BEIJING: In addition to being a testament to his own legacy, the recent more supply-side reforms by China's economic tsar and closer trade ties with the rest of the world have recently fueled hopes for an immediate and significant impetus.

Markets are expecting expansionary policies in the first year of President Xi Jinping's third term, when Vice-Prime Minister Liu He made his remarks, aimed at curbing debt, reducing financial risk and removing obsolete industrial capacity. 

In addition to serving as a rare public message for upcoming economic policymakers—presumably Li Qiang and Hei Lifeng—their assessment also serves to reflect their ten years of experience in the field.

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In an excerpt published Friday by the party's mouthpiece People's Daily, Liu made statements that are in direct opposition to a time when reckless government spending on worthless projects led to a significant build-up of risky debt. They also serve as a warning against placing too much emphasis on independence and isolation.

Liu wrote that the barriers, blocking points and weak areas that are hindering our country's economic development are mainly due to the supply side, and the current supply structure is unable to accommodate the changing demand.

The People's Daily article is part of a series on new development principles that were announced at the 20th Party Congress late last month, including high-quality development and shared prosperity.

The absence of the top economic adviser from the new 24-member politburo signals that he will resign in March.

In addition to further reforms on the supply-side, Wang Jun, a director of China's Chief Economist Forum, noted how the Party Congress document highlights the need to boost domestic demand.

He claimed that the supply side reforms were a dynamic process which had already had some success. “The biggest problem of the Chinese economy right now is the lack of domestic demand. To solve the current issues, new strategies and approaches are needed.

Liu, following the party line, urged the nation to focus on economic development, address structural problems, and accelerate the pace of creating a larger domestic market in the face of "extreme circumstances".

“Supply-structure adjustment is fundamentally a reform issue,” he declared, urging continued efforts to improve the environment for business development, eliminate monopolies and revive market players.

Liu, 70, played a key role in Xi's transformation into the world's second largest economy. In addition to key trade negotiations with the United States, Liu was instrumental in the creation of the reform document at the Third Plenum, an important policy meeting that took place in 2013. Supply-side structural reforms and financial risk-free campaigns were the main themes of that document.

Standard Chartered Bank's chief Greater China economist Ding Shuang reflected on Liu's tenure as economic tsar, saying "he has been persistent in solving China's problems with reforms."

According to Ding, "his view is that market-oriented approaches to strengthen the private economy, innovation and business start-ups have not yet been fully realized."

Beijing is currently in a precarious position that risks adopting a more internal-looking strategy due to deteriorating relations with major Western economies, which make up its top export market and major suppliers of technology and components.

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National gross domestic product (GDP) growth has already fallen well below the growth baseline, which could jeopardize the US's ambition to surpass and double GDP per capita by 2035. Officials are also increasingly inclined toward more state-driven economic development.

The Central Economic Action Conference in December, which will be attended by a new economic lineup to discuss 2023 economic plans, including a disruptive zero-Covid strategy and closely watched GDP growth targets, can see additional internal discussions of the new policies.

Since late last year, China's top leadership has issued warnings that the country is under "triple pressure" from weak demand, supply shocks and expectations. In recent months, he has lowered his original full-year growth target of "about 5.5 percent."

Given zero-Covid disruptions and a slump in assets, China's massive infrastructure spending - 8.6% year-on-year in the first nine months - failed to prop up the economy to the desired level.

As China's population grows rapidly, its traditional advantages in labor and land are diminishing, there are more restrictions on resources, technology and the environment, and large-scale risks are also increasing.

He acknowledged the need to create a strong domestic market and protect against sharp increases or shortages, but cautioned that expansionary policy should focus on effective demand rather than adding more redundant capacity or outdated goods.

“They must meet the increasingly individual, diverse and complex needs of the people. Consumption must be driven by income, whereas such investments must have reasonable returns and be restricted by principal and debt.

Liu and his team spent years addressing enormous potential in areas such as shipbuilding, plate glass, steel and aluminium. He also worked to prevent the mountain of local debt from falling.

 Additionally, he refrained from using a significant stimulus to combat the unprecedented coronavirus pandemic, thereby shielding the country from the decades of high inflation seen in the West.

He said the overriding principle should be timely, appropriate, targeted and no liquidity flood. Fiscal and monetary policy can be used only when effective demand is insufficient and market expectations are weak.

According to Ding at Standard Chartered, Liu's hesitation to rely on significant stimulus measures was justified, because in light of the country's stringent epidemic controls, measures such as the increase in infrastructure spending seen this year would not produce the desired results.

But, according to Ding, "it's largely a balance between short-term and long-term objectives." "New policymakers should also consider the growing risks of an economic slowdown and the associated uncertainties."

Liu also emphasized the need for policy makers to increase market expectations, transparency and credibility to stay ahead of market trends.

According to Liu, "the structural transformation of the Chinese economy is a complex process of market-oriented exploration and trial and error."

According to Wang Tao, chief China economist at UBS, China has already indicated further easing of monetary and fiscal policy, and his team estimates that in 2023, China's GDP growth will reach 4.5%, "from domestic consumption." Inspired."

It said in a note on Wednesday that "consumption recovery in 2023 is critical and hinges on the COVID policy." Liu, who has led trade talks with the US and the European Union, said his country's vast domestic market offers a significant advantage in helping it resist external shocks. Years of trade war with the US and escalation in techno-decoupling efforts have changed the course of China's development.

“Some nations try to apply intense pressure by decoupling, with industrial chain disruptions and punitive measures against businesses, but they are ignorant of global norms and trade rules.

According to his article, this has negatively affected the economic development and structural reform of our country along with the global supply and demand balance.

As Washington prepares to take additional containment measures with its strategic rival, China can expect ties with the US to continue to haunt it for the foreseeable future.

Liu noted three critical vulnerabilities: fundamental software, fundamental hardware, and fundamental raw materials. "We must guarantee a mid-level of domestic cycling in extreme conditions," Liu said.

However, the deputy prime minister stressed that China should maintain a high degree of openness, actively engage in the global industrial sector, and "actively negotiate" with the rest of the world.

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“We must strive for high standard international economic and trade regulations, and establish a market-oriented, legal and global business environment,” he continued.