According to the Outline of the 14th Five-Year Plan, it is necessary to establish an effective system for expansion of domestic demand, accelerate the development of a complete system of domestic demand, strengthen DSM, thus building a strong domestic market. DSM is a very important formulation put forward in the Central Economic Work Conference at the end of last year, and has become a topic of general concern in recent years. As a matter of fact, DSM is neither a new term nor a new policy option both in theory and practice at home and abroad. So, in the new stage of development and in the overall background of building a new development pattern, what’s the new and profound meaning of putting forward the concept of strengthening DSM? Are there any new connotations and characteristics? How to strengthen DSM? Today, I would like to exchange and discuss with you about this.

Why Should DSM Be Strengthened, Instead of Demand-side Reform?

Seen from the development of theories and practices at home and abroad, the theory of DSM can be traced back to the early 19th century. Malthus put forward “the theory of deficiency of effective demand” in the Principles of Political Economy, which denied Ricardo’s “theory of infinite consumption”. After the first industrial revolution, the productivity underwent rapid growth while periodic decline occurred in product sales and employment. The prevailing view among scholars was that there could not be sufficient effective demand to consume the rising output of industry unless it was regulated by policy. In the 1930s, Keynes expressed in The General Theory of Employment, Interest, and Money that the insufficient household consumption and investment demand would eventually lead to insufficient demand of the whole society, and thus triggered a series of economic and social problems, so the government should take expansionary monetary policy, fiscal policy and other measures to intervene in economic activities, so as to stimulate market demand and promote economic growth. Keynes’s theory of government’s intervention to economy was quickly adopted by the governments of various countries, which promoted economic reconstruction of western developed countries after World War II as well as rapid economic development in the following three decades. The U.S. financial crisis in 2008 triggered the economic crisis worldwide. To cope with the crisis, countries did not abandon DSM while re-adopting the supply-side measures. In addition to emphasizing the structural reform on the production side as well as the transformation and upgrading on the supply side, the US government even launched several rounds of quantitative easing policies on DSM. However, the European governments’ bailouts and Japan’s “Abenomics” were all aimed at solving the demand problem in the crisis through both supply and demand ends. The state of “two-wheel driving” between demand and supply was very obvious.

Seen from the practice of DSM in China, we adopted the DSM under the planned economy system to deal with the supply shortage after the founding of the People’s Republic of China. After the reform and opening up, in order to maintain the high-speed economic growth and meet the domestic and foreign demand, the policy adopted by us was mainly oriented towards acceleration in development, expansion in production and increase in supply. However, in the stage of rapid development, in order to deal with the economic overheating and international economic crisis, short-term DSM policies were ever adopted. In the first decade of the 21st century, rapid economic development in China basically solved the problem of shortage, but at the same time, the problems concerning structural imbalance of supply side, including excess supply and relatively insufficient supply, have emerged. To this end, after the 18th CPC National Congress, the supply-side structural reform was launched in an all-round way, focusing on solving structural problems in the economy, so as to optimize the supply structure and practically improve the quality and efficiency of the supply system.

After about eight years of supply-side structural reform, China saw its economic structure optimized and economy entering a stage of high-quality development. For the time being and for a period of time to come, the economy in China is and will be complex, with both structural problems on the supply side and aggregate problems on the demand side. From the perspective of building a new development pattern and unblocking the dual circulation domestically and internationally, the bottlenecks encountered by us are not only on the supply side, but also on the demand side, and even in such links as production, distribution, circulation and consumption. Therefore, simply advancing supply-side structural reform can no longer solve all the bottlenecks.

It has always been the basic experience and methodology of the Party Central Committee to recognize the situation, grasp the general trend and follow the trend. At the meeting of the Political Bureau of the CPC Central Committee at the end of 2020, it was proposed that “we should stick to the supply-side structural reform while focusing on the demand-side reform”. Soon afterwards, at the Central Economic Work Conference, it was further pointed out that “we should firmly stick to the main line of the supply-side structural reform, pay attention to the DSM, break through the bottlenecks, shore up the weak spots, and unblock all links of production, distribution, circulation and consumption, so as to achieve a higher level of dynamic balance in which demand leads supply and supply creates demand, and improve the overall efficacy of the national economic system.”

