What are the three major relationships that supply-side structural reform must face?
Core viewpoints
Regarding China's supply-side structural reform, there is a question worth considering: can we truly unify, in economic philosophy, the free competition required by the market and the conscious planning required by socialized production? In terms of mechanism, if we truly handle the relationship between the government and the market well, then macroeconomics with Chinese characteristics can stand firm in the world. From this perspective, China's supply-side structural reform has in fact raised deeper questions, namely questions of the philosophy of economic theory and value orientation under the basic system.
As China's economy enters the new normal, some new views on China's economic situation have emerged in society. Here, I mainly explore three questions starting from China's particularity.
The first question: How should we view the anti-crisis policy in China's macroeconomic regulation?
Since the world entered the great tide of anti-crisis measures, views on the choice of policy direction have differed considerably. From China's practice, there have likewise been some debates. These are mainly concentrated in the following aspects.
First, was China's anti-crisis policy stance introduced too late? This is a question with strong Chinese characteristics. In 2007 and 2008, China's economy was still in a booming growth situation, and the growth momentum at this stage of development was different from that of other countries. Therefore, the policy goal put forward in China's government work report in 2008 was the "dual prevention": first, preventing inflation, preventing structural inflation from turning into general inflation; second, preventing overheating, preventing overheating caused by excessively rapid economic growth. These two aspects are interrelated. If the goal was "dual prevention," then macroeconomic policy should have been comprehensively tightened. However, after tightening in this way until May and June 2008, we felt that the situation was not right, so after various data came out, corresponding adjustments were made, that is, "dual prevention" was no longer emphasized and was changed to "one maintain, one control, one adjust": maintain growth, control prices, adjust structure. The issue of prices was still not removed from the goals of macroeconomic regulation, and the dual goals were "maintain growth, control prices." It was only in the fourth quarter of 2008 that China truly completed the adjustment. Therefore, China's anti-crisis policy was introduced probably more than half a year later than global anti-crisis measures.
Second, was China's anti-crisis policy too aggressive? The causes of China's macroeconomic imbalance are different from those of the United States, Europe, Japan, and others. In most cases when a financial crisis occurred in the world, the financial system collapsed while the real economy had no major problems; under conditions of monetary market imbalance, there was demand for money but a lack of money supply. But what was China's situation? World economic recession caused China's exports to suffer, resulting in overcapacity in domestic demand. Under such circumstances, China's banking system itself had no problems, but the real economy had no effective demand for money, so China's direction of imbalance was opposite to the direction of imbalance under the world economic crisis - the world economy had demand for money but no money supply, while China had money supply but no effective demand for money. Therefore, for China what was important was to cultivate demand for money to stimulate the real economy, while for Western countries what was important was to increase money supply and throw money into circulation. However, the policies China adopted were similar to Western anti-crisis policies, injecting large amounts of funds into circulation, with the result that the real economy had no effective demand and large amounts of money were stranded. Therefore, some people raised the question of whether our monetary and fiscal policy stimulus was too aggressive.
Third, was China's exit from anti-crisis policy too early? China announced in October 2010 its exit from the anti-crisis policy track. After the exit, China faced a series of difficulties in absorbing the costs of the anti-crisis process and new forms of economic imbalance after entering the new normal. Among these were both objective economic cyclical reasons and the effects of complex and uncertain macroeconomic policies. In fact, this was the "superposition of three periods": the shifting period of economic growth speed, the period of absorbing the costs of anti-crisis policy in the post-crisis stage, and the painful period of overcoming deep-seated structural contradictions in the economy. Relative to the more complex economic imbalance, especially the new imbalance of the coexistence of "dual risks," some people therefore raised the question of whether China exited anti-crisis policy too early.
Behind the above three aspects, there are in fact China's special national conditions. We need to clearly recognize that China's anti-crisis policy differs greatly from that of other countries, pay attention to summing up experience, and then elevate it into economic doctrine and system.
The second question: How should we view the imbalance characteristics of China's macroeconomy under the new normal?
