Measures set to further unlock demand, enhance economic growth momentum

The advantages of China's huge domestic market will become even more prominent in 2021, as efforts to tackle the bottlenecks constraining domestic demand complement the continuous focus on supply-side reforms, a key part of Xi Jinping Thought on Socialist Economy with Chinese Characteristics for a New Era, officials and experts said.

With the policy measures to unlock the huge potential of domestic demand, the country is likely to head for more than 8 percent economic growth this year and share the benefits of its economic resilience with more foreign businesses and investors, they said.

"To build a strong domestic market, the country will deepen supply-side structural reform to better meet people's growing need for high-quality products and services," said Wang Yuesheng, a professor of international economics at Peking University.

Supply-side reforms to promote industrial upgrading, improve productive efficiency and create new forms of business will all help unlock potential demand and boost economic momentum, Wang said.

Demand-side measures will complement the former in unleashing domestic market potential, Wang said, adding that he expects greater efforts to boost domestic consumption, instead of mainly stimulating investment and exports.

China will pursue supply-side structural reform as the main task while emphasizing demand-side management in 2021, to create a dynamic balance between supply and demand based on higher standards, according to December's Central Economic Work Conference.

Such emphasis on both upgrading supply and expanding demand has ignited heated discussion over Beijing's policy changes in the new year, as this notion differs from what was said at the conference a year ago, when it mainly stressed supply-side structural reform.

Experts said it remains a long-term task for China to press ahead with supply-side structural reform, as the supply system is yet to get fully upgraded to match the changes in the demand structure and realize independent technological innovation.

Meanwhile, the economic fallout of the COVID-19 pandemic has called for new demand-side measures to address sluggish domestic demand, a task that has assumed more significance as the nation embarks on the new development paradigm amid global uncertainties, they said.

"To further improve the quality of economic growth and build the new development paradigm, China will continue to stick to supply-side structural reform in the coming years," said Wang Changlin, president of the National Development and Reform Commission's Chinese Academy of Macroeconomic Research.

The country has decided to build a "dual-circulation" development paradigm in the 14th Five-Year Plan (2021-25) period, in which the domestic market is the country's economic mainstay and the domestic and foreign markets complement each other.

China's economy has suffered from prolonged structural contradictions and structural problems, Wang said. "We need to solve the coexistence of overcapacity and insufficient supply in the manufacturing sector, balance the supply and demand sides of the service industry, and open more industries in fields such as services, education, healthcare and care for the elderly to more market players."

Though more efforts are needed, Wang acknowledged that the country has made considerable progress in supply-side structural reform during the past couple of years, including deleveraging and reducing excess capacity.

Taking supply-side structural reform as the general goal has been a key part of Xi Jinping Thought on Socialist Economy with Chinese Characteristics for a New Era since the thought took shape in 2017 and served to guide the country's economic governance.

First advocated by President Xi Jinping in 2015, supply-side structural reform focuses on improving productive efficiency and promoting advanced industries and innovation, in the pursuit of high-quality development.

Xi, who is also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, has underscored the importance of supply-side structural reform in constructing the new development pattern, which calls for building a stronger domestic market.

The country must stick with the main task of supply-side structural reform with technological innovation as the key, to improve the quality of the supply system and leverage new supply to create new demand, Xi said at a symposium attended by Chinese scientists in Beijing in September.

All this will help strengthen domestic economic circulation and therefore contribute to building the new development paradigm, Xi said.

China will strengthen efforts to pursue breakthroughs in key basic technologies and products to address heavy reliance on external supply, Xiao Yaqing, minister of industry and information technology, said in an interview with People's Daily published on Tuesday.

To modernize the industrial chain, the ministry will also make more efforts to promote the upgrading of traditional industries, nurture clusters of advanced manufacturing and support the development of enterprises, Xiao said.

Unleashing demand

Meanwhile, officials have pledged a number of demand-side policies to boost domestic consumption and investment, such as creating more jobs, improving the social security system and expanding middle-income groups.

Chen Fengying, a research fellow at the China Institutes of Contemporary International Relations, said the recovery in demand has so far lagged behind that of supply in China since the COVID-19 outbreak, underlining the need to ramp up policy efforts to boost domestic demand, especially consumption.

"For the economy to achieve a self-sustaining, strong recovery, policymakers must ramp up demand-side measures to boost consumption," Chen said, pointing out that retail sales from January to November dropped 4.8 percent year-on-year.

"For the sake of ensuring the security of development amid external uncertainties, efforts to boost domestic demand should also be stepped up," said Luo Zhiheng, chief macroeconomic analyst at the research institute of Yuekai Securities.

His words echoed Xi's remarks in an article published on Nov 1 in Qiushi Journal, which said the pandemic may intensify waves of de-globalization, and expanding domestic demand will help the Chinese economy achieve sustainable development against this backdrop.

With a population of 1.4 billion and per capita GDP exceeding $10,000, China has the world's largest and most promising consumer market. The upgrading of household consumption, combined with modern technology and modes of production, will create huge room for growth, Xi said in the article.

Luo said that the consistent reform measures would overcome the bottlenecks constraining domestic demand, while short-term stimulus would have few long-term benefits but sizable side effects, Luo said.

Improvements in the tax and transfer payment regime are expected to boost the income of low-income residents, he added.

Opportunities abound

With domestic demand getting stronger, the Chinese economy may offer an upside growth surprise in 2021 and expand by 9 percent annually, from an estimated 2.1 percent in 2020, Nomura economists said in a research note.

"The Chinese market will likely surpass the United States to become the world's largest retail market in 2021," said Honson To, chairman of KPMG China and Asia Pacific, adding that many of the firm's multinational clients are eager to tap into that huge market potential.

"China is a very important market for us," said Keith Budge, executive vice-president for the Asia-Pacific, Japan, Europe, the Middle East and African regions for Teradata, a cloud analytics firm based in the US.

China ranks among Teradata's top 10 largest markets, Budge said, and the company has seen a lot of opportunities to grow its China business, such as in the rising trend of digital transformation.

However, multiple risks remain and could hurt China's economic prospects in 2021, experts said. The normalization of macro policy could expose long-term economic problems, while Chinese exporters may face fiercer competition with other emerging economies amid a synchronized production recovery, Nomura economists said.