Seen from the long-term strategic plan of building a new development pattern, the demand side calls for reform as well. However, why should we focus on management at present? The reason lies in the fact that the demand-side reform has a deeper connotation and broader scope than those of the supply-side reform, and it is a more complex system engineering. When there is excess capacity and backward technology on the supply side, capacity reduction, technological transformation or other direct policies can be adopted to optimize the supply structure and thus achieve the desired effect. However, when the effective demand is weak, it will be difficult to achieve the desired goal with simple and direct measures. There are many reasons for weak demand. For example, consumers have no money to spend, they are afraid to spend because of worries about spending money, the supply quality is not high enough to meet consumption, and consumers are not willing to spend because of lack of confidence in the future economic prospects. Even many factors are often intertwined, affecting the pertinence, effectiveness and timeliness of the demand-side reform. Therefore, it is more reliable and realistic to start with DSM at present, which reflects the general principle of the central government’s adherence to seek progress while maintaining stability. By focusing on the long-term and overall situation, we should steadily promote DSM, and further promote the reform of close integration between the supply side and the demand side.

In short, DSM is a major strategic plan put forward by the Party Central Committee for China’s entry into a new stage of development in light of changes in the domestic and international situation. It is a long-term strategic measure to comprehensively respond to the changes in principal contradiction facing Chinese society, promote high-quality development, build a new development pattern, and comprehensively advance China’s building of a modern socialist country, instead of a short-term emergency measure.

How to Understand the New Connotations and Characteristics of DSM?

According to the strategic layout analysis of building a new development pattern, supply and demand are the two endogenous power sources for both domestic circulation and domestically and internationally dual circulation. To strengthen DSM, we should give full play to the advantages of China’s super-large market, take expansion of domestic demand as the strategic basis, unblock the bottlenecks in all links of production, distribution, circulation and consumption, and form domestic circulation dominated by domestic demand as well as international circulation with the domestic circulation as the principal or dominant part as soon as possible, This is the key point and profound connotation of DSM in the context of building a new development pattern.

So, what are the rich connotations of DSM? In my opinion, they are mainly characterized by the following aspects:

(1) Long-term

It is a long-term strategic task to build a “dual circulation” development pattern in which domestic economic cycle plays a leading role while international economic cycle remains its extension and supplement, which determines the long-term nature of DSM based on expansion of domestic demand.

In the past, DSM was more stimulated by short-term aggregate policies, so as to achieve the purpose of rapidly adjusting total demand and smoothing economic fluctuations. The long-term nature of DSM in the context of building a new development pattern is reflected in the following aspects: It is not an expedient policy adjustment focusing on addressing short-term economic overheating or weak demand, but a long-term strategic plan focusing on the long-term strategic needs of economic and social development; an inevitable trend of deepening reform in an all-round way; an active choice to adapt to the changes in China’s economic development stage; a long-term strategic adjustment to cope with the complex changes in the international environment; an inherent requirement to give full play to the advantages of China’s super-large economy; a long-term strategic layout to turn a major economy into a strong one, with emphasis on the medium and long-term and systematic problems that constrain the growth of aggregate demand.

(2) Overall and strategic

Building a new development pattern is an overall strategic layout. DSM, with the expansion of domestic demand as strategic basis, is a profound reform related to the overall situation. It involves a series of contents including the strategy of expanding domestic demand, building of a complete domestic demand system, improvement in the socialist market economic system, improvement in the social distribution system, expansion of opening to the outside world, perfection in the demand transmission mechanism and formation of supply-demand docking mechanism.

