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Chinese Think Tanker: Traditional Economic Stimulus Ineffective in China’s New Normal

Cai Fang (蔡昉), Chief Expert of Chinese Academy of Social Sciences’ National High-end Think Tank, delivered a speech on September 3, highlighting that China’s economy has transitioned into a new normal, rendering traditional stimulus approaches obsolete.

Cai identified three key characteristics of China’s new economic landscape from both macro and micro perspectives:

  1. A rapidly declining population and a significant decrease in its labor force.
  2. Weak consumer demand, exacerbated by demographic aging.
  3. Mounting pressures in labor market, including labor shortages and the need to align the workforce’s skills with evolving industry demands.

Cai proposed three strategic policy directions:

  1. Promote a Competitive Environment: Encourage the removal of less competitive companies to stimulate innovation and enhance productivity.
  2. Rethink Traditional Macroeconomic Stimulus: Recognize that traditional stimulus measures no longer align with today’s economic landscape. For example, previous approaches emphasized infrastructure spending, which does not address the job-seeking preferences of today’s youth, who seek opportunities in the service sector rather than construction.
  3. Advance structural Reforms: Prioritize reforms such as the overhaul of the Hukou (household registration) system to incentivize urban-bound rural residents to increase their spending in urban areas.

Source: 21st Century Business Herald,  September 3, 2023