Column of the editorial leader of the telecommunications/new waves (Bkopleader, Microcredit)

Macro regulation should be better balanced between short-term demand management and structural reforms, with a greater focus on short-term demand management along the lines of reform, stabilize economic growth, stabilize market confidence and lay the foundations for economic development in order to create conditions for further deepening supply-side structural reforms.

Since 2015, we have moved forward with structural reforms in the supply side, as a medium- and long-term policy initiative, with tangible results: Overloading, the orderly decline in real estate stocks, the stability of macroleveraging, the steady reduction in integrated costs, breakthroughs in critical areas and key links, and effective control and resolution of major risk points.

In the near future, external pressures within the Chinese economy have increased. Externally, the negative impact of trade friction in Central America has gradually become apparent, and the fragmentation of the medium- and the United States economic cycle has exacerbated the uncertainty of the external environment; internally, economic downward pressures have increased and some risk points are emerging. How to stabilize expectations, stabilize overall domestic demand, respond to external uncertainties with domestic certainty, and need to capture the main contradictions in the Chinese economy and balance the relationship between short-term demand management and structural reforms. There is a need to manage demand along the lines of reform, and effective demand management is also an appropriate environment for furthering the structural reforms of the supply side.

Recently, I have seen a number of discussions on the Chinese economy, with a clear problem of mixing short-term demand management with structural reforms. From some basic concepts, I would like to analyse the current macroeconomic trends in China and the next macroeconomic policy orientation.

The first issue: What is demand management? To answer this question, we need to return to the basic framework of macroeconomics and see how the nose of macroeconomic science is said.

On 31 December 1933, Cairns issued a public letter to President Roosevelt in the New York Times. In his article, Cairns stated that President Roosevelt “is entrusted with the dual mission of recovery and reform — recovery from the recession and completion of those and social reforms that should have been completed earlier”. However, Kenes put forward a very important view that recovery (Recovery) and reform (Reform) cannot be confused: on the one hand, speed and shadowing effects are essential for recovery; on the other hand, even wise and necessary reforms may, in some respects, hinder recovery and complicate recovery, as reforms can disrupt the confidence of the business world and erode its existing motivation for action. Cairns therefore believed that there should be a sequencing between recovery and reform measures and that reform measures should not be confused as recovery measures. Recovery measures should prevail over reform measures when effective demand is insufficient. In his message, Cairns made it clear that “the policy that should be given priority is a large-scale borrowing-based government expenditure”, and he further suggested that “I would prefer to give priority to projects that can be fully operational on a large scale, such as railway repairs. The aim is to start recovery”.

Following the current international financial crisis, the United States largely followed the recommendations of Kenes, emerging from the crisis through three misguided “relief”, recovery (Recover), reform (Reform), active fiscal policy and loose monetary policy “two-pronged” and strong demand management underpinned economic recovery, creating conditions for subsequent reform and rebalancing.

As a result, demand management is designed to smooth short-term economic fluctuations. Recovery should take precedence over reform when the economic cycle ran. Only after the proper functioning of the economy can reforms be effectively promoted, not adapted and impatient. This is better than a patient requiring surgery, and it should be ensured first that the patient’s physical condition is improved and that there is sufficient physical capacity to perform the operation. Structural reforms are economic surgery, and demand management is the maintenance of economic stability and supplementality, a prerequisite for structural reform and surgery.

Secondly, why are we accustomed to confusing demand management with structural reforms? I understand that this is due mainly to the fact that, as a transit country, the relevant institutional mechanisms are not well established, macro-regulation is broad, and in fact are simultaneously tasked with short-term needs management and structural reforms, some of which are even advanced by administrative means. The trade-off between short-term demand management and structural reforms is reflected in the trade-off between macroregulation and short- and medium-term objectives.

Broadization of macroregulation. There is a clear expression of macroregulation in the nineteenth major report: “Innovating and improving macro-regulation, acting as a strategic orientation for national development planning, and sounding mechanisms for economic policy coordination, such as finance, currency, industry, and regional”. In word terms, the four major macro-management policies led by the plan are very clear. However, the bamboo of the Chinese language is well reflected here, as there is a word “equivalent”. Thus, economic policies, developed and implemented by sector-led agencies, have been more or less integrated into this “equivalent” term. Even some laws, regulations and systems that should have remained stable were used as instruments of macroregulation. Price policies, land policies, environmental policies, regulatory policies, etc. have been assigned to macro-regulation functions. For example, the policy of real estate regulation, which is of great concern, is based on administrative intervention, limited purchase, credit, price, limited sales, and restricted business, which is referred to in the market as a “fifth chores”, with little power than fiscal and monetary policy. In this sense, the extension of macroregulation has been extended indefinitely.

Macro-management assumes structural reform objectives, which must be balanced against short-term demand management objectives, and the key is accurate assurance of major contradictions. If there is an over-emphasis on short-term objectives, there will be “braining” and excessive stimulus. For example, the macro-policing policy of my country, which has been too lenient for some time, has led to “triggering”. If over-emphasis is placed on medium- to long-term reform objectives, structural reforms will be pursued with administrative regulatory means, and they will be “coupted, unchecked” and short-term hurdles of reform will exacerbate economic downward pressures, erode market confidence and influence further reform. Balance