1/7
Li Keqiang: “All these measures amount to a large injection of government funding to support enterprises’ innovation endeavours.” As always Beijing is proposing a new round of supply-side measures to support the manufacturing sector.
scmp.com/economy/china-… via @scmpnews
Li Keqiang: “All these measures amount to a large injection of government funding to support enterprises’ innovation endeavours.” As always Beijing is proposing a new round of supply-side measures to support the manufacturing sector.
scmp.com/economy/china-… via @scmpnews
2/7
While at first subsides for manufacturing, research and logistics, along with tax cuts and easier access to credit, might seem the most obvious and effective ways to boost productive investment by the business sector, in fact they depend on the underlying constraints.
While at first subsides for manufacturing, research and logistics, along with tax cuts and easier access to credit, might seem the most obvious and effective ways to boost productive investment by the business sector, in fact they depend on the underlying constraints.
3/7
A supply-side approach implicitly assumes that businesses are eager to expand production but are constrained by scarce savings, a high cost of capital, supply and logistical bottlenecks, and perhaps high start-up costs.
A supply-side approach implicitly assumes that businesses are eager to expand production but are constrained by scarce savings, a high cost of capital, supply and logistical bottlenecks, and perhaps high start-up costs.
4/7
A demand-side approach, on the other hand, assumes that the main constraints for businesses are excess capacity and weak expected demand, and so would focus on ways of directly or indirectly boosting demand, including through higher wages and household transfers.
A demand-side approach, on the other hand, assumes that the main constraints for businesses are excess capacity and weak expected demand, and so would focus on ways of directly or indirectly boosting demand, including through higher wages and household transfers.
5/7
In the next few years we will see which of these assumptions better describe current conditions. If Chinese businesses are mostly facing supply-side constraints, the policies proposed by Premier Li should result...
In the next few years we will see which of these assumptions better describe current conditions. If Chinese businesses are mostly facing supply-side constraints, the policies proposed by Premier Li should result...
6/7
in a surge in business investment, accelerating productivity growth, and an expansion in the private-sector share of the economy. Growth in domestic consumer and business demand, in that case, would keep pace with growth in production.
in a surge in business investment, accelerating productivity growth, and an expansion in the private-sector share of the economy. Growth in domestic consumer and business demand, in that case, would keep pace with growth in production.
7/7
If the constraint are mostly demand-side, however, they should result in a continued expansion of the state share of the domestic economy, a rising debt-to-GDP ratio, and the need for high trade surpluses and rising infrastructure investment to balance growth in domestic GDP.
If the constraint are mostly demand-side, however, they should result in a continued expansion of the state share of the domestic economy, a rising debt-to-GDP ratio, and the need for high trade surpluses and rising infrastructure investment to balance growth in domestic GDP.
The article adds: "Self-reliance has been a top government priority this year but the reports released on Saturday made no mention of 'dual circulation', a national strategy putting greater economic focus on the domestic market."
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