Author: Fan Gang, President of CDI

Editor’s Note: The structural reform on the supply side and the macro control on the demand side run parallel to each other in face of economic fluctuations.

China still faces institutional defects, which necessitates institutional reform on the supply side. Supply-side structural reform is a long-term measure. In many cases where long-term structural reforms remain stagnant, short-term measures, which target the demand side, including fiscal expenditure, money supply, interest rates, tax rates, etc., need to be taken to maintain sustained development.

The structural reform on the supply side and the macro adjustment on the demand side run parallel to each other. On the one hand, reform must be pushed forward all the time, but in case of economic fluctuations, macro control measures shall be reasonably taken. In the absence of sustained growth, many reforms will find it difficult to move forward.

The adjustment on the demand side must have limits. The central government is responsible for macro control, including preventing inflation and high debt rate, while the local government does not have this responsibility. Thus the central government should be particularly careful about the control and contain local debt so that it can play its due role.