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1. what should macroeconomic stimulus policies stimulate?

in the past two years, despite twists and turns in china's post-epidemic economic recovery, the overall recovery trend has been positive. the annual growth rate last year reached 5.2%, and it also reached 5% in the first half of this year, which is among the top among major economies in the world. on the other hand, the macro-economy is facing increasing pressure from the decline in total demand, and the gdp deflator has been in negative growth for seven consecutive quarters. data from august showed that important indicators such as consumption, employment, and finance have shown signs of a significant slowdown or even contraction.

it is a basic fact that the aggregate demand of the macroeconomy is insufficient, and this is almost undisputed. it is also common sense to adopt stimulus policies when the aggregate demand is obviously insufficient. however, it is necessary to distinguish the problems caused by the insufficient aggregate demand from the causes of the insufficient aggregate demand, especially to clarify what factors lead to the insufficient aggregate demand. otherwise, even if stimulus policies are adopted, it may be difficult to be effective, or even aggravate the problem instead of solving it. more importantly, it will miss the favorable opportunity.

there are generally several views on this issue.

one view is to increase investment. it is believed that china's high economic growth in the past was mainly due to high investment. there are still many areas that can be invested in and there is still a lot of room. the macro growth rate can still be maintained or even increased by increasing investment. but the real problem is that compared with the current per capita income level, the proportion of existing investment is already too high, and the effective investment space that can generate economic and social benefits is already quite limited.

another more mainstream view is to expand consumption. it is believed that insufficient total demand is due to excessive investment and insufficient consumption. in terms of specific practices, a popular proposition is to imitate developed countries and "drop money from helicopters." there is nothing wrong with using consumer coupons and other methods to promote sales, but if money is distributed universally, billionaires may also get it. even if the money is distributed to low-income people, the food and clothing problems of this group of people have basically been solved. buying a few more loaves of bread with the money cannot solve the real problems they face. for the low-income class in cities, which is mainly composed of migrant workers, they face problems such as housing, schooling, medical care, social security, and pension. in the face of these problems, the little income obtained by throwing money is undoubtedly a drop in the bucket.

the question of whether to expand domestic demand through investment or consumption is misleading in itself. there is no economy with investment but no consumption or with consumption but no investment. the real question is, under the current per capita income level in my country, what is the focus of insufficient domestic demand, what are the reasons, and how to substantially expand domestic demand, so that we can understand and solve the problem of expanding domestic demand at a deeper level.

2. two important concepts of china's economic growth from supply constraints to demand constraints

since the reform and opening up, china's economy has experienced a high growth rate of about 10% for more than 30 years. successful catch-up economies in east asia, such as japan, south korea, and taiwan, have all experienced similar growth. this kind of growth quickly absorbed the technological achievements of the industrialization stage of mankind, condensing the growth of the forerunners for decades to hundreds of years into 20 to 30 years, also known as squeezed growth. but this kind of growth has an end.

starting from the first quarter of 2010, china's economy began to slow down after reaching a peak, gradually shifting from high speed to medium speed. this change can be described as a transition in the growth stage. a comparable object is the japanese economy. japan has a population of over 100 million and is a large economy, which is highly comparable to china. japan experienced high-speed growth of about 9% in the 1950s and 1960s. in the early 1970s, it entered medium-speed growth, with a growth rate of about 4%; in the early 1990s, it slowed down again to low-speed growth, about 2%, and even zero growth and negative growth occurred. if compared with japan, china is currently in the late stage of medium-speed growth, and should have 5-10 years of medium-speed growth, with a growth rate of between 4-5%.

in this process, two concepts are very important.

one is the historical demand peak, which is the point or range where demand grows fastest or the demand volume is the largest during the decades or hundreds of years of industrialization and urbanization. at this point or range, economic growth begins to slow down.

the other is the demand structure. behind the demand structure is the income structure, which is simply the distribution structure of the middle- and high-income groups and the low-income groups. there are two main situations: one is a structure with a low proportion of middle- and high-income earners and a high proportion of low-income earners; the other is a structure with a high proportion of middle-income groups and a low proportion of low-income groups, which is usually called the "olive-shaped" structure.

