Effective Supply,Consumption Upgrade,and Expanding Domestic Demand

Addressing the prolonged stagnation in household consumption growth in China is crucial for the successful implementation of the strategy to expand domestic demand.By constructing the upgrading index of consumption structure from 2002 to 2018,it is found that the overall upgrading trend of household consumption structure in China is accelerated after 2014.Theoretical analysis and empirical results indicate that,as household consumption structures rapidly upgrade with rising incomes in China,the primary factor limiting reasonable growth in household consumption is the insufficient effective supply resulting from a mismatch between the supply structure and the demand structure.As the adjustment of the supply structure depends on the continuous optimization of investment flow,expanding effective investment is the key driving force to improve effective supply,and it is also the existing component of expanding domestic demand.Further research shows that weakening investment convergence can significantly alleviate the insufficient effective supply caused by consumption upgrading.Enhancing the scientific anticipation of policy regulations and increasing the effectiveness of investments will be beneficial for realizing the strategy of expanding domestic demand.

Three Relationships Must Be Balanced to Expand Domestic Demand

The slower expansion of domestic demand has put pressure on economic growth as the Chinese economy enters a new normal stage. Since the industrial structure can only be effectively upgraded through appropriately expanding aggregate demand, three relationships must be balanced:

Consumption Tax Reform in Accelerating the Establishment of a New Development Paradigm

Accelerating the establishment of a new development paradigm in which domestic and overseas markets reinforce each other,with the domestic market as the mainstay,has posed new requirements for deepening the consumption tax reform.Therefore,we need to focus on accelerating the establishment of a new development paradigm,combined with the establishment of a modern fiscal and tax system and tax attributes,and make effective institutional arrangements for comprehensively promoting consumption,expanding domestic demand and then forming a strong domestic market.It is meaningful to reduce tax on consumer goods involved in upgrading consumption to meet people’s needs for a better life and to raise tax on high energy-consuming,highly polluting and unhealthy consumer goods to enhance the regulatory role of consumption tax and to promote the overall optimization and upgrading of the industrial structure.The revenue of consumption tax on key tax items(categories)should belong to the central government to facilitate the smooth flow of the economic circulation.

Defusing Triple Pressure to Promote High-Quality Economic Development Rapidly

Since the 18th National Congress of the Communist Party of China(CPC),the quality of China's economic development has been continuously improved.However,the year 2022 witnessed a subdued economic growth rate.The triple pressures continue to evolve,with contraction in demand as the primary contradiction facing China's macro economy in the short term.In contrast to major economies in the world,China grapples with a low economic growth-inflation index combination,a pace of economic expansion trailing behind its potential,and a mounting unemployment rate.The impact of supply on price increases weakens,while the global industrial and supply chains are amidst continuous adjustments.Both the consumer confidence index(Ccl)and the purchasing managers'index(PMl)remain low.The expectation for the depreciation of the RMB against US dollar is weakening.In 2023,China will continue to improve the financing environment and carry out a proactive fiscal policy.Simultaneously,there is a moderation trend in the trajectory of the interest rate of the Federal Reserve System hikes.Taken together,these factors(triple pressures)are expected to mitigate the contraction in demand,thereby steering the economy toward robust growth.However,it is crucial to recognize that low economic growth in the long term may compromise the quality of economic development.The year 2023 is the first year of accelerating Chinese modernization after the 2Oth National Congress of the CPC.China should integrate the strategy to expand internal demand with its efforts to deepen supply-side structural reform.This can foster the coordinated growth of both economic quality and speed,making a good start for Chinese modernization.