struc­tural re­form has to give up ex­pand­ing the de­mand. In mar­ket econ­omy, sup­ply and de­mand are like two sides of a coin, in­ter­de­pen­dent and in­di­vis­i­ble. De­mand re­lies on the sup­ply to meet, and the sup­ply has to meet the de­mand. Sec­ond, strengthen the sup­ply side struc­tural re­form. Third, de­velop the po­ten­tial of do­mes­tic de­mand.

Chief eco­nomic man­ager at China In­ter­na­tional Cen­ter for Eco­nomic and Tech­ni­cal Ex­change (CICETE), Chen Wen­ling, con­sid­ered the struc­ture was the key to the sup­ply side re­form. Over­ca­pac­ity re­mov­ing does not mean sim­ply shut­ting down all the pro­duc­tion ca­pac­ity, but re­mov­ing out­dated ca­pac­ity while keep­ing and pro­tect­ing these high- qual­ity ones. She pointed out that, now there are four kinds of ca­pac­i­ties needed to be re­moved: ab­so­lutely ex­cess ca­pac­ity in both in­ter­na­tional and do­mes­tic mar­ket, the in­ef­fi­cient steel ca­pac­ity con­structed un­der blinded ad­min­is­tra­tive or­ders, the ca­pac­ity with high pol­lu­tion and high en­ergy con­sump­tion, and the il­le­gal or

un­reg­u­lated ca­pac­ity.

As to the man­u­fac­tur­ing in­dus­try, this trans­for­ma­tion of idea is not only in­dus­trial up­grade and op­por­tu­ni­ties for leapfrog de­vel­op­ment, but also the tough­est chal­lenge.

Li Jie, ex­ec­u­tive vice prisident of for­eign af­fairs and pub­lic pol­icy de­part­ment of Daim­ler Greater China Ltd. ( DGRC), told China’s For­eign Trade, “En­ter­prises have to take part in the sup­ply side re­form, and the mar­ket mech­a­nism must play a core role in the al­lo­ca­tion of re­sources. This is the core of the sup­ply side re­form.”

Board chair­man of Tang West Mar­ket Group, Lv Jianzhong also be­lieves that en­ter­prises are of an im­por­tant force pro­mot­ing the sup­ply side struc­tural re­form. “I am very op­ti­mistic about the fu­ture of ser­vice in­dus­try and ser­vice trade,” he said.

De­velop new econ­omy with full power

It was the first time for “new econ­omy” to ap­pear in this year’s gov­ern­ment work re­port.

Premier Li Ke­qiang said bluntly, de­vel­op­ing “new econ­omy” is to cul­ti­vate new driv­ing forces, in or­der to pro­mote the trans­for­ma­tion of Chi­nese econ­omy. “Small and mi­cro busi­nesses could ben­e­fit from the de­vel­op­ment of ‘new econ­omy’, and larger en­ter­prises would play bet­ter,” he said.

“New econ­omy” cov­ers a great lot of fields, and in­volves the pri­mary, the sec­ondary and the ter­tiary in­dus­try, namely not only those emerg­ing sec­tors as In­ter­net plus, cloud com­put­ing, e - c omme rc e and s o on of the ter­tiary in­dus­try, but also in­tel­li­gent man­u­fac­tur­ing and mass cus­tomiza­tion of the pri­mary in­dus­try. Be­sides, it also in­cludes familiy farm and share­hold­ing co­op­er­a­tive sys­tem of the pri­mary in­dus­try that can pro­mote mod­er­ate scale man­age­ment, in­te­grated de­vel­op­ment of three in­dus­tries and so on.

In fact, boost­ing the de­vel­op­ment of new econ­omy has been a fo­cus for years, such as “made in China 2025”, “en­cour­ag­ing busi­ness star­tups and in­no­va­tions by the gen­eral pub­lic” and “In­ter­net plus” and so on. It needs to say that the new econ­omy and the new driv­ing forces have a per­for­mance ex­ceed­ing our ex­pec­ta­tions. Last year, in the con­text of slower eco­nomic growth, China had a sta­ble em­ploy­ment, res­i­dent in­come and price level, cre­at­ing more than 13 mil­lion new ur­ban jobs. In face of weak global econ­omy and prom­i­nent do­mes­tic prob­lems, China’s econ­omy op­er­ated within an ap­pro­pri­ate range, be­com­ing a high­light among the world. From a cer­tain point of view, “new econ­omy” played an im­por­tant role.

