In our sixth and last webinar of the 2024 edition of the “Staying in Dialogue with China” webinar series, we look forward to talking to Prof. XU Qiyuan, Deputy Director at the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences (CASS), about China’s “Domestic Demand System” as the fourth structural transition as per CMG’s conceptual framework of China’s political economy.

The topic of “domestic demand system” refers to China’s attempt to pivot to more consumption-oriented economic growth, while reducing its reliance on fixed asset investments and the trade surplus – a legacy from Beijing’s export-oriented growth model. China should rely more on domestic demand to drive economic growth, thus, in a state of an overall elevated level of marketization, household consumption should shape supply of services and production more strongly.

The concept of “domestic demand system” was first prominently mentioned in President Xi’s arguably most important geoeconomic speech delivered in April 2020 at the 7th meeting of the CCP Commission on Economy and Finance, and was subsequently enshrined into the 14th Five-Year-Plan (2021-2025) as part of the “Dual Circulation” strategy. The concept can further be seen as a critical supplement to the “Supply-side Structural Reform (SSSR)”, a broad reform initiative started in 2015 aiming to phase out excessive and outdated capacity and trimming the state sector for higher productivity, address issues of corporate debt and construct new-type infrastructure – all to deal with slower trade growth, stagnating total factor productivity (TFP) growth, and the financial consequences of the GFC in 2007/2008 with a rapidly rising leverage ratio.

Against the backdrop of the Covid pandemic, it remained unclear how much policy emphasis would be placed on the building of “domestic demand system”. In China’s short-term policy goals over the past five years, the “demand side” received primary policy focus only once, during the Central Economic Work Conference (CEWC) in 2022, whereas the three preceding years as well as the 2023 CEWC all consistently prioritized the “supply side”, or the goal of achieving the so-called “modernized industrial system” over the “demand side”.

Notably, the new reform plan released during the latest Third Plenum also placed “domestic demand system” at a strategically lower position than the supply side. Nonetheless, it should not be ignored that the State Council published a comprehensive blueprint for “Domestic Demand Expansion Strategy” in December 2022, unifying diverse policy areas ranging from trade, to digital and urbanization into one overarching framework.

The bottom-line is that among the six structural transitions, CMG’s assessment concludes that the “domestic demand system” has seen comparatively least progress compared to the 18th Central Committee’s Third Plenum in 2013, as evidenced by the still very low household consumption as share of GDP of about 40% only.

So, key questions we want to discuss with Prof. XU in this coming webinar include:

• What exactly is a “domestic demand system” in the thinking of Chinese policymakers?
• How are “supply” vs. “demand” side each seen strategically by the Chinese leadership?
• Are there structural levers or quick-wins to unleash more domestic demand to urgently and effectively revitalize the economy?
• What is the role of China’s social security system to help unleash the domestic demand?
• What is the link between domestic demand boost and “common prosperity”?

This webinar will be moderated by Markus Herrmann Chen, Co-Founder and Managing Director of CMG. Take the opportunity to listen in and ask your questions to Prof. XU.

This webinar will not be recorded, but a transcript will be published following the webinar.

Dr. XU Qiyuan is Deputy Director at the Institute of World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences (CASS). In the past, Dr. Xu also took up the role of advisor to the international collaboration department in China’s Ministry of Finance. Xu also sits on a working group of Global Macroeconomy in IWEP. This working group issues a quarterly report on the world economy, and he has been responsible for the research on China’s economy and macro policies since 2012. Since 2019, he has headed the research group of China Finance 40 Forum that is China’s currently most influential think tank platform in finance. Xu has published 60 academic papers, hundreds of columns mostly published in leading medias in Chinese but also in Financial Times, Financial World in English.