the historical demand peak determines the turning point from high speed to medium speed, while the demand structure determines the duration of medium-speed growth after the turning point.

before the turning point, the main constraint on economic growth is insufficient supply, and inflation is prone to occur in the market supply and demand relationship. this period is mainly the stage of supply capacity formation. after the turning point, the main constraint becomes insufficient demand. in fact, the relative decline in demand is the reason for the slowdown in growth. inflationary pressure turns into deflationary pressure, or price increase pressure turns into price depression pressure.

from international experience, economies that maintain medium-speed growth for a long time generally have a relatively low gini coefficient, below 0.4, with relatively small income gaps and a large middle-income group. such a middle-income group can release demand on a larger scale and for a longer period of time, thereby supporting medium-speed growth for a longer period of time. on the contrary, if the income gap is large and the size of the middle-income group is small, when the demand potential of this group is largely released, it is easy to see a significant slowdown in growth, leading to a dilemma of slow growth or even stagnation.

this period is the key node from the middle-income stage to the high-income stage. after world war ii, dozens of economies began the industrialization process and entered the middle-income stage from the low-income stage. however, there are very few economies that have entered the high-income stage from the middle-income stage, and only japan and south korea are large economies. around $10,000 is a special unstable node, and more countries have experienced reversals or retreats at this node, falling into the so-called "middle-income trap."

at present, the basic situation in my country is that the middle-income group accounts for about one-third, about 400 million people; below this, there are more than 900 million low-income groups, accounting for two-thirds. the gini coefficient has remained above 0.4 for many years, and some studies believe that it is at a level of 0.45 or higher. the current lack of demand is directly related to this demand structure.

iii. how to increase effective consumer demand

to increase effective consumer demand, we must first distinguish between survival consumption and development consumption. including the low-income class, survival consumption, which is mainly based on food, clothing and other daily basic consumption, has stabilized, or in other words, the problem of food and clothing has been basically solved. the expansion of total consumption is reflected in structural upgrading. consumption growth is more driven by development consumption such as education, medical care, affordable housing, social security, culture, sports and entertainment, financial services, transportation and communications.

the difference in the way consumption is realized is also very important. survival consumption is mainly individual consumption. development consumption is mostly collective consumption or public services. for example, medical insurance and social security are mutual aid, and school education is a collective learning method. it is directly related to the government's level of equalization of basic public services. it is not enough to expand development consumption by individual efforts alone. the government needs to set up the platform, establish systems, and provide funds. it is a combination of government consumption expenditure and residents' consumption expenditure.

the level of equalization of basic public services lags behind, directly dragging down the growth of development-oriented consumption. at this stage, urban residents complain or worry more about the pressure of the "three mountains" of education, medical care, and housing. the nearly 300 million migrant workers and nearly 200 million migrant workers who have moved to cities are more lacking in basic public services. a considerable part of the income gap between the 400 million middle- and high-income groups and the 900 million low-income groups stems from the gap in the level of sharing of basic public services. therefore, to expand consumption, we must find the pain points: first, development-oriented consumption based on basic public services, and second, the middle- and low-income groups with migrant workers as the focus.

the shortcomings of basic public services are directly related to the level of urbanization. the agglomeration effect of cities reduces the cost of public service provision. in traditional rural areas, modern infrastructure and basic public services are too expensive and difficult to reach. compared with developed economies with the same per capita income level, china's urbanization rate is relatively low, with a permanent population urbanization rate of 66% and a registered urbanization rate of 48.3%, while developed economies are usually above 70%, and some exceed 80%.

in the past, we paid attention to the economies of scale and agglomeration effects of production, but ignored the economies of scale and agglomeration effects of consumption, especially service consumption. this should be an underlying logic that we need to pay great attention to in expanding consumption at this stage. without a certain level of urbanization, it is difficult to achieve a high level of basic public services in the fields of education, medical care, affordable housing, social security, elderly care, culture and entertainment.

from an institutional perspective, there are constraints that are not conducive to improving people-centered urbanization, which are mainly reflected in three inequalities between urban and rural areas: first, the inequality in identity and residential migration rights reflected in the household registration system; second, the inequality in the right to share basic public services; and third, the inequality in property (real estate) rights.