Es­pe­cially now, new econ­omy will con­tinue to bring more new op­por­tu­ni­ties, since the global in­for­ma­tion tech­nol­ogy rev­o­lu­tion speeds up, and the ap­pli­ca­tion of in­for­ma­tion tech­nol­ogy rep­re­sented by In­ter­net is get­ting wider and wider. New eco­nomic forms of In­ter­net plus has emerged, and will be­come im­por­tant forces for eco­nomic growth. The num­ber of ne­ti­zens in China reaches 600 mil­lion, and it is still grow­ing fast, so that op­por­tu­ni­ties for new busi­ness rep­re­sented by In­ter­net plus will boom in the fore­see­able fu­ture, and it will cer­tainly pro­mote China’s eco­nomic de­vel­op­ment to new era, more in­no­va­tive and more ef­fi­cient.

Li Ke­qiang said: “It is nat­u­ral that con­ven­tional driv­ing forces will weaken when econ­omy reach a cer­tain stage of de­vel­op­ment. Ex­pe­ri­ences of many coun­tries have proved it, es­pe­cially those of de­vel­oped coun­tries. There are many ex­am­ples. When it hap­pens, we need find new forces, to in­spire the in­dus­trial rev­el­o­tion. Be­sides, in­te­grat­ing the new econ­omy, and mak­ing trans­for­ma­tion and up­grade of the con­ven­tional can make mixed driv­ing forces. New forces are of great sig­nif­i­cance. For ex­am­ple, now we need to cut the ex­cess ca­pac­ity, which in­volves heavy chem­i­cal in­dus­try. Many such en­ter­prises have a great num­ber of em­ploy­ees, and shut­ting down out­dated plants will re­sult in sur­plus stuff. Mean­while, when new driv­ing forces get stronger, more jobs will be cre­ated, help­ing over­ca­pac­ity cut­ting in turn.”

For some cities, it is not nec­es­sary to fol­low old rules to de­velop new in­dus­tries. New tech­nolo­gies, new in­dus­tries and new formats, all these will add new en­gines for China’s econ­omy, and pro­vide new mo­men­tum for the new econ­omy.

Sur­pris­ingly, Yinchuan in west­ern China now has be­come a world fa­mous city for “E-sports”. World Cy­ber Games, the high­est level e-sport com­pe­ti­tion, are held here. Fans can watch games and check the rank­ing ev­ery day, ev­ery month. The av­er­age daily on­line view reaches 82 mil­lion per­son times. Thanks to this new fea­ture, Yinchuan is seek­ing for the de­ploy­ment of new “In­ter­net plus” in­dus­try clus­ter.

Co­in­ci­den­tally, the to­tal im­port and ex­port vol­ume of Chongqing in­creased by more than 5 times dur­ing the 12th Five-year pe­riod, and ac­tual in­flow of for­eign in­vest­ment topped 10 bil­lion US dol­lars for the fifth con­sec­u­tive year. 262 of the world’s top 500 en­ter­prises have of­fices in Chongqing. The main con­trib­u­tor may be the ex­port-ori­ented in­dus­trial clus­ter of lap­top com­puter, core elec­tronic com­po­nents, gen­eral avi­a­tion and aero­space en­gines, etc. Ac­cord­ing to Tang Zong­wei, deputy di­rec­tor of Ad­min­is­tra­tive Com­mit­tee of Liangjiang New Area, all of the top 5 com­puter man­u­fac­tur­ers in the world have set up plants in Chongqing, as they are at­tracted by the in­dus­trial clus­ter. Be­side, 80% of the spare parts are lo­cal­ized.

“De­vel­op­ing new driv­ing forces are es­pe­cially im­por­tant for these places with a rel­a­tively weak econ­omy, or un­der­go­ing eco­nomic re­con­struc­tion,” Liu Yingjie said, tak­ing North­east China as an ex­am­ple, “We all pay close at­ten­tion to the eco­nomic de­vel­op­ment in the North­east. At present, the re­vi­tal­iza­tion of the old in­dus­trial base in the North­east faces chal­lenges, as there may be less new driv­ing forces here com­pared to the South. But we be­lieve there are new sources of eco­nomic growth.”

It was the first time for “new econ­omy” to ap­pear in this year’s gov­ern­ment work re­port.

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