Demand and supply must walk on two legs to achieve balanced development

In this year's government work report, "strengthening supply-side structural reform and enhancing the momentum for sustained growth" and "deepening the potential of domestic demand and opening up greater space for development" are two parts that follow in succession and carry equal weight. Some deputies and members from the economics circle believe that this arrangement fully reflects the central government's strategic thinking of "focusing on strengthening supply-side structural reform while appropriately expanding aggregate demand."

Emphasizing both supply and paying attention to demand, like walking on two legs, is a balanced relationship that economic analysis and macroeconomic management must grasp. For a large developing country like China, it is necessary to accelerate supply-side reform to solve structural problems, raise total factor productivity, and achieve sustained economic growth and long-term prosperity; it is also necessary to strengthen demand-side management to solve aggregate problems, "brake" the economic downturn and "ignite" stable growth, thereby forming stable and lasting support from domestic demand. An objective analysis of the current Chinese economy shows that insufficient effective supply and insufficient effective demand exist at the same time. Some economists point out that if it were only insufficient supply, then whether "effective" or "ineffective," it should be reflected in rising price indices. But the reality is that PPI has had negative growth for 4 consecutive years, and CPI growth in 2015 hit a 6-year low. This clearly cannot be explained simply by "insufficient effective supply"; the problem of insufficient demand is equally serious. Therefore, while accelerating supply-side reform, the work of deepening the potential of domestic demand must not be relaxed for a moment.

It is necessary to enhance the foundational role of consumption in driving economic growth. Among the drivers of stable growth, consumer demand has the largest scale and the most direct relationship with people's livelihood. To unleash consumption potential, it is necessary to further optimize the consumption environment and, while stabilizing traditional consumption, continue to cultivate and expand new consumption hotspots, such as elderly care, health, tourism, education, entertainment, and so on. Of course, this cannot be separated from supply innovation, removing policy obstacles, increasing the production of marketable goods and the supply of services, activating and satisfying multi-level consumer demand, and providing more choices for consumption upgrading.

It is necessary to give play to the key role of effective investment in stabilizing growth and adjusting structure. Some time ago, the responsible comrades of the National Development and Reform Commission proposed that we should "grasp investment with full confidence." This signal shows that although excessive reliance on investment is certainly not advisable, neglecting or underestimating the role of investment is equally inadvisable. We should study and summarize past experience and lessons, and actively expand effective investment in response to shortcomings in infrastructure and people's livelihood areas as well as new urbanization, such as the construction of urban underground comprehensive utility tunnels, rail transit, smart grids, various types of pollution control, accelerating the citizenization of rural migrant populations, and advancing the construction of public service facilities. It should be noted that, on the one hand, public investment must improve efficiency and be rationally laid out; on the other hand, it is also necessary to mobilize the enthusiasm of social investment, and at the same time strengthen the coordination and cooperation of fiscal, monetary, investment, industrial, price, and other policies to form a superimposed and amplified effect of increasing effective demand.