4. do not simply follow the quantitative easing policies of developed countries

china has experienced high-speed growth for more than 30 years and medium-speed growth for nearly a decade, both of which are significantly higher than the growth rates of developed countries in the same period. the growth momentum mainly comes from china's catch-up potential as a latecomer, or the structural potential formed by technological progress in human society since the industrial revolution. it is also what developed economies have done, but we have not done but have the conditions to do. by 2035, from the current per capita income of 14,000 us dollars to 35,000-40,000 us dollars, there is at least 20,000 us dollars of catch-up potential, mainly driven by the development of the service industry driven by the upgrading of consumption structure, and the stabilization and upgrading of manufacturing and agriculture. we often talk about the uncertainty of economic growth. in fact, this catch-up potential is relatively certain.

at the same time, we also have growth opportunities brought by new technological revolutions such as digital technology and green transformation, which can also be seen as a new structural potential. in this regard, the gap between us and the forerunners is not large, and in some areas we are on par or leading in some areas. the catch-up potential and the digital green potential are not two tracks, but integrated. the traditional catch-up potential plus the emerging digital technology and green technology can still support the chinese economy to maintain medium-speed growth for 5-10 years.

during this period, the importance of macroeconomic policies lies in maintaining stability and balance in the economic operation process. to make an inaccurate analogy, if the potential growth rate is 5% at this stage, macroeconomic policies will probably affect 1%, and the remaining 4% depends on structural potential, and the extent to which structural potential is released depends on whether there is a suitable institutional policy environment. reform is to create such an environment.

it is necessary to clarify the difference between my country and developed economies in the role of macroeconomic policies at this stage. developed economies are also mature economies, which are in a period of slow growth. they are a kind of sustained depreciation growth with little new growth potential. changes in macroeconomic policies can often determine the overall direction of economic growth. if china's economic growth really depends mainly on macroeconomic policies, it should have reached a period of slow growth.

as china's economy shifts from supply constraints to demand constraints, the reforms to release structural potential will shift to the demand side. while continuing to promote necessary supply-side structural reforms, the focus will shift to demand-side structural reforms.

however, reform is often considered a slow variable, and distant water cannot quench immediate thirst. in fact, in the reform toolbox, we can find many growth-oriented and immediate reform measures, which produce the short-term effect of "announced tonight, the stock price will rise to the limit tomorrow morning". even those reforms that will be effective in the medium and long term, if they can be started and promoted as soon as possible, can form positive expectations and play a positive role in stabilizing growth in the short term.

there are also views that reform cannot solve the short-term monetary credit problem. this involves understanding how monetary credit is formed. reform is to open up rights. in recent years, the central government has used a lot of words such as "allow" and "can", which means that things that were not allowed or allowed in the past have been opened up, and residents' rights have increased accordingly. with more things allowed and allowed, and more rights, new trading opportunities can be discovered, and normal market transactions must be "agreed unanimously", which is beneficial to both parties, and there will be an economic increment or "added value". the increase in transactions will correspondingly expand the demand for money, expand credit, and then substantially expand demand and supply. in particular, demand-side reform can expand consumer demand more. in short, reform expands rights, increases transactions, increases credit, and then substantially expands demand. if the trading opportunities constrained by unreasonable systems and policies are not liberated through reform, even if the currency is increased, transactions and credit cannot be increased, and only monetary idleness can be increased.

5. it is recommended to launch a package of stimulus and reform economic revitalization plan to substantially expand terminal demand and drive the economy back to the expansionary growth track.

a package of stimulus and reform economic revitalization plans should be introduced to drive the economy back on the track of expansionary growth.

implement the reform measures of the third plenary session of the 20th cpc central committee on urban-rural integration development, mainly based on fiscal policy, and closely coordinated with demand-side structural reform, to produce a comprehensive effect of expanding consumption, stabilizing growth, and preventing risks. specifically, it includes a 10 trillion stimulus scale, two major breakthroughs and an important goal.

