In a recent address at the 2024 China Enterprise Competitiveness Conference, celebrated economist Wu Ge shed light on the multifaceted relationships necessary for the development of a new type of productivity in ChinaWu's emphasis on balancing the supply side with the demand side, while clarifying the roles of government and market, reflects the intricate dynamics that define the contemporary Chinese economyHis insights came amidst a broader discourse on navigating the transition from one power dynamic to another, characterized by an interplay between emerging and traditional energy sources.

Wu's primary thesis revolves around the idea that productivity must be rooted in a foundational understanding of supply and demandFor any economy, supply typically refers to the capacity and resources available to produce goods and services, while demand represents the desire of consumers to purchase those goods and services

The optimal growth of productivity, therefore, hinges upon finding a balance between these two dimensionsIn China's current context, where domestic consumption remains weak, the pressing question is how to create an environment where demand can spur innovation and growth on the supply side.

Statistical insights, such as the recently released figures from the National Bureau of Statistics, reveal that there has been a modest increase in the Consumer Price Index (CPI) while the Producer Price Index (PPI) has seen a declineWu notes that despite some marginal improvements, the overall economic environment remains stagnated, as illustrated by multiple quarters of negative growth in the Gross Domestic Product (GDP) deflatorThis imbalance between supply and demand is evident not only in traditional sectors but increasingly in high-end manufacturing as well, where supply is outpacing demand.

In his analysis, Wu proposes clear steps for fostering healthy growth in new productivity

• U.S. and European Markets Close Lower
• China Chips Away at Global Semiconductor Slump
• Is the U.S. Planning to Build a Bitcoin Reserve?
• Japan's Semiconductor Industry: Can It Rebound?
• Federal Reserve Unveils Major Policy Move

Rather than top-down approaches seen in previous supply-side reforms, he advocates for a bottom-up reshaping of supply and demand structuresThe necessity of empowering the market to dictate prices becomes paramountWu argues that in sectors where prices are declining, there may have been an excessive allocation of resources to supply—an imbalance that necessitates recalibrationThus, the role of pricing as a guiding force becomes crucial for aligning supply with actual market demand.

Moreover, the interplay between the visible hand of government and the invisible hand of the market cannot be overlookedWhile both have roles in the adjustment of supply and demand, Wu argues that when structural issues—stemming from policy—lead to imbalances, allowing market mechanisms to prevail is essentialThis assertion draws attention to the need for adaptive governance that allows for market flexibility, particularly in circumstances where demand inadequacies are the result of rigid policy frameworks.

Wu further expands the conversation by discussing how new productivity transcends traditional manufacturing paradigms

Historically, new productivity has been associated primarily with tangible manufacturing outputsHowever, as the average income in China surpasses $10,000 per capita, the importance of service sectors cannot be ignoredThe integration of productivity within the modern service industry is vitalServices must grow in parallel with manufacturing to holistically cater to the diverse needs of consumers in a rapidly changing economy.

In addition to revamping domestic frameworks, Wu emphasizes the importance of attracting foreign direct investment (FDI) as integral to fostering new productivityFDI has proven critical in injecting capital as well as technological advancements into ChinaYet, the current geopolitical climate poses a challenge as global sentiments shift towards a 'de-globalization' narrativeWu posits that nurturing an inviting atmosphere for FDI—while simultaneously enhancing the legal and business environment—is essential to continue receiving international investment

This dual approach of stabilizing the domestic economy while creating a conducive atmosphere for foreign entities is vital in this current landscape.

On the flip side, Wu highlights the significance of the “going out” policy where Chinese businesses seek opportunities abroadThe complexities of international relations make this endeavor both alluring and dauntingDrawing from experiences over the past few years, Wu acknowledges that navigating these waters will require a nuanced understanding of international landscapes and strategic partnershipsThe ability to foster favorable trade conditions while ensuring scientific collaboration remains imperative as China positions itself on the global stageIn an era where other countries may tighten their borders, China’s response should be the opposite—proactively opening its markets and embracing global interconnectedness.

In conclusion, Wu Ge’s reflections on the development of new productivity serve as a blueprint for a balanced and dynamic Chinese economy