In recent years, the world economy has been sluggish, and unprecedented challenges have been encountered for the situation of China’s economy pulled by the “three carriages”. Especially in the past three years, China’s foreign trade, cross-border investment and international technical cooperation have been severely challenged by unilateralism and protectionism, and the threat and danger of “decoupling” still exist. According to the analysis from the overall and strategic height, in order to achieve the effect that “a slight move in one part may affect the whole situation”, DSM is just the “slight move” in the process of building of a new development pattern, which is not only the difficulty of reform, but also the traction point of reform. Strengthening DSM is conducive to improving the efficiency of supply-side reform, building a robust circulation of domestic economy, and achieving stability, which is the basis for coping with all challenges and pressures.

(3) Systematic

DSM is a complex and systematic project with the goal of “forming a strong domestic market, meeting the needs of various domestic market subjects, comprehensively releasing the vitality and potential of demand, firmly grasping the trend of demand change, promoting the upgrading of demand and consumption, and forming benign interactions between supply and demand”.

In the overall background of building a new development pattern and in terms of DSM, we should adhere to systematic thinking, properly handle the relationship between supply and demand, that among production, distribution, circulation and consumption, that among upstream, midstream and downstream links, that between domestic and international circulation, and that among large circulation, medium circulation and micro-circulation. We should properly handle the relationship between the central and local governments, the interests of different groups in different regions, and make systematic strategic plans.

(4) Dynamic and time-efficient

During the building of a new development pattern, the objectives, environment, orientation, focus, methods and means of DSM are constantly changing, being dynamic and time-efficient.

On the one hand, people’s needs for a better life are multi-layered, diverse, complex and changeable. With the development of economy and society, people’s needs for a better life are constantly improving and changing rapidly. Personalized, multi-layered, diversified, fragmented and international consumption demand changes are constantly, bringing new requirements and connotations for DSM. On the other hand, complex and profound changes are taking place in the current development environment at home and abroad, together with increasing uncertainties, which bring new challenges and problems to DSM. In such context for the development of DSM, it’s necessary to always pay attention to the environmental changes at home and abroad, and constantly optimize and adjust it in a timely manner; recognize and grasp the new requirements, challenges, opportunities and problems in the changing internal and external environment, take the initiative to seek changes, scientifically adapt to the situation, follow the trend, draw on the advantages and avoid disadvantages; scientifically analyze and grasp the new characteristics and trends of demand changes in domestic and foreign markets in real time, attach more importance to connecting dynamic demands, make real-time adjustment of objectives, orientations and methods of DSM while optimizing the supply structure and improving the supply quality, so as to achieve a higher level of dynamic balance in which demand leads supply and supply creates demand.

(5) International

DSM is a strategic measure taken in the context of globalization and the large pattern of smooth dual circulation. DSM is remarkably international: First, the scope of DSM includes both domestic demand and international demand, which interact, correlate and support each other. Second, the supply to meet demand includes both domestic supply and international supply. Third, the factors affecting DSM involve both domestic environment and domestic market factors, as well as international environment and international market factors. Fourth, economic fluctuations and international contagion of crisis have become frequent and inevitable.

China will open increasingly wider to the outside world. DSM is a strategic measure taken under the condition of higher-level opening up. Therefore, for the purpose of better implementation of DSM, it’s necessary to coordinate the international and domestic situation, make good use of the domestic and international market resources, and unblock the dual circulation domestically and internationally, so as to make China not only a world factory, but also a world market, utilizing the foreign market to meet domestic demand while utilizing the domestic market to meet foreign demand. In this way, we can create richer, more favorable and more convenient investment opportunities and business environment for all countries in the world, and make the Chinese market an integral part of the world market on a larger scale and to a greater extent.

How to Strengthen DSM

The above is mainly about the background, new connotations and new characteristics of DSM. Then, how to strengthen DSM? I think we can start from the following aspects:

First, adhere to the strategic basis of expansion of domestic demand, expand household consumption, and raise the level of consumption.

