Supply-Side Reform Tackles Imbalance

Chinas current marketplace shows the dichotomy between the oversupply of unused and unwanted products and the high demand for goods in limited supply. Steel， iron and coal—staples of the Chinese economy—are experiencing a glut. Meanwhile， consumers are rushing to overseas markets to buy milk powder， electric cookers and even electric toilet seat covers， products that are either difficult to find in China or whose local production quality is questionable.

The Chinese Government is aware of this imbalance. Reforming the supply side of Chinas economy has become one of the Central Governments main priorities to tackle.

Before solutions to the imbalance can be implemented， we must first discover the cause. Over the past three decades， in Chinas push to catch up with the worlds developed economies， it encouraged the rapid development of its iron and steel， coal and cement industries. While China succeeded in experiencing rapid economic growth， it resulted in the expansion of industries that consume huge amounts of energy and severely pollute the environment. Overcapacity quickly became a serious issue once construction met local demand.

Another contributor to the imbalance is the fact that these industries are mostly dominated by state-owned enterprises （SOEs）. While SOEs previously played a dominant role in these impor- tant sectors， they are now dragging down the economy due to their high debt levels and overcapacity. Finally， China doesnt have the innovative capabilities its economy requires. The core technologies of many products are still controlled by foreign companies from developed economies. The gap in quality between domestic and foreign goods drives many Chinese to overseas markets to find the goods they need.

To combat this problem， the Chinese Government has made supply-side reform a priority this year， which includes cutting overcapacity and filling technological gaps. Reforming SOEs is a key step in this process and several iron， steel and coal enterprises have accelerated the pace of the reform， including the Wuhan Iron and Steel Corp.， Ansteel and the Xishan Coal Electricity Group. In the meantime， innovation and entrepreneurship are gaining momentum across the country with many technologically innovative enterprises already in operation.

Despite strong headwinds from entrenched interests， the Chinese Government fully believes its efforts to carry out supplyside reform will be met with success.

As China enters the 13th Five-Year Plan period （2016-20） this year， successfully reforming supply in the economy will play an important role in ensuring the sound and sustainable development of the Chinese economy.