The Chinese government needed to reestablish its economic policies for the New Normal era, and it became necessary to propose a solution to the middle-income trap, as referred to by Western economists. The Chinese government recognizes that an economic stimulus package focused on aggregate demand will further deepen the existing structural contradictions. In addition, the Chinese government acknowledged that it has entered the era of New Normal and declared that it would not use artificial stimulus measures and in this process Supply-side Reform was proposed.
The supply-side reform will proceed in two stages. In the short term, it is likely to focus on reducing inefficient supply such as eliminating zombie companies through cutting overcapacity and corporate deleveraging. These problems are also related with transfer into financial risks. In the long term, the focus will be more on expanding efficient supply such as tax reduction for lowering corporate cost, deregulation and creation of new growth engines. So far, the Chinese governments diagnosis of the Chinese economy and prescriptions for short-term issues in the new normal era seem appropriate. The key to success or failure of SSSR is whether the global competitiveness of SOEs is enhanced, whether the efficiency of production factors is enhanced and whether new growth engines are created.