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China turns to supply reforms

China is undertaking supply side reforms in a bid to sustain the growth momentum seen over the last few years. Over the last three decades there was a focus on the demand side. The rapid growth witnessed by Chinese economy during the last 30 years had capital investment, exports and consumption as its focus areas, which are all generally considered demand side parameters.

In 2008, following the sub-prime crisis in the US, China announced a four trillion yuan stimulus package to increase investment in infrastructure projects, and thereby create jobs and stimulate demand for materials used in construction. The rationale behind such a package also included a thought that wages paid to workers in newly created jobs would be spent on essentials and business would flourish. In the process, however, issues such as income distribution, rising home prices, and overcapacity were not paid attention.

By focusing on the supply side, which means stimulating economic growth through reducing barriers to production especially through tax cuts, wealth owners will be enticed to invest in things that increase supply. These may be in the form of launching new businesses or innovative goods and services. This is expected to generate sustainable, quality growth.