Xi Jinping’s stance on China’s economy laid bare as he distances hallmark policy from Western-style supply-side economics
President sets out in 20,000-character transcript his most comprehensive thoughts on the future of the Chinese economy, with special emphasis on structural reform
An explanation of President Xi Jinping’s hallmark economic policy, in his own words, was published in People’s Daily yesterday – just 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’.”
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.
Xi’s comments, in many ways, resonated with an interview with an “authoritative” figure in People’s Daily on Monday who rejected debt-fuelled growth, suggesting Xi’s policy team supported this view.
In his speech, Xi cautioned bureaucrats against repeating mistakes in the management of the country’s economy.
“Capital investment, production safety, stock market management and internet finance regulation all require high skills, and with any misjudgment, imprudent choice or lax supervision, there will be problems or even big problems serious enough to affect social stability,” Xi said.
“In recent months, a slew of major accidents happened regarding production safety, the stock market and internet finance, ringing alarm bells one after another,” Xi said.
“You shouldn’t pay your tuition in vain, you have to learn from mistakes and avoid making the same mistake again and again.”
Xi said while China was the second-biggest economy in the world, its economy was “big but not strong” and faced “outstanding problems of unwieldiness, puffiness and weakness”.
“The main symptom is limited innovation, and that’s the Achilles’ heel of China’s [macro] economy,” Xi said.
Additional reporting by Wendy Wu