Supply-side reform 5 what is "supply-side structural reform"?

With the conclusion of the Central Economic work Conference in Beijing on December 21, 2015, "supply-side structural reform" has become the hottest word in China's political and economic context.

From the desalination of the troika of investment, consumption and export to the proposal of "supply-side structural reform", this change sends a clear signal that a major change is taking place in China's macro-control thinking. from the previous emphasis on demand-side regulation to supply-side regulation.

In addition to the shift in the direction of macro-control, the Central Economic work Conference also made key arrangements for supply-side structural reform, defining the five major tasks of economic work in 2016: eliminating production capacity, removing inventory, deleveraging, reducing costs, and making up for deficiencies.

2016 is the beginning of the decisive stage of building a moderately prosperous society in all respects, and it is also the year to push forward structural reform. For leading cadres at all levels, the key to whether they can make a good start and take a good step during the 13th five-year Plan period depends on whether they can do a good job in promoting supply-side structural reform.

Supply-side structural reform "how to think" and "how to do" has become the focus of thinking and exploration all over the country.

A question

What is "supply-side structural reform"

What is the supply side? From an economic point of view, the familiar "troika" of investment, consumption and export belong to the three major demands on the demand side, while the corresponding supply side focuses on the supply and effective utilization of production factors.

Where there is demand, there will be supply. "supply side" and "demand side" are like the two sides of a coin. For a long time, China's macro-control has focused on the "demand side". Now, the central government has made it clear that the focus of regulation and control should be shifted to the supply side, that is, while moderately expanding aggregate demand, efforts should be made to strengthen supply-side structural reform.

Yang Weimin, deputy director of the Office of the Central Financial and Economic leading Group and an important drafter of the documents of the Central Economic work Conference, said that supply-side structural reform should include three aspects: policy objectives, policy targets, and policy means:

The policy goal is to reduce the ineffective supply, expand the effective supply, improve the adaptability and flexibility of the supply structure, improve the total factor productivity, and ultimately improve the efficiency of resource allocation.

Policy object, the core problem to be solved in supply-side structural reform is to correct the distortion of factor allocation. "I think there are three levels of distortion in the allocation of elements: first, the allocation and combination of elements within the enterprise, which mainly depends on entrepreneurship and scientific management of the enterprise. For example, the large contract work at the beginning of reform and opening up changed the combination of labor and land, mobilized the enthusiasm of hundreds of millions of farmers, and the output increased, which is the most micro level. The second is the structure of the allocation of factors among enterprises, that is to say, more resources should be allocated to high-quality enterprises, competitive enterprises and innovative enterprises, so that the efficiency of the whole society will be improved. The strategic structural adjustment of state-owned enterprises in the 1990s actually solved the problem of the efficiency of resource allocation among enterprises. Now that we want to solve the problem of zombie enterprises, we still have to solve such a problem. Third, the structure of the allocation of factors among industries, that is, the adjustment and optimization of the industrial structure, should allow more resources to flow to industries and economic forms with demand, prospects, and high benefits, for example, from agriculture to non-agricultural industries, from industry to service industry, from traditional industries to emerging industries, and so on. Since the reform and opening up, hundreds of millions of farmers have been transferred from land to non-agricultural industries, which is in fact the largest practice of supply-side structural reform. "

The policy means, the policy means of supply-side structural reform and the policy of expanding demand are different. The main means of structural reform are no longer expanding investment, expanding fiscal expenditure and expanding the issuance of money. The main means of structural reform are to stimulate the vitality of micro subjects, encourage innovation, reduce excess capacity, reduce enterprise costs, reduce the burden of enterprises' taxes and fees, improve the flexibility of the labor market, encourage competition and break monopolies. To relax access and reduce improper government intervention, so in this sense, structural reform is to solve structural problems by means of reform. For example, to reduce institutional transaction costs, we should continue to promote the reform of the administrative management system, streamline administration and delegate power, reduce the price of electricity, reform the electric power system, and reform the fiscal and taxation system and old-age insurance system to reduce the tax burden of enterprises.

Zhang Yansheng, secretary general of the academic Committee of the National Development and Reform Commission, believes that supply-side structural reform is to correct the structural mismatch between supply and demand and the distortion of factor allocation by means of reform, so as to solve the problem that effective supply does not adapt to changes in market demand, so as to achieve a new balance between supply and demand at a higher level. "for example, how to improve the efficiency of resource allocation, how to improve total factor productivity, how to maintain low-carbon green development, how to improve the role of innovation-driven, etc., these are the supply side."

From demand to supply, this change has its own profound background. "the reason is not complicated, because practice over the years has proved that demand management based on economic stimulus alone is difficult to help China's economy move towards its intended goal." Zhang Yansheng said.

