Saturday, Aug 19, 2017, 11:07 PM CST – China


China needs to tackle its ‘supply-side’ problem

It now has become clear that the major problem does not lie in a lack of consumer demand, but in the domestic supply chain.

During a recent Party meeting, Chinese President Xi Jinping stressed that China should strengthen structural reform of the “supply side” of its economy, increasing quality and efficiency and providing impetus for sustainable economic development.

Xi’s reference to so-called “supply-side structural reform” indicates that the Chinese leadership has adopted a new way of thinking on addressing China’s macroeconomic problems.

In decades past, the Chinese government has largely embraced Keynesian, also termed “demand-side,” theory in managing its economy. According to economist John Maynard Keynes, aggregated demand is the primary driving force for economic growth, and China’s government has consequently responded to its recent slowdown by resorting to lowering interest rates and increasing government spending to boost demand. In reaction to the global financial crisis in 2008, China launched a 4 trillion yuan (US$619bn) stimulus package. To tackle a persistent economic slowdown in recent months, the Chinese government has cut interest rates several times.

However, as Keynesian theory mainly focuses on short-term changes in the economy, China’s approach appears to have failed to address recent economic difficulties stemming from deeply rooted structural and systemic problems, such as excessive government interference in the markets, a lack of rule of law and relatively high tax rates.

In recent months, China has banked on increasing domestic consumption to inject new vitality into its economy. However, it now has become clear that the major problem does not lie in a lack of consumer demand, but in the domestic supply chain.

It is estimated that Chinese tourists spent over 1 trillion yuan (US$155bn) during their overseas trips in 2014. Most of the commodities they purchased abroad are actually available within China – clear evidence that China’s supply system requires serious reform to become more competitive.

In conducting such reform, China should take a lesson from supply-side theory, which recommends lower tax rates and deregulation as a means to boost the economy. The government needs to push forward its rule-of-law initiative and conduct structural tax cuts to encourage innovation and create a healthy business environment. Only when there is an efficient and innovative supply system can China unleash its economic potential. 


Editor's Picks

Sex for Snacks

In cities like Shanghai and Chongqing, a handful of high school…[More]

Worked to Death

A growing number of young Chinese white-collar employees are dying of…[More]


How Communism’s most controversial theorist finally found an audience – in…[More]

What do Chinese People Want?

“I wish I could do what you do.”…[More]


A student of Buddhism with a keen interest in China’s…[More]

Prize Fighter

Elevated into the State-approved pantheon of great Chinese writers thanks to…[More]

Dams in Distress

In 1975, over 60 dams collapsed after a rainstorm in Zhumadian city, Henan…[More]

Pathologically Politicized

Practitioners at all levels concur that “messy” is the word that…[More]


China’s indigenous honey bee is under threat from both environmental…[More]

Exam Boot Camp

A middle school in Anhui province has earned a reputation for…[More]

The New Class

China’s growing online education market has attracted the attention of…[More]

From Stall to Mall

Taobao’s shift towards a business-to-consumer model has come at a…[More]

In Whose Court?

The failure of the country’s administrative litigation system has prompted…[More]

Tradition on Trial

After Confucianism made the maintenance of inequality between the sexes fundamental…[More]

Inevitable Brutality

The vicious murder of a doctor in a Zhejiang hospital shows…[More]

Progress or Pornography?

A new sex education primer aimed at elementary school-age children has…[More]

Graft Breeds Graft

The gap between the investigation and prosecution of official corruption cases…[More]

Saving Nature

The concept of animal welfare is yet to be widely acknowledged…[More]

Problem Solved?

Former Politburo member Bo Xilai’s public trial sends mixed messages…[More]

An Avoidable Tragedy

Poor city planning and lax safety regulations turned a minor gas…[More]


A 74-year-old man surnamed Xie from Shenyang, Liaoning Province was duped out of 420,000 yuan (US$69,342), despite bank employees’ efforts to…[More]


A policeman pulled his gun to dissuade villagers from stealing oranges…[More]

Who Cares?

A new law decrees that all Chinese citizens are now obliged…[More]

Mean Streets

The chengguan system has become the most visible symptom of a…[More]

How do Chinese people live?

So, the bottom line is that Beijing is an expensive place.…[More]

Back in Action

After stagnating for 10 years, China’s SOE reform has fired up…[More]


The hanging coffins of the Bo people, a Chinese ethnic minority…[More]


Wang Xun, an archeologist with Peking University, arranged the bones of…[More]

Trust Trip

Embarking on a three-month car journey around China without handing over…[More]

Fading Lights

For those who grew up under the bright lights of China…[More]