At the Fifth Plenary Session of the 19th National Congress of the Communist Party of China, it was proposed that “we should stick to the strategic basis of expansion of domestic demand”. To expand domestic demand, it is important to enhance consumption and strengthen DSM. We must firmly grasp the key point of consumption demand, give full play to the advantages of China’s super-large economy, accelerate the development of a complete system of domestic demand, and strengthen the basic role of consumption in economic development. To this end, we should strengthen the scientific research and judgment of people’s needs for a better life, actively forecast, analyze and predict the new characteristics and trends of people’s demand changes in advance, guide the supply to plan for demand changes in advance, match demand changes with reasonable total supply, and create new demand with innovative supply types. Relying on Internet, artificial intelligence and other emerging technologies and innovative types of business, we can accurately identify consumer preferences and needs, and tap the potential, characteristics and trends of individual consumption and innovative product consumption under the “long tail effect”. Meanwhile, we should tap the consumption potential of second-tier and third-tier cities, counties and townships, appropriately increase public consumption, and gradually realize equal access to basic public services. In the process of rural revitalization and new urbanization, efforts should be made to raise the consumption level in rural areas.

In addition, we should promote the localization of medium and high-end consumption. The implementation of policies for promoting consumption in the future will focus on two aspects: On the one hand, it is necessary to lower restrictions on market access and taxes for middle and high-end consumption, attach equal importance to “bringing in” and “going out”, reduce supply prices and expand supply quantity. On the other hand, it is necessary to keep pace with the demand changes, adjust administrative restriction policies appropriately, guide the optimization of supply structure and promote the development of related industries. For instance, we should promote the transformation of automobiles and other consumer goods from purchase management to use management, so as to stimulate automobile consumption demand and drive the growth of upstream, downstream as well as supporting facilities industries concerning automobiles.

In the aspect of expanding consumer demand, it is a feasible way to accelerate the fostering and construction of international consumer center cities. We should accelerate the development of modern service industry, make the productive service industry more specialized and higher-end in the value chain, and promote the upgrading of living service industry to high quality and diversification. By virtue of innovation in science, technology and business, we can expand the supply for new types of consumption to form a number of new growth poles, so that a strong domestic market will take shape, radiating and driving the high-quality economic and social development of surrounding areas and even the whole country, and enhancing the comprehensive competitiveness of cities internationally.

Second, strengthen the DSM. The top priority is to increase people’s income and solve their worries.

The first one is about jobs. Employment is the foundation for not only people’s livelihood, but also expansion of consumption. We should make greater efforts to implement the strategy of giving priority to employment and more proactive employment policies, optimize the employment and entrepreneurship environment, leading entrepreneurship with innovation, and driving employment with entrepreneurship. Effectively expand employment capacity and improve employment quality. Give more support for vocational skills training, and platform economy shall be encouraged to create more jobs and new forms of employment. Focus on promoting the employment and entrepreneurship of college graduates, rural migrant workers and needy people, expand the number of public welfare jobs available, help people with disabilities and members of zero-employment families find jobs, and strive to ensure that more jobs are available and of higher quality, so that workers live a decent and dignified life.

Second, we should establish an income distribution system suitable for the socialist market economy system, increase the proportion of labor remuneration in primary distribution, improve the wage system, perfect the mechanism for reasonable wage increase, and increase the proportion of wage income in resident income. Explore to increase the factor income of middle and low-income groups through the right of use and usufruct of land, capital and other factors, and increase the property income of urban and rural residents through multiple channels. Speed up the reform of the individual income tax system, ease the social security and tax burden on enterprises, deepen the reform of the household registration system, strengthen the supervision and inspection of labor law enforcement, improve the mechanism for redistribution, give full play to the role of the third distribution, and accelerate the formation of an olive-like income distribution structure in which middle-income groups are the majority.

