Counselor of the State Council and Former Chief Engineer of the Ministry of Land and Resources

In recent years, China has been vigorously promoting supply-side structural reform and has made gratifying preliminary achievements in cutting overcapacity, reducing excess inventory, deleveraging, lowering costs and strengthening areas of weakness. However, some people view supply-side reform in an isolated manner to the extent of setting it against the consumption side, one of the three drivers of economy. How to understand the inter-connection between supply-side reform and consumption-side impetus? How to tackle the dialectics between the supply side and the consumption side? Which is the cause and which is the result? As to these questions, opinions vary to a large extent.

In the Report on the Work of the Government, Premier Li Keqiang made comprehensive and systematic exposition of the concepts of “supply side” and “consumption side”, pointing out that supply-side structural reform should be steadily advanced and that “the fundamental role of consumption in economic development should be enhanced”, which fully reflects the circumstances of China in “a new era” and economic characteristics concurrent with “a new course”. The report explicitly puts forward the “new thinking” and “new goals” featuring transition from high-speed growth to high-quality development. For example, it is laid out in the report that around 6.5% growth is sufficient for job creation; market and rule of law will play their role in absorbing excess production capacity and eliminating outdated production capacity (with goals including reducing iron and steel capacity by 30 million tons, phasing out coal capacity by 150 million tons, and closing down substandard coal power units of less than 300 thousand kw), which accommodates the industry’s carrying capacity in energy restructuring; and that “energy consumption per unit of GDP will be down by over 3%”, which reflects the need for environmental protection and balance between the demand and feasibility of emissions control, etc.

The supply side and the consumption side have always been a paradox, and they also constrain balanced development of society and economy. The consumption side is the purpose and impetus of economic development and serves as the support to the demand side. The supply side and the consumption side are dialectical and often interact as both cause and effect. In Capital, Marx elaborated on the basic attributes of the four elements of production, circulation, distribution and consumption in social and economic development. He elucidated the scientific principle of balance between supply and demand, maintaining that human beings can cease to produce or consume for not even one day, there can be no production without demand, consumption is the end and beginning of social production, and that consumption produces new demand. History has proved that expanded demand on the consumption side usually stimulates production on the supply side. When the level and quality on the consumption side rise, production on the supply side expands, upgrades or transforms itself accordingly. Apparently, the enhancement of the consumption side presents the fundamental driving force for growth on the supply side.

At present, China’s economic volume and quality have reached an unprecedented high, yet China’s basic national conditions remain unchanged. China is still the world’s largest developing country, and China is still in the preliminary stage of socialism and will remain so in the long run. Consumption in China is turning from a traditional mode to a new mode and from commodity consumption to service consumption. New types of consumption in such areas as education, health, old-age care, environment, culture and tourism and consumption in pursuit of quality and fashion are burgeoning. According to the National Bureau of Statistics, the Engel coefficient of Chinese residents in 2017 was 29.3% (28.6% for urban areas and 31.2% for rural areas), close to the well-off line of 20%-30% set by the UN. From 2014 to 2017, the contribution of final consumption expenditure to economic growth in China was 50.2%, 66.4%, 64.6% and 58.8% respectively, and the basic role of the consumption side in economic growth has been highlighted.

Vitality of the supply-side structural reform lies in innovation in such areas as new energy, new materials, the Internet, cloud computing, big data, the Internet of things, online shopping, new entities, e-commerce and mobile communications. In a new era of constant development, more and more areas are now being driven by the consumption side, for instance, online consumption, information consumption, cultural consumption, entertainment consumption, health consumption and experience consumption. The essence of such reform is to maximize social productivity, the result of which should be the connection and effective matching of the supply side and the consumption side. Our efforts on the supply side entail reforming economic structure, improving product quality, protecting ecological environment, elevating real economy, solving problems in people’s livelihood, etc. Our vision for the demand side is people’s growing, upgraded demand for a better and individualized life.

In studying the Report on the Work of the Government made by Premier Li Keqiang, we should, on the one hand, unswervingly push forward supply-side structural reform and, on the other hand, give full consideration to strengthening the fundamental role of consumption in economic development. We should make sound and overarching plans to step into the next phase of upgraded consumption with new forms and models.