The Path of Supply—side Structural Reform

【Abstract】Since Chinas economic development has entered a new normal， the economic growth rate has begun to fall sharply. On the surface， the decline in the growth rate reflects the insufficiency of effective demand， but on the contrary， it reflects the insufficiency of the internal growth power. The supply system can not adapt to the development and change of demand structure， which leads to the mismatch of supply and demand structure and the imbalance of economic structure. Structural problems have become the current economic development in China. The main contradiction exists， and the main aspect of the contradiction is on the supply side.

【Key words】new normal； supply and demand structure； supply side

【作者簡介】白鵬飛，齊魯工業大學。

1. Stimulating new supply and creating new demand

Says law， put forward by Jean-Baptiste Say， a French economist， holds that supply can create demand on its own， and that supply and demand remain constant， and there will be no overproduction. Neo-supply economics indicates that only under certain conditions can supply create demand on its own.In the stage of new supply formation and expansion， supply can create demand by itself， but when supply is mature and aging， supply can not create demand.

Even in the stage of new supply formation and expansion， because of cost constraints and institutional constraints， supply can not create demand on its own， and even some new supply can not form productivity because of too many constraints. Therefore， the task of our country at this stage is to create conditions， remove many restrictions on supply， and through structural adjustment on the supply side， make more demand created continuously， so as to promote the economic growth of our country.

The new demand and supply in the future will be embodied in the field of “soft wealth” represented by knowledge， information， finance， culture and other social services. These soft wealth do not consume or rarely consume the earths resources， and the source of wealth creation mainly depends on human thinking and activities. In the economic structure of the United States， these kinds of soft wealth account for 79% of the total economy of the United States， while in China， the number is only 49%. In the future， Chinas economy will have a very broad space for development in these areas.

For those manufacturing industries with “hard wealth” as the main body， the transformation and upgrading of manufacturing industry should be carried out to give more soft value to traditional manufacturing industry. Although Detroits car products， which have a “car city” in the United States， are sold to the states of the United States and even exported overseas， they end up with bankruptcy， and the economy of Detroit has never recovered. However， industries closely related to Detroit， such as car cleaning， car insurance， car advertising and so on， are profitable.

2. Optimizing the Industrial Structure from the New Supply Economic Cycle

In supply-oriented economics， the development of technology and industry， the interaction between supply and demand， and the change of supply and demand structure are the main reasons for the cyclical fluctuation of economy. From the perspective of supply side and supply structure change， the complete economic cycle includes four stages： new supply formation， supply expansion， supply maturity and supply aging.

It is not difficult to find that when most industries in a country are in the stage of new supply formation and supply expansion， the countrys economy will maintain a higher growth rate. When most industries are in the stage of mature supply and aging supply， the countrys economy will fall into a downturn， the speed of economic growth will slow down， even in a long-term stagnation.

In fact， even very hot technology and industry will eventually enter the stage of supply maturity and aging. Whether through the guidance of national policies or through economic strategic planning to increase and reduce supply， supply aging or technology cycle problems can not be avoided in the end. When problems arise in the countrys economic structure and factors of production are excessively concentrated in industries with mature supply and aging supply， stimulating demand through monetary policy alone or implementing economic strategic planning can not effectively solve the structural problems of the economy.

The implementation of the strategy of “loosening supply” is an effective way to solve the structural problems of the economy. After the release of supply， the production cost of enterprises has been effectively reduced， thus breaking the disadvantageous situation in which the production and sales of products are in a predicament， making the market solve the problem of excess capacity under the transmission mechanism of cost and price， and establishing a balance between supply and demand in a short period of time. Factor of production is transferred to the new supply structure.