Last, it is necessary to perfect the fair and unified multi-layered social security system which sustainably covers the entire population and coordinates urban and rural areas. Strengthen efforts to ensure that people’s living standards are met, include needy people in the scope of policy guarantee and employment assistance according to regulations, accelerate the process of transfer and continuation of social security, perfect the financing and treatment adjustment mechanisms for basic endowment insurance and basic medical insurance, continuously improve the high quality and equal development of education and medical services in urban and rural areas, and strive to eliminate the worries of people who dare not consume.

Third, focus on the new infrastructure and new economy, encourage private investment, and give play to the key role of investment in optimizing structure.

The key to expanding investment demand is to optimize the investment structure, effectively promote private investment and expand the room for investment. Social investment should be driven by government investment, and social supply be optimized by investment, thus guiding and meeting consumer demand. To give play to the key role of investment in optimizing the supply structure, it is necessary to combine the upgrading of the industrial chains with the expansion of domestic demand, comprehensively remove the “glass door” and “spring door” that hinder private investment, encourage private investment, fully mobilize the enthusiasm of enterprises and entrepreneurs, promote the equipment renewal and technological transformation in enterprises, and advance the construction of a number of major projects with strong foundation, increased functions and long-term benefits.

On the one hand, we should focus on the weak fields where there is both demand and space, including infrastructure, agriculture, rural areas and people’s livelihood guarantee, and further leverage the supporting role of effective investment in promoting the coordinated development of urban and rural areas and improving people’s livelihood.

On the other hand, we should vigorously develop the digital economy and strategic emerging industries to drive the quality advancement and upgrading of consumption. Focus on investment in new infrastructure, and vigorously develop the construction of digital economy. Foster and strengthen new forms and models of business generated from epidemic prevention and control, accurately grasp the trend of digitalized, intelligent, green and integrated development, and accelerate the construction of new infrastructure. Focus on artificial intelligence, 5G, Internet of things, big data, blockchain, life sciences and other new technology fields, promote industrialization of digital economy and digitization of traditional industries, and enhance the level of internal circulation development with digital empowerment. Vigorously promote the expansion and upgrading of new types of consumption, such as informationized and intelligent consumption, high-tech product consumption, green consumption and cultural consumption, and accelerate the upgrading of service consumption represented by culture, education and entertainment.

Fourth, promote the transformation of household savings into investment and facilitate the expansion of domestic demand.

To promote the transformation of household savings into investment is actually to solve the issue about how to “make money beget money”. First of all, we should provide investors with more complete and unimpeded investment channels, and attract household savings to participate in capital market investment through multiple channels and in various forms. Secondly, we should strengthen the construction of the basic system of the capital market. We should continue maintaining “zero tolerance” and high pressure on illegal securities activities, improve the quality and efficiency of listed companies while improving the delisting mechanism, with the focus on supervising fraudulent issuance, financial frauds, insider operations, malicious speculation and illegal information disclosure, so as to create a sound investment ecology for investors. In addition, it is of vital importance to change the investment concept. It is necessary to incorporate investor education into the national education system from a higher starting point, improve the financial attainment of individual investors, strengthen the concept education of residents’ wealth management, actively advocate the culture of long-term investment, value investment and rational investment, and expand investment demand while protecting the rights and interests of investors.

Finally, I would like to emphasize that DSM is a long-term strategic task, and we must organically combine DSM with long-term institutional arrangements, and coordinate and handle the relationship between current and long-term development in consideration, planning and concrete progress in economic and social development. DSM involves central and local governments, governments and markets; links up all links of production, distribution, circulation and consumption; concerns the deepening the comprehensive reform of the income distribution institution and system, household registration system, land system, housing system, social security, medical insurance, education system, and various market systems, as well as the adjustment of laws and regulations. Therefore, it’s required to conduct the top-level design of DSM, timely start the medium and long-term DSM work involving institutional change, so as to form system integration, advance comprehensively, and achieve the optimal effect.