Reference News Network, December 10 report: The article "The Current Situation of the Chinese Economy and the '14th Five-Year Plan' - The Government is Committed to Expanding Domestic Demand" by Professor Haruharu Kajitani of Kobe University was published in the Japan Economic Newspaper on December 9. The following is a translated version:

The Fourth Plenary Session of the 20th Central Committee of the Communist Party of China was held from October 20 to 23, during which the "Proposal of the CPC Central Committee on Formulating the 14th Five-Year Plan for National Economic and Social Development" was adopted.

In recent years, China has placed greater emphasis on expanding domestic demand, and the outside world is paying attention to whether this policy will continue in the "14th Five-Year Plan". The proposal for the "14th Five-Year Plan" puts forward "building a modern industrial system" and achieving "high-quality development". At the same time, the "14th Five-Year Plan" proposal also lists "expanding domestic demand" as one of the policy guidelines, emphasizing continued investment of funds and talents in key national strategic areas.

The Chinese government recognizes the problem of insufficient domestic demand and seeks to address the issue of overcapacity by conducting high-quality investments that can stimulate domestic demand, while improving the capacity of manufacturing supply.

Can this strategy of balancing both aspects be successfully implemented? The key lies in correcting so-called "involutionary" competition, i.e., the effectiveness of the "anti-involution" policy.

For example, in May this year, a leading Chinese electric vehicle company announced a price reduction of up to 34% for its main models, triggering competitors to follow suit, but the profits of these manufacturers continued to decline. Intense price competition left companies exhausted, which is a typical drawback of "involution."

To get out of this dilemma, either the government intervenes to limit the supply expansion or expands domestic or overseas demand.

Professor Michael Pettis of the Guanghua School of Management at Peking University pointed out that countries with strong manufacturing competitiveness but insufficient domestic demand tend to adopt a "policy mix" aimed at continuously expanding exports.

Pettis pointed out that China needs to correct the resource allocation structure that overemphasizes supply-side investment and comprehensively shift to an economic policy aimed at expanding final demand.

The Chinese government has not ignored these issues. A meeting of the Central Financial and Economic Affairs Commission in July clearly stated that enterprises should be governed according to law and regulations to curb low-price disorderly competition, guide enterprises to improve product quality, promote the orderly exit of outdated production capacity, and clearly sent a "anti-involution" policy signal.

This reminds people of the previous supply-side structural reforms promoted by the Chinese government, especially the measures to resolve excess capacity in industries such as steel and cement. The difference is that the past supply-side structural reforms mainly focused on reducing capacity scale and did not intervene in the price mechanism, while this policy directly intervened in price competition.

The Chinese government has also introduced a series of policy measures to expand domestic demand. For example, the Chinese government issued the "Action Plan for Boosting Consumption" in March, and the "Implementation Plan for the Childcare Allowance System" in July, providing an annual subsidy of 3,600 yuan per child for children under three years old.

The Chinese government aims to achieve two goals through promoting high-quality investment: improving the productivity of the supply side and solving the problem of insufficient demand. Its success depends on curbing price competition and stimulating consumer demand. (Translated by Ma Xiaoyun)

Original: toutiao.com/article/7582040801060848128/

Statement: This article represents the personal views of the author.