Since reform and opening up, China's macroeconomic policy can be divided into three stages. The first stage: from 1978 to 1998. In this stage, apart from individual years, generally speaking, China's inflationary pressure was relatively large, and macroeconomic policy was tightened for a long time. The second stage: from 1998 to the end of 2010. In this stage, apart from 2002 to 2007, at the macro level there was mainly insufficient domestic demand, and together with the successive shocks of the Asian financial crisis and the world financial crisis, growth momentum was lacking. Therefore, China's main macroeconomic policy was to expand domestic demand, what we called a "proactive" fiscal policy and a "prudent" monetary policy. In 2008, China further proposed a "more proactive" fiscal policy and a "moderately loose" monetary policy. The third stage: from the end of 2010 to now. In a certain sense, it can be said that China's macroeconomy entered a stage of imbalance. The characteristic of this stage can be summed up in one sentence: there is both potential inflationary pressure and a severe threat of economic downturn, with dual risks coexisting.
At present, under the coexistence of dual risks, what should China do? Developed countries encountered similar problems in the late 1960s, but since the 1970s they have never solved them, many problems have accumulated, and economic theory has also made many adjustments. Now it seems very difficult to achieve systematic experience summaries and unified understanding. As a developing country, China has also encountered this problem and faces comprehensive and profound challenges in macroeconomic regulation. At this time, starting from the aggregate demand side may have no solution. Therefore, China introduced supply-side structural reform. This is not only reflection on the characteristics of China's macroeconomic imbalance, but also a deepening of China's understanding of the macroeconomy.
The third question: How should we understand several issues in the implementation of China's supply-side structural reform?
Regarding China's supply-side structural reform, several issues require in-depth theoretical and policy consideration.
First, how to handle the relationship between demand and supply in supply-side structural reform. Supply-side structural reform requires not only demand-side policies, but also coordination between the two aspects. On the one hand, supply-side structural reform requires a certain amount of effective demand as a prerequisite; on the other hand, demand must be moderately expanded in the short term, and the economy must be appropriately managed and controlled.
Second, how to handle the relationship between the government and the market in supply-side structural management institutionally. There is a great difference between supply-side and demand-side policies: supply-side policies directly affect producers, while demand-side management policies mostly affect consumers and stimulate demanders or buyers. Under such circumstances, two problems arise: first, the policies of supply-side structural reform directly affect enterprises, and if the rights of enterprises as market entities cannot be fully guaranteed and respected in the economic and legal systems, then excessive and arbitrary government intervention in the behavior of market entities may result, and it may even retreat to a planned economy. Second, can we truly unify, in economic philosophy, the free competition required by the market and the conscious planning required by socialized production? In terms of mechanism, if we truly handle the relationship between the government and the market well, then macroeconomics with Chinese characteristics can stand firm in the world. From this perspective, China's supply-side structural reform has in fact raised deeper questions, namely questions of the philosophy of economic theory and value orientation under the basic system.
Third, how to connect short-term policies and long-term policy goals in supply-side structural reform. Demand-side management has a certain short-term nature, while supply-side management is certain to have a long-term nature. Much of supply-side management is about one generation planting trees and the next enjoying the shade. Relatively speaking, local governments have a larger space to play a role in supply-side structural reform, because demand management is limited for local governments: you do not control money, you do not control deficits, so what can you do? But the supply side is different. In the process of supply-side structural adjustment, improving the local education structure, improving the local capital investment structure, and so on all belong to the supply side, so the space in which local governments can play a role is very large. But there is one condition: local government officials need to have a long-term perspective. Not considering the long term is inaction. Therefore, supply-side management in fact requires local government officials to take long-term responsibility for their localities, which imposes higher demands on their sense of responsibility.
In short, the development of China's macroeconomy has its own characteristics. Whether it is anti-crisis policy, the imbalance characteristics under the new normal, or supply-side structural reform, all have Chinese characteristics, and these characteristics in fact all originate from China's practice in the process of reform and opening up.