Supply-side Structural Reform

from quantitative increase and capacity expansion to an emphasis on both stock adjustment and optimized increment in a transformed economic structure; and from a growth supported by resource consumption and low-cost labor to one that is driven by innovation.

This is an inevitable process that China must go through before its economy can reach a more advanced level with a more favorable position in the division of labor and a better economic structure. To complete such extensive and profound transformations is indeed a new and enormous challenge to the nation.

In spite of the downward pressure of the “new normal” of economic development, China still enjoys important strategic opportunities.

There are a number of things that have never changed. Our economy is still growing on strong fundamentals, with high resilience and great potential. We still have room for maneuver, and a solid foundation and favorable conditions for continued economic growth, and we are still moving forward with economic structural adjustment and optimization. The CPC and the government have called for action to adapt to the “new normal,” to come to grips with it, and to lead it as the most sensible and logical course of action to take throughout the process of development. General Secretary Xi Jinping emphasized the importance of “supply-side reform” at the 11th meeting of the

CPC Central Leading Group for Financial and Economic Affairs on November 10,

2015. At present and for the foreseeable future, China will face a number of issues in its economic development in both supply and demand, but mostly on the supply side.

The ultimate goal of supplyside reform is to meet demand by improving quality through further reform. In order to meet demand, we must have a clear sense of market changes and understand the present and potential demand, so that products can be made available through unleashed and increased productivity to meet the growing material and cultural needs of the population. In order to improve the quality of supply, we need to increase effective supply through a systemic improvement on the supply side, so that ineffective supply is weeded out and supply is structured in a way that can effectively meet demand.

The fundamental approach to achieving this goal is deeper reform. Institutions must be put in place to allow the market to play a decisive role in the allocation of resources. Further reform is also needed with the administrative management system in order to break up monopoly and maintain a healthy factor market, so that the price mechanism can truly serve as a guide for resource allocation. Structural reform on the supply side is designed to address overcapacity, reduce inventory, deleverage, lower costs, and tackle areas of weaknesses.

In order to resolve supplyside problems and generate constant driving forces for sustained and healthy economic growth, a number of policy measures are needed, especially those that aim to encourage innovation, growth in the real economy, and improved living standards.

Making Progress While Maintaining Stability as the Guideline for the Work of the Government

On many occasions since the 18th CPC National Congress, at home and abroad, Xi Jinping has referred to making progress while maintaining stability as a guideline for the work of the government. At each session of the Central Economic Work Conference in the last few years, this has been set as the guideline for work to be carried out in the following year. At one such meeting in December 2016, this guideline was again emphasized as an important principle for the country’s governance and an effective approach to handling the economy.

As we pursue stability, we will focus on achieving steady economic performance, without sharp fluctuations in growth, employment, or prices, and without any regional or systemic risks in the financial sector. Stability is the principle that is important to our long-term goals. While maintaining stability, we need to make progress at the same time in key areas and to the extent that is possible.

When we make progress, we will focus on economic structural adjustment and further reform, to make progress in transforming our growth model and in innovation-driven development.

Stability and progress must happen at the same time in a stable economy and society, in order to create an environment for structural transformation and further reform. And substantive progress must be made in transformation and reform before we can expect positive and stable economic and social development.

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