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Chen Suming: Supply-side reform key to restructuring economy


By Chen Suming   Source:    Published: 2016-4-5

In 2016, the shrinking of supplies, demand stabilization and market expectations all point to a remarkable rebound of main industrial product prices. The deformed steel bar and oil prices have bounced 36 percent and 54 percent from their lowest levels respectively. After 2014, the market`s strong anticipation of a continuous decline in industrial product prices has constantly lowered the enterprises` intention of building up their stocks. This round of price rebounds has broken the "price fall-destock" spiral and the enterprises` expectations have shifted from an air of pessimism to cautious optimism.

Last but not least, the stabilization of the demand side provides basic support to enterprises` efforts in replenishing their stocks. The government`s supportive policies in the second half of 2015 stimulated downstream demands in the first two months of 2016. The investment in the real estate industry increased by 3 percent year-on-year, two percentage points higher from what it was in 2015. The new projects` increasing speed rebounded from -14 percent in December to 14 percent in February. In the first two months of this year, the banks lent 3.2 trillion yuan in new loans, up 30 percent year-on-year. This changes the market`s expectation regarding economic growth in the future.

Building up stocks is a short-term economic action for the enterprises. Their anticipation of the economy`s prospects is the key factor influencing their replenishing of stocks. In other words, the enterprises` confidence in the prospect of economic restructuring has directly influenced their input in this round of stock replenishing.

In the long run, supply-side reform is a crucial action for industrial upgrading and the improvement of efficiency in China. There has been a social consensus on supply-side reform. Although the reform is plagued by difficulties and uncertainties, I am comparatively optimistic about its future because the central government has shown its resolve, made a series of supportive policies and will take all necessary measures to ensure its implementation. We expect that the supply-side structural reform can promote the optimization of China`s economic structure and industrial upgrading while reducing economic and financial risks as well as improving the overall competence and operational efficiency of the Chinese economy.

Chen Suming is an analyst with the Chongyang Institute for Financial Studies at Renmin University in Beijing.

Key Words: Supply-side   reform   China  

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