Xi Jinping’s new economic focus on China’s demand reform borrows ideas from Marx more than Keynes
- China’s emphasis on the ‘demand side’ shows Beijing is looking at structural and institutional reasons underlying underconsumption
- An all-out stimulus in 2008 arrested economic slowdown but also poisoned government and corporate balance sheets, making it a less-viable option now
The Politburo of China’s Communist Party coined a new term, “demand-side reform”, at its latest meeting, intending to complement Beijing’s ongoing “supply-side reform” to better balance the national economy, as the official line goes.
It is clear that Beijing is not totally happy with the demand side. But the primary concern about demand revolves more around its structure than its size. If Beijing was worried about insufficient demand, it could just take a page from the Keynesian playbook by “paying people to dig holes in the ground and then fill them up”.
In fact, China adopted this approach in 2008 by opting for an all-out stimulus to drive economic growth. The resulting spending spree, led by China’s local governments and state firms, was mixed. It did arrest an economic slowdown, but it also poisoned government and corporate balance sheets.
For Xi Jinping, it is no longer a viable option to seek wisdom from John Maynard Keynes.
The emphasis now on the “demand side” shows Beijing is looking at structural and institutional reasons underlying the relative underconsumption
Beijing is trying to find a way to address a core problem with capitalism, as revealed by Karl Marx – namely, underconsumption and “the poverty in the midst of plenty” within the working class.
The emphasis now on the “demand side” shows Beijing is looking at structural and institutional reasons underlying the relative underconsumption.
It is still too early to guess which specific policies Beijing is considering on the “demand side”. But the direction is clear that China needs to enrich its people, to narrow the wealth gap, and to improve social welfare coverage.