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New Supply-side Economics
2016-10-8

The Structural Reform on Supply-side

and Sustainable Growth

Foreword

China's reform and opening up in the past three decades has made great historic achievements attracting global attention, achieved the transition from a planned economy to a modern market-oriented economy, from a low-income country to a middle- and high-income country which is now the world's second largest economy. The huge success of reform and opening up and rapid development has attracted the domestic and international economic community to conduct innovative research on China's economic theory. Some Western economists tries to explain China's economic development and development issues from different schools of economics theory, such as the mainstream Western macro-economics, development economics, structural economics, institutional economics, but more often than not the research conclusions are far away or even contrary to the empirical study results of China's economic development. Some Chinese economists have made arduous theoretical research and exploration, and some other Chinese economists believe that economic theories are universal, therefore doubting whether there is a special economic theory for China’s situation. I think that the Chinese national condition determines China's development achievements, practices and theories. The national basic situations are: a big developing country, unbalanced development, large population, the transition from a plan-oriented economy to a market-oriented economy, from a closed economy to an open economy, to achieve market-oriented reforms and uphold socialism. 

Thus, the important and urgent task placed in front of Chinese economics is to conduct pioneering study on Chinese economic theory, use empirical studies to sum up the past and theoretical studies to verify the empirical results and guide the future. This is my academic pursuit for years. In the past two years, I worked with Professor Quan Heng from Shanghai Academy of Social Sciences on the research "Outline of Chinese Economic--Exploration on Socialist Political Economics with Chinese Characteristics". A team of more than 40 young economists and scholars in Shanghai have been carrying out this major economic theory research, and the preliminary research results have been achieved, we will continue our efforts to deepen this research.

Since November 2015, the Central Government has for the first time proposed the theory of "supply-side structural reform", new supply-side economics has become the new thought, new idea and new theory guiding China's economic reform and development in New Normal. In recent years, my research team and I have carried out a series of studies on China's sustainable economic development issues from the supply-side perspective. For example, the economic growth potential and total factor productivity enhancement issues; propelling the institutional innovation under the market-oriented reforms; the strategy of innovation-driving development and industrial structure adjustment; the policy coordination issues of steady growth, structural adjustment and benefiting people's livelihood; the proactive strategy of opening up and the construction of free trade zone, etc. In November 2015, the National Development and Reform Commission (NDRC) delegated me to lead a major national decision-making consulting research with the topic “Research on Chinese Structural Reforms and Structural Policy Issues under the New Normal ". I immediately established a research team composed of personnel from the Development Research Center of Shanghai Municipal People’s Government, on the basis of relevant researches in recent years, and we made in-depth research and sorted out theories and arguments on key issues, for example, the basic theory study of demand-side economics and supply-side economics, and the comparative studies from the global perspective on background, path, policy of supply-side reform, etc. Meanwhile, we have issued the general report on this research.

This book is developed in a more profound, systematic and theoretical manner based on the preceding series of research I presided, aiming to put forward a new supply-side theoretical framework and economics thinking from theory to empirical analysis, from global perspective to the practices of China. This book is divided into five aspects in nine chapters: First, the theory and reflection on the classical supply-side economics. Studying the classic economics theories and views of classic school and from the perspective of both supply and demand side, this book presents comparative studies on the supply-side economics and demand-side economics, and also conducts a comprehensive analysis on the study and discussion by Chinese economists. These contents are covered in the first chapter. Second, the global practice of supply-side economics. This is a comprehensive research and analysis on the origination, development, strategies, paths, policies and performance on the supply-side structural reform from a global perspective, as well as the reference and inspiration to the Chinese supply-side structural reform. These contents are discussed in Chapter 2 and Chapter 3.Third, the theoretic logic of China's new supply-side economics. It analyzes the stage and development characteristic of the socialism with Chinese characteristics under the situation and risks of China’s structural reforms in the new normal, puts forward the background logic and connotation characteristics of China’s supply-side structural reforms, discusses the relation between the political economics theory with Chinese Socialist Characteristics and the economic thoughts of supply-side structural reforms, and puts forward a theory and logic thinking on China's new supply-side economics. These are covered in Chapters 4 and 5.Fourth, the methodology of China’s new supply-side economics. Based on China's new supply-side economics theory and logic, a comprehensive and systematic strategy of supply-side structural reform is proposed, which is: to realize China's continuous economic growth effectively, the supply-side structural reform must be performed and the indigenous and external variables must be handled with care to achieve new supply of factors (labor, capital, technology, land, etc.), new supply of institutions (market institution, open-up institution, government institution, corporate institution, etc.), new supply of structures (industrial structure, urban and rural structure, regional structure, and resources structure, etc.), new supply of policies (cutting overcapacity, destocking, deleveraging, reducing costs and identifying growth areas, etc.). These contents are discussed in Chapter 6 and Chapter 7.Fifth, China's new supply-side economics and sustainable economic growth. To achieve sustainable and stable economic growth, we must achieve balance of total supply-demand and effective macro-control. While strengthening the supply-side structural reform, we must strengthen demand-side management and collaboration, promote consumption upgrading, effective investment and foreign trade transformation. While macro-control and the structural change of total supply and demand made for the characteristics of China’s economic fluctuation, the supply-side structural reform would promote the release of China’s economic growth potential. These are discussed in Chapter 8 and Chapter 9.

The supply-side structural reform is the core theoretical perspectives of China's new supply-side economics, and also the new development of the socialist political economics with Chinese characteristics. From the perspective of connotation, theory and methods, the structural reform on supply-side is different from that proposed by Western economists, and also different from the reform proposed by structural economists. It is an integrated innovation in the reform theories at the present stage of Chinese development. The theoretical basis of supply-side structural reform falls under socialist political economics with Chinese characteristics, and the new supply-side economics is an important part of socialist political economics with Chinese characteristics. The book studies on basic theoretical framework and logical analysis of China's new supply-side economics, and also provided a strategic path for the plight of China's economic development. This is a pioneering exploration on Chinese new supply-side economics and also an academic trial to form a systematic theoretical framework about China’s new supply-side economics.

The research and its’ results are of our great relief and excitement, as we know that innovation in China's new supply-side economics will be a long process of combining theory with practices, a process that from practice to theory and vice versa over and over again. Theoretical framework presented in this book is preliminary and we strive to provide a direction and way of thinking for deepening the study on new supply-side economics in China, for example, how to replenish the theoretical framework with economic mathematical models based on endogenous variables and exogenous variables, and the proposed theoretical routes on supply-side structural reform are yet to be proven, amended and improved, etc. We have been studying and exploring arduously and we look forward to partnering with domestic and foreign economists to explore innovative research and development on China's new supply-side economics theory.