Eoin Treacy's view -
To be sure, the current focus on supply-side reform isn’t unique. In 2013, the State Council published a list of industries it said were suffering from chronic overcapacity.
"China is slowing down rapidly, so giving up demand management is not an option," said Yao Yang, dean of the National School of Development at Peking University. "Supply- side reform is a long-term process and in the short term it can hardly show an effect. China needs more demand now, we need to utilize the capacity rather than simply cut it."
So while the pendulum has swung to the supply side for now, Xi must also keep growth ticking over to maintain political backing for policy changes ahead.
"Structural reforms will be undertaken, as long as growth does not collapse below the targeted levels," said Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former International Monetary Fund economist. "All of the reforms are meant to enhance the quality of growth, rather than ‘quantity.’"
China’s overcapacity in steel, coal, cement etc. represent major challenges but this is not new. These issues have been discussed at length by economists for almost a decade. What is new is the administration is finally talking about doing something about it.
An adjustment of that scale cannot be undertaken without other areas of the economy providing support. Changes to the one child policy, the houkou registration system of residency and expanding social services are all aimed at enhancing the consumer and services sectors in order to mitigate the impact of rationalisation in the industrial sector.
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