News Detail

Recently, the Chinese Academy of Fiscal Sciences (CAFS) and the Social Sciences Academic Press (SSAP) jointly published the Blue Book of China’s Fiscal Policy: Annual Report on Fiscal Policy of China (2023).

Reforming to align with the strategy of cultivating a domestic demand system and expand domestic demand is a major and like-new topic. China’s journey through reform and opening-up has been marked by continuous evolution, with each period characterized by distinct goals, tasks, and approaches. Theoretically, reform is a concept adapting with the times. A deeper understanding of these reforms hinges on grasping macroeconomic trends shaping our world today.

The report identifies four major trends: digitalization, low-carbon, financialization, and urbanization. The first two are global, requiring us to keep pace with the digital revolution, which we can capitalize on in order to establish a dominant position in the digital economy. Data is poised for becoming a primary driver of value creation, and the new generation of artificial intelligence will emerge as a new foundation for the technological economy and a new starting point for the economic and financial ecology. This shift is closely tied to supply innovation, which, in turn, spurs new consumer demands. Low-carbon is set to fundamentally alter valuations of corporate balance sheets and wealth in a transformative way. Nations worldwide are increasingly scrutinizing risks, especially financial risks, from a climate change perspective. In the financial sector, loans to high-carbon industries are now seen as carrying greater risk. For corporate investments, low-carbon represents both a new direction and a standard.

The latter two, while largely realized in developed economies, continue to unfold in China. An economy’s development level is deeply intertwined with its financialization. Once seen simply as a symbol and measure of wealth, money is now also recognized as a store of value, elevating it to a form of wealth. Historically, wealth was perceived from its use value and as tangible. However, contemporary wealth is increasingly defined by value-based and virtual, predominantly represented in various financial assets. These assets, reflecting the market’s fair value, are subject to continuous valuation adjustments, directly impacting domestic demand. When the value of wealth fluctuates, so will domestic demand. Urbanization in China remains an ongoing process, integral not only to improving the lives of rural residents but also to boosting their income. These four trends present new objectives and tasks for both current and future reforms, calling for a reassessment of the fundamental nature of these reforms.

What is reform? This question demands a fresh perspective. Confronted with new trends, without continuous reforms, there is a real risk of stagnation and marginalization on the international stage. To grasp the magnitude of this need, it’s crucial to look through the lens of historical progress. Agricultural societies evolved over millennia, industrial societies over centuries, but our current digital society is undergoing significant changes with each passing decade. This rapid transformation is highlighted by advancements in artificial intelligence, represented by ChatGPT. Within the next decade, such technological advancements could not only replace numerous job roles but also profoundly reshape our production and lifestyle patterns. The digital revolution, succeeding the industrial revolution, marks a monumental shift in human civilization. Its impact on humanity is far more profound than that of the industrial revolution, and it cannot be adequately understood through the lens of industrial-era logic. The rules established during the agricultural and industrial eras are quickly becoming obsolete. In the slow society of the past, there was a luxury of time to develop societal norms, including laws, systems, documents, and even hidden concepts, morals, and standards. These constructs had a longer shelf life and could be modified incrementally. In today’s fast society, changes occur so rapidly that traditional societal norms struggle to keep up. This discrepancy has led sociologists to describe our era as one defined by risk, where the pace of reform must align with the speed of emerging risks to prevent and mitigate major risks, thus averting disruptive crises.

Discussing the expansion of domestic demand in isolation from macro trends is to engage in myopic policy-making. Expanding long-term domestic demand should not be perceived as static or isolated. In deepening reforms and boosting domestic consumption, the reports to the Fifth Plenary Session of the 19th CPC Central Committee and the 20th CPC National Congress as well as this year’s work report have all urged to integrate developmental strategies with structural reforms and innovation-driven strategies. How? In this context, structural reform should aim at transforming the urban-rural dual system, while the essence of innovation-driven strategy should revolve around institutional innovation. Viewing reforms through the lens of state modernization, it becomes apparent that past reforms were driven by adequate food and clothing, now we demand quality. This shift entails promoting the free, comprehensive, and equitable development of individuals through institutional innovation. Alternatively, we must transition from a material-centric approach to a human-centric logic in both current and future reform innovations.