(ATF) With China’s 13th Five-Year Plan coming to an end and the 14th Plan about to begin, the Central Economic Work Conference will direct the pulse of the country’s development and clarify eight key tasks for the economy in 2021. One of these is to expand domestic demand on a “strategic basis”.
The phrase “expansion of domestic demand” has come up repeatedly in high-level meetings this year.
The Standing Committee of the Politburo of the CPC Central Committee held on March 4 noted that “the resumption of work and production must be combined with the expansion of domestic demand. Release the suppressed and frozen consumers.”
And on September 8, General Secretary Xi Jinping emphasized at the National Commendation Conference for Fighting the Epidemic: “We must firmly grasp the strategic basis of expanding domestic demand to protect and stimulate the vitality of market players.”
The Fifth Plenary Session of the 19th Central Committee echoed this later, saying “Adhere to the strategic basis of expanding domestic demand, accelerate the cultivation of a complete domestic demand system, and organically combine the implementation of the expansion of domestic demand strategy with the deepening of supply-side structural reforms, and drive innovation, high-quality supply to lead and create new demand.”
So, why are they doing this?
Global trade facing ‘headwinds’
On April 10, 2020, Xi Jinping made an in-depth analysis at the seventh meeting of the Central Finance and Economics Committee, in which he said the coronavirus pandemic may exacerbate trade tensions, although his words described the crisis as ‘globalisation facing headwinds’.
“Reform and opening up, especially after joining the WTO, China’s entry into the international cycle has formed markets and resources (such as mineral resources). The development model of ‘outside’ and forming the ‘world factory’ has played an important role in seizing the opportunities of economic globalization, rapidly increasing economic strength, and improving people’s lives. [But] in recent years, economic globalization has encountered headwinds, and this epidemic may intensify the headwinds,” the Chinese leader said.
“With the trend of globalization, the tendency of inward consideration of various countries has increased significantly, and the external environment facing China’s development may undergo major changes.”
China’s leaders could see a storm brewing. The trade war with the US intensified and ill-feeling was growing among other Western nations, but it was driven by far more than the pandemic as it spread around the world; land grabs in the South China Sea, differences over Hong Kong, Taiwan, the ‘mistreatment’ of people in Xinjiang and Tibet, etc. In July, FBI director Christopher Wray said his agency was opening a new case against China – for economic espionage, data theft, information technology breaches and many other issues – every 10 hours. “The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counter-intelligence and economic espionage threat from China,” he declared.
Beijing had seen the tide turning and realised the economic ramifications could be severe; that they needed to focus on development at home – to actively expand domestic demand, and rely more on the domestic market to achieve their economic goals while these “external uncertainties” were raging.
Major changes were already underway
In fact, CCTV reported that China’s economy has been transforming to a major domestic focus since the global financial crisis in 2008. The ratio of its current account surplus to GDP had dropped from 9.9% in 2007 to less than 1%. The contribution rate of demand to economic growth exceeded 100% in seven years.
The advantage of a huge domestic economy is that it can be refocused internally. China has a population of 1.4 billion and its per capita GDP has exceeded US$10,000 in recent times. It is now the world’s largest consumer market and one that still has considerable scope to growth, if modern technology and methods of production can optimise and upgrade of citizens’ level of consumption.
So, how should domestic demand be expanded to create a higher dynamic, in which demand drives supply, and supply creates demand?
Officials at the Central Finance and Economics Committee meeting in April gave the “answer” – effective institutional arrangements must be made to rationally guide consumption, savings, and investment.
Expert analysis shows that the central government focuses on systemic issues to manage and strengthen demand. Instead of simply stimulating consumption and leading consumption, it starts with deep-seated contradictions such as income distribution and social security, and uses reforms to clear up difficult blockages.
China has shifted to a stage of high-quality development, and is in a critical period of transforming its mode of development, trying to optimise its economic structure, and transform growth momentum. To build a new development pattern, officials need to implement their strategy of expanding domestic demand with a deepening of supply-side structural reforms to innovate and drive, high-quality supply leads and create new demand.
For Xi, the nation’s new ‘Helmsman’, they should focus on the basics: “The most fundamental thing to expand consumption is to promote employment, improve social security, optimize the income distribution structure, expand middle-income groups, and solidly promote common prosperity.
“Expanding consumption must be combined with improving people’s quality of life.
“To increase public consumption reasonably, improve the efficiency of public service expenditure for education, medical care, elderly care, and childcare.
If they can attend to these fundamentals, people should not only feel the strength the government’s control measures, but also the “temperature”, he said.