the size of the economic stimulus package.funds will be raised mainly through the issuance of ultra-long-term special government bonds, and within one to two years, an economic stimulus of no less than 10 trillion yuan will be formed. in 2008, a 4 trillion yuan stimulus plan was launched. at that time, the total economic volume was more than 30 trillion yuan, and the focus was on investment in infrastructure construction and other areas. last year, the total gdp reached 126 trillion yuan, and the scale of the stimulus plan can be determined based on 10% of the total gdp. unlike 2008, the focus this time is on filling the gap in basic public services. in the past, the focus was on material capital investment, but this time it is human capital investment. this stimulus plan focuses on driving consumption at the micro level, while also driving investment in real estate, infrastructure, services and other fields to a certain extent, substantially expanding domestic demand. at the macro level, it can increase the level of total demand, narrow the gap with total supply, and drive the gdp deflator to positive growth.

two major breakthroughs, or two key areas.first, we will vigorously improve the basic public services of new citizens, mainly migrant workers, in terms of affordable housing, education, medical care, social security, and elderly care. in the short term, the government will focus on purchasing unsaleable housing, converting it into affordable housing, and providing it to new citizens.

implement the spirit of the third plenary session of the 18th cpc central committee on "promoting the system of providing basic public services by registering the permanent residence, and promoting the social insurance, housing security, compulsory education of migrant children and other rights of eligible agricultural migrant population to the same registered population as the place of migration". farmers have changed from working in the city to reuniting with their families and living and working in the city. increasing the supply of affordable housing can expand the effective demand for real estate, housing improvement can drive consumption of decoration, furniture, home appliances, etc., family reunion can drive demand for education, medical care and elderly care, and improving social security can reduce worries and reduce precautionary savings.

second, we should accelerate the construction of small and medium-sized towns within the metropolitan area, drive china's second wave of urbanization, and form a high-quality, sustainable, modern urban system based on the integrated development of urban and rural areas. the construction of urban core areas in my country has reached a relatively high level, and there has been a certain degree of congestion. from international experience, the core cities within the scope of urban agglomerations and metropolitan areas usually account for about 30% of the urban population. there is still huge room for development in small and medium-sized towns outside the core cities, which can accommodate more than 60% of the urban population, including both the original urban relocation population and more inflows from rural areas and other cities. at the same time, it is also suitable for the agglomeration of manufacturing and low-end service industries. within this scope, there is still room for development in real estate, infrastructure, etc.

implement the spirit of the third plenary session of the 18th cpc central committee on "comprehensively improving the integration of urban and rural planning, construction, and governance, promoting equal exchange and two-way flow of urban and rural factors, narrowing the gap between urban and rural areas, and promoting the common prosperity and development of urban and rural areas", "allowing farmers to revitalize and utilize legally owned housing through leasing, equity investment, cooperation, etc.", "orderly promoting the reform of rural collective business construction land entering the market, and improving the land value-added income distribution mechanism". focus on promoting the two-way autonomous flow of factors such as personnel, land, and funds between urban and rural areas, optimize the allocation and utilization of various resources based on marketization, farmers can move to cities, urban residents can move to the countryside, and give urban and rural residents more space for two-way entrepreneurship, employment, and housing. further emancipate the mind, actively explore, match the transfer of rural homesteads with the improvement of the rural social security system, accelerate the reform of the rural land system, and achieve the improvement of land use efficiency, increase farmers' property income, enhance social security capacity, improve living conditions of urban and rural residents, and stabilize the growth and structural upgrading of industries, so as to achieve multiple goals at one stroke.

an important goal.the implementation of this economic revitalization plan is an opportunity to strive to achieve the goal of doubling the middle-income group in about ten years, from the current 400 million middle-income group to 800-900 million. proposing and promoting this goal is of fundamental significance to extending the medium-speed growth period as much as possible and breaking the adverse impact of demand constraints on economic growth.

proposing and implementing the above-mentioned economic revitalization plan will help to fill the gap in total demand more quickly at the margin in the short term, drive economic growth onto an expansionary cycle, and at the same time, using stimulus plus reform methods and spending money to build new systems will create conditions for high-quality and sustainable economic and social development in the medium and long term.

(the author is liu shijin, deputy director of the economic committee of the 13th national committee of the chinese people's political consultative conference and former deputy director of the development research center of the state council)

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