Executive Briefings

China's Version of 'Supply-Side Reform' Not at All What Reagan Had in Mind

To understand policymaking in China, pay attention to the buzz phrases. The country's favorite economic slogan, "supply-side structural reform," just got its most international exposure so far, at the Group of 20 summit in Hangzhou.

China's Version of 'Supply-Side Reform' Not at All What Reagan Had in Mind

Faced with rising protectionism and a sluggish global economy, China's reform "has entered the deep-water zone where tough challenges must be met," Chinese President Xi Jinping said in a Sept. 4 opening address attended by President Obama, Russian President Vladimir Putin, and Indian Prime Minister Narendra Modi. Calling for "real action" and "no empty talk," Xi said China would continue "vigorously advancing supply-side structural reform."

No one expects the macroeconomic textbook definition of supply side in Xi’s China—the theory that inspired Ronald Reagan’s economic policies in the 1980s. Reagan’s version had as its goal freeing up the economy by cutting taxes and regulations in the hope that companies would invest and produce more, driving growth. Xi’s “supply-side structural reform” is a grab bag of policies, focused on cutting excess capacity, shuttering a limited number of “zombie” companies, and subsidizing favored and often inefficient industries, says Barry Naughton, an expert on the Chinese economy at the University of California at San Diego. The point isn’t to encourage supply but, for the most part, to curtail it.

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Faced with rising protectionism and a sluggish global economy, China's reform "has entered the deep-water zone where tough challenges must be met," Chinese President Xi Jinping said in a Sept. 4 opening address attended by President Obama, Russian President Vladimir Putin, and Indian Prime Minister Narendra Modi. Calling for "real action" and "no empty talk," Xi said China would continue "vigorously advancing supply-side structural reform."

No one expects the macroeconomic textbook definition of supply side in Xi’s China—the theory that inspired Ronald Reagan’s economic policies in the 1980s. Reagan’s version had as its goal freeing up the economy by cutting taxes and regulations in the hope that companies would invest and produce more, driving growth. Xi’s “supply-side structural reform” is a grab bag of policies, focused on cutting excess capacity, shuttering a limited number of “zombie” companies, and subsidizing favored and often inefficient industries, says Barry Naughton, an expert on the Chinese economy at the University of California at San Diego. The point isn’t to encourage supply but, for the most part, to curtail it.

Read Full Article

China's Version of 'Supply-Side Reform' Not at All What Reagan Had in Mind