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Economic Reform
Top Priority Task
Deepening supply-side structural reform is at the heart of China's economic progress endeavors
By Jon Taylor | NO. 11 MARCH 16, 2017
A farmer tends to tomatos in a vegetable greenhouse in Qinhuangdao City, north China's Hebei Province, on December 18, 2016. More industrialized agricultural operations have greatly increased local farmers' income (XINHUA)
The annual gathering of the National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference (CPPCC), commonly called the Two Sessions, represents an important chance for China's leadership to tackle critical political, economic, and social issues that are of importance to the country. Some of the Two Sessions' top priorities for 2017 include reducing poverty, inequality, and income disparities between urban and rural areas, cutting pollution, keeping home prices under control and combating corruption.

While these issues are of great importance, the tone of the Two Sessions was recently set by China's top leadership with their pledge to stick to the basic tone of "seeking progress while maintaining stability" in 2017 by aiming for more progress from supply-side structural reform. The leadership's tone was emulated in the key words on supply-side reform found in the government work reports issued by each of China's provinces and municipalities during the past two months.

On March 5, Premier Li Keqiang reiterated and expanded upon this message for deepening supply-side structural reform during his Government Work Report speech at this year's Two Sessions. Simply put, supply-side reform is not just an abstract concept. China needs to sustain the momentum for reform so that it can pursue innovation and green production, cultivate new areas for economic growth, enhance poverty alleviation through rural land reforms, expand rural e-commerce, and engage in talent development and infrastructure.

A critical task 

Supply-side structural reform is the most effective way to address China's present economic problems. Specifically, addressing these problems requires that China continues to make substantial progress in the five key tasks of cutting overcapacity, destocking, deleveraging, reducing corporate costs, and strengthening areas of weakness.

During the past 40 years, China has relied on three major forces to drive economic growth: investment, exports and consumption, all of which are classified as the demand side. As the effectiveness of boosting growth on the demand side weakened, China entered a "new normal" for the economy and recognized the need to reform the supply side by letting the market play a decisive role in resource allocation and to create a better venue to manage macroeconomic strategy through the effective use of production factors.

Comprehensively deepening supply-side reform is at the heart of China's economic reform agenda for 2017. In order to ensure the ongoing work of fully implementing the 13th Five-Year Plan's (2016-20) goals of becoming a moderately prosperous society, or xiaokang, in an all-round way, it must continue to emphasize supply-side reform with an emphasis on innovation, poverty reduction, and environmental protection.

As President Xi Jinping noted at the G20 Summit in Hangzhou in September 2016, China's reform "has entered the deep-water zone where tough challenges must be met." The 2017 Two Sessions will serve as the backdrop to China's continued efforts to press ahead with meeting those tough deep-water zone challenges with supply-side structural reform. Moving forward with additional supply-side structural reform is an inevitable choice for developing and improving the Chinese economy and will have lasting impact both inside and outside China.

Supply-side reforms is bringing major adjustments to China's economic growth model. While China has seen a strong start during the 13th Five-Year Plan period, further efforts are needed to balance multiple economic tasks in 2017 and beyond, including the necessity to stabilize growth, advance financial reforms, push restructuring, improve people's livelihoods, and prevent fiscal risks while also focusing on cutting excess capacity and encouraging efficiency.

Jomoo Kitchen & Bath Co. Ltd. workers assemble smart toilet lids in Nan'an City, southeast China's Fujian Province, on May 10, 2016 (XINHUA)

Helping eradicate poverty

The linkage between building a moderately prosperous society in an all-round way and alleviating poverty is important in understanding the 2017 Two Sessions' emphasis on supply-side reform in agriculture.

Comprehensively deepening supply-side structural reform, particularly in agriculture, will allow China to focus on the importance of economic structural reform by extending green and innovative production, increase output of high-quality products, shift reliance from resource consumption to green and sustainable development, and improve overall efficiency and quality—all of which enrich the 13th Five-Year Plan's goals of alleviating poverty and enhancing innovation and development.

Lifting millions of poor people above the poverty line is a daunting task. Both President Xi and Premier Li have stressed the need to reduce poverty and to help improve the living conditions of families with difficulties. Much of the work to create a xiaokang society and eradicate poverty will come through the pursuit of comprehensive supply-side structural reform that will promote intensive agricultural development to help reduce poverty and facilitate urbanization to the benefit of ordinary rural households.

China's nearly 40 years of experience with economic development after its reform and opening-up strategy started tells us that the nation can and will continue to pursue reform as a fundamental principle in order to solve structural economic issues. Steady economic growth continues to lift millions out of poverty in China. Strong and targeted policy measures to relieve poverty, combined with sustained and stable economic growth through a comprehensive deepening of reforms in the property sector, fiscal policies, poverty alleviation, and industrial innovation will allow China to fulfill the goals set forth in the 13th Five-Year Plan.

Promoting supply-side structural reform is at the heart of China's reform endeavors. These economic goals do not involve just manufacturing, innovation, trade, or growing the service and hi-tech sectors. Rather, while these are important, raising the standard of living for all citizens, particularly in poor, rural areas of the country, is of supreme importance to China's leadership. Raising people in those areas out of poverty on a permanent basis is a key factor in the pursuit of comprehensive supply-side structural reform. The elimination of poverty is rightly seen by China as an achievable goal, one where significant progress has already been made during the past four decades with over 700 million people lifted out of poverty.

China has two primary tasks that by comprehensively deepening supply-side reform can and will likely be accomplished before the end of the 13th Five-Year Plan: the building of a moderately prosperous society in all-round way and poverty reduction. In order to achieve the goal of having a moderately prosperous society in an

all-round way, China's annual GDP expansion should be no less than 6.5 percent in 2016-20. Additionally, the 13th Five-Year Plan's goal requires that 10 million people be lifted out of poverty every year from 2016 to 2020, thereby achieving the 2020 poverty relief target. Neither of these laudable and important goals can be accomplished without deepening supply-side reform.

In January, President Xi stated at Davos that "China's remarkable achievement in poverty reduction has contributed to more inclusive global growth. And China's continuous progress in reform and opening up has lent much momentum to an open world economy." Promoting additional supply-side structural reform by encouraging new growth engines to improve productivity and competitiveness will allow China to achieve further reductions in poverty. It will also allow to deliver greater benefits to more people through inclusive growth and equity in income distribution, primarily by improving both rural and other poorer regional infrastructure and services and by extending social welfare protection to the whole of the population.

The author is a professor of political science at the University of St. Thomas in Houston

Copyedited by Bryan Michael Galvan

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