Second question

How important is "supply-side structural reform"

The 2015 Central Economic work Conference stressed that promoting supply-side structural reform is a major innovation to adapt to and lead the new normal of economic development, an active choice to adapt to the new situation of comprehensive national strength competition after the international financial crisis, and an inevitable requirement to adapt to the new normal of China's economic development.

Yang Weimin, deputy director of the Office of the Central Financial and Economic leading Group and an important drafter of the documents of the Central Economic work Conference, said that this year's Central Economic work Conference can be said to be a historic meeting, which not only made comprehensive arrangements for economic work in 2016, but also made key arrangements for supply-side structural reform. "the theme of the meeting was supply-side structural reform, and General Secretary Xi Jinping systematically expounded the idea of supply-side reform, from the judgment of the situation, the diagnosis of problems, the thinking of work, key tasks, reform measures, and major principles, put forward a set of logical rigorous, systematic integrity, clear direction, and highly operational package."

Yang Weimin said: the supply-side structural reform is another major strategic decision made by the CPC Central Committee with Comrade Xi Jinping as its general secretary, adhering to the ideological line of emancipating the mind and seeking truth from facts, and adhering to the problem-oriented way of thinking. it is not only an inevitable requirement to adapt to and lead the new normal of economic development, but also another major theoretical innovation of our party. It is of great significance not only to do a good job in economic work in 2016, but also to promote sustained and healthy economic development in the coming period. It is very important not only to China's economic development, but also to the world economy.

In fact, since the meeting of the political Bureau of the CPC Central Committee in November 2015, the term "supply-side reform" has been mentioned in various central meetings.

At the meeting of the Central Financial and Economic leading Group on November 10, 2015, General Secretary Xi Jinping stressed that while moderately expanding aggregate demand, efforts should be made to strengthen supply-side structural reform, improve the quality and efficiency of the supply system, and enhance the driving force for sustained economic growth. we will promote the overall leap in the level of China's social productive forces. This is the first time that the central government has proposed "supply-side reform."

On November 11, 2015, the executive meeting of the State Council once again emphasized "cultivating new supply and new driving forces to expand domestic demand". At the G20 Antalya Summit on November 15, Xi Jinping stressed the need to "attach importance to the coordinated development of supply-side and demand-side forces". On November 17, when presiding over the working meeting on the preparation of the outline of the 13th five-year Plan, Premier Li Keqiang once again pointed out that efforts should be made on both the supply side and the demand side to promote the industry towards the middle and high end; on November 18, Xi Jinping again proposed "supply-side" reform at the APEC meeting.

Three questions

Why is "supply-side structural reform" emphasized now?

The rapid growth of China's economy is obvious to all. Before 2007, China's economy maintained a high growth rate, and the GDP growth rate in 2007 reached the highest level in 13 years, reaching 14.2%, which is the same as that since 1992.

What is the secret of China's rapid economic growth? According to Zhang Shixian, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, the reason why China's economy can maintain rapid growth is mainly driven by investment demand. To put it bluntly, it is to rely on demand-side forces.

However, the expanding investment not only promotes the sustained and rapid economic growth, but also brings about the imbalance between supply and demand, that is, the structural contradiction.

For the qualitative and quantitative scientific evaluation criteria of excess capacity, Europe and the United States and other countries generally use capacity utilization or equipment utilization as the evaluation index of excess capacity. The normal value of equipment utilization is 79%-83%. If it exceeds 90%, it is considered that the production capacity is not enough and there is a phenomenon of exceeding the capacity of the equipment. If the start-up of equipment is less than 79%, it means that there may be overcapacity.

Zhang Yansheng, secretary general of the academic Committee of the National Development and Reform Commission, believes that judging China's industry overcapacity is reflected in three aspects: first, a relative decline in the product price index; second, a substantial decline in corporate profitability and an increase in loss-making enterprises; third, industry supply has seriously exceeded industry demand.

Public data show that in the first 10 months of 2015, the total profits of large-scale industrial enterprises across the country fell 2% compared with the same period last year, and the profits of oil exploration, steel, coal and other mining and raw materials industries declined significantly. As far as the iron and steel industry is concerned, according to data from the Ministry of Industry and Information Technology, the national crude steel production in 2014 was 820 million tons, and the crude steel production capacity in that year was 1.16 billion tons, and the crude steel capacity utilization rate was 70.69%, which means about 30% of the overcapacity.

The most direct consequence of overcapacity is heavy losses in the steel industry. Statistics from the China Iron and Steel Association show that from January to October 2015, large and medium-sized iron and steel enterprises lost 72 billion yuan in their main business, with a loss area of 47.52 percent.