Coordinating between expanding domestic demand and deepening supply-side structural reform

Editor's note: Dong Yu is the executive deputy director of China Institute for Development Planning at Tsinghua University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity. In this special commentary series "China's Economy: Five Coordination Priorities for 2025" by CGTN, experts analyze the five coordination priorities highlighted at the Central Economic Work Conference. The series offers an in-depth analysis of China's economic strategies and future potential.

I. A correct understanding of the relationship between expanding domestic demand and deepening supply-side structural reform

As shown by their respective historical development, both the strategies of expanding domestic demand and deepening supply-side structural reform were proposed to address issues and are closely tied to the developmental needs of China's economy at different stages. It is crucial to properly understand their dialectical relationship and approach them from a holistic perspective.

Properly understanding the evolution of strategic concepts. The current strategy of expanding domestic demand prioritizes the recovery and expansion of consumption, giving full play to the foundational role of consumption and the key role of investment. The ultimate goal is to establish a comprehensive domestic demand system as soon as possible.

Accurately recognizing changes in supply-demand relations. Given the characteristics of China's economy, the primary issue on the demand side is the need to restore consumption and address the insufficiency of effective and high-quality demand. On the supply side, the chief problems are the coexistence of overcapacity in low-end sectors and insufficient supply in high-end sectors, as well as risks to supply chain security. These overlapping challenges inevitably call for simultaneous efforts on both ends and can be tackled by accurately identifying and resolving the principal contradictions and their primary aspects.

Striking a balance in macroeconomic governance. The expansion of domestic demand and supply-side structural reform are neither opposing nor substitutive but rather cooperative. Within the new development paradigm, expanding domestic demand serves as a strategic cornerstone, while deepening supply-side structural reform remains the central task. The two must work in tandem, exerting collaborative and balanced efforts. Only in this way can we guide supply upgrades from the demand side and stimulate potential demand from the supply side, ultimately achieving a higher level of dynamic equilibrium.

II. Accurately identifying intersections between expanding domestic demand and deepening supply-side structural reform

Given the current challenging and intricate economic landscape, it is imperative for regions and departments to take into account the actual situation, skillfully identifying intersections that can simultaneously enhance the quality and efficiency of the supply system and drive effective demand. By turning bottlenecks and gaps into new growth drivers, these efforts will provide crucial momentum for overall economic improvement and long-term healthy development.

Finding an intersection in industrial transformation and upgrading. An essential focus of supply-side structural reform is to adjust and optimize the industrial structure, fostering new drivers for industrial growth. As emerging industries create new demand, advancing the development in new domains, such as strategic emerging sectors and future industries, is intrinsically the most significant form of supply-side structural reform and will accelerate the upgrading of consumer demand.

Finding an intersection in the construction of "Digital China." Digital infrastructure serves as the foundation, encompassing network, computing power, and application infrastructures. Development and interconnectivity in all these fields will present tremendous market opportunities. Integrating the construction of Digital China into the "Five-sphere Integrated Plan" will generate new demand across various sectors.

Finding an intersection in the building of a unified national market. Furthering the market-based reform of factors of production is a key aspect of the market reform. It is imperative to speed up pilot reforms and their broader implementation with the free flow and efficient allocation of these factors as critical means for deepening supply-side structural reform. This will consolidate the foundation for the establishment of a high-standard market system. Investments in major infrastructure and industrial projects should align seamlessly with regional strategic arrangements. At the same time, regional and institutional barriers should be removed to provide private and foreign-funded enterprises with equitable and high-quality services so that they can invest and thrive across regions.

Finding an intersection in ecological and environmental protection. The green consumption mindset is taking root, becoming a conscious choice for an increasing number of consumers. Therefore, supplying higher-quality green products can create new demand.

Finding an intersection in enhancing people's well-being. Regarding people's well-being, demands are not adequately satisfied in many areas, such as healthcare, culture, sports, entertainment, and leisure. These can become key focus areas for supply-side reform. By integrating new products, business forms, and services, it is possible to effectively expand new consumption.

III. Coordinating the strategy of expanding domestic demand and deepening supply-side reform through a systematic approach

Implementing the strategy of expanding domestic demand and deepening supply-side structural reform is a systemic undertaking concerning overall interests. It is imperative to align both strategies with the overarching goal of achieving high-quality development, adopting a systematic approach for coordinated planning and advancements.

It is crucial to solidify the technological and talent foundation. Scientific and technological initiatives should adhere to the "Four Orientations" of addressing national strategic needs and continuously producing innovative talent and research outcomes.

It is vital to reinforce fiscal and financial guarantees. Fiscal policy should prioritize investment in key areas so as to better harness the guiding and catalytic role of fiscal funds, thereby effectively stimulating broader societal investment and consumption. Meanwhile, financial policy must consistently enhance support in key and weak sectors, including inclusive finance for small and micro enterprises, technological innovation, green development, and infrastructure, to better meet the needs of China's real economy.