ACCEPT Report: "Analysis of the Economic Operation Situation under the Mismatch of Infrastructure Financing and 'Heavy Production and Light Consumption': Looking Forward to the New Cycle of China's Economic Growth"

Title: Analysis of the Economic Operation Situation under the Mismatch of Infrastructure Financing and "Heavy Production and Light Consumption": Looking Forward to the New Cycle of China's Economic Growth

Authors: ACCEPT Macro Forecasting Group (Group Leader: David Daokui Li; Deputy Group Leader: Peilin Liu; Group Members: Ke'aobo Li, Bing Li, Lin Lu, Meixin Guo, Shuyu Wu, Zhangkai Huang, Shaobo Long, Lin Fu, Xiang Xu, Jinjian Shi, Xingye Jin, Chi Zhang, He Zhang, Kun Lang, Yuntao Hou, Lujia Li, Zihang Wang, Xiang Chen, Yaping Li, Jiabao Song, Junyi Dai, Bowei Xu, Yuchuan Zheng; Main Contributors: Ke'aobo Li, Bing Li, Meixin Guo, Lin Lu, Shuyu Wu)

Language: Chinese

Publication: Reform, Vol. 1, No. 371, January 2025, 1003-7543: 1-15.

English Abstract: 

China's economy has substantial potential demand and supply, with enormous long-term growth prospects. However, it is currently facing two fundamental issues: infrastructure financing mismatch and the production-centered economic institutions. These problems have caused actual economic growth to fall below its potential level. To ensure the achievement of basic modernization by 2035, these two issues must be addressed through comprehensive reforms as soon as possible. Infrastructure financing mismatch refers to the imbalance between the long-term assets in infrastructure investments and the short-term liabilities that need to be repaid, forcing local governments to generate enough fiscal funds in the short term to repay maturing debt, resulting in economic contraction. The production-centered economic institutions refer to the long-standing preference of local governments for heavy investment, production, and supply, while neglecting consumption and demand. This has led to repeated investments, excess capacity, slow industrial upgrading, and other issues. The Third Plenary Session of the 20th Central Committee of the Communist Party of China and the Central Economic Work Conference in 2024 have clearly outlined the direction for reform. Various departments and local governments urgently need to strengthen and accelerate the implementation of specific reform policies, including the complete removal of real estate purchase restrictions, resolving local government debt issues within three years, expanding the scope and intensity of consumption subsidies in the short term, and establishing a management system that better emphasizes consumption and demand. We have strong reason to believe that, with the implementation of these reforms, China's economy is likely to restart a new upward cycle and gradually return to its potential growth rate.