Chen Yanbin: Practical Outcomes and Theoretical Innovations in Coordinating Supply and Demand
Supply and demand are the two fundamental aspects of the internal relations of a market economy; their relationship is a dialectical one of both opposition and unity. Since the New Era, facing complex and volatile situations at home and abroad, the Party Central Committee has attached great importance to coordinating the expansion of domestic demand with the optimization of supply. It has continuously deepened its regular understanding of the relationship between aggregate supply and aggregate demand, pushing high-quality development to new heights. At the 2024 Central Economic Work Conference, General Secretary Xi Jinping clearly stated that in practice, we have continuously deepened our regular understanding of economic work, one principle of which is that "we must coordinate the relationship between aggregate supply and aggregate demand well, and ensure the smooth circulation of the national economy." This regular understanding not only reflects the rich practice and successful experience of China's macroeconomic governance in the New Era but also provides theoretical guidance for smoothing the national economic cycle and forming a dynamic balance between supply and demand at a higher level. Furthermore, it represents an important contribution to the construction of an independent knowledge system of Chinese economics. Accurately grasping the theoretical breakthroughs and innovations in "coordinating the relationship between aggregate supply and aggregate demand well" possesses significant academic value and practical meaning.
Deepening the Regular Understanding of Coordinating Supply and Demand
Aggregate supply and aggregate demand together determine the overall output level and other important macroeconomic aggregates, thereby determining the basic pattern of macroeconomic operations. Aggregate supply refers to the sum of all final products and services that a country or region can provide within a certain period; it reflects the optimal production capacity of the economy under specific conditions. Factors influencing aggregate supply primarily include traditional productive factors such as capital and labor, as well as other important factors like technology, institutions, and growth policies. Aggregate demand refers to the total demand for products and services by the whole society, including domestic and foreign demand. Factors influencing aggregate demand primarily include household consumption, investment, net exports, government spending, and monetary and fiscal policies. When the factors influencing aggregate supply and aggregate demand change, the state of macroeconomic operation shifts, and the general price level and total output change accordingly. By issuing economic policies, macroeconomic regulation departments can influence both aggregate supply and aggregate demand.
For a long time, we have attached great importance to the balanced development of aggregate supply and aggregate demand within Chinese-path macroeconomic regulation and macroeconomic governance. As early as the "Eighth Five-Year Plan" [1] outline, it was explicitly proposed to strive for a basic balance between total social demand and total social supply. The "Eleventh Five-Year Plan" outline also explicitly required continuing to balance total demand and total supply, with particular emphasis on strengthening institutional, planning, and policy coordination. It must be noted that Chinese-path macroeconomic regulation and macroeconomic governance are not confined to short-term stability goals, but aim to achieve multiple important objectives such as short-term stability, long-term growth, and the optimization of the macroeconomic structure. For short-term stability goals, efforts can mainly be made from the side of aggregate demand. For important goals such as long-term growth and structural optimization, more effort must be made from the side of aggregate supply, while focusing on strengthening the coordination and cooperation between aggregate supply and aggregate demand. It is precisely thanks to the scientific regulatory concept of the balanced development of aggregate supply and aggregate demand that the Chinese economy successfully navigated challenges such as the late-1990s Asian financial crisis and the 2008 international financial crisis.
Since the 18th Party Congress, the Central Committee has attached even greater importance to coordinating the relationship between aggregate supply and aggregate demand, continuously deepening its regular understanding as the stages of economic development and domestic and international environments have changed.
First, using supply-side structural reform as a grasp [2], we have focused on optimizing aggregate supply to better adapt to changes in aggregate demand. General Secretary Xi Jinping first proposed the concept of "supply-side structural reform" in 2015. The reason for proposing this reform was that the "principal aspect of the contradiction" [3] facing China's economic development at the time was on the supply side. In the process of continuous economic and social development, household demand has continuously upgraded, but the quality of products and services supplied by enterprises failed to keep pace. To ensure supply better adapts to changes in aggregate demand, we must deeply advance supply-side structural reform. From a long-term perspective and based on international experience, economic development fundamentally depends on the supply-side push. In advancing supply-side structural reform, the main direction is to improve the quality of the supply system, reduce ineffective and low-end supply, expand effective and mid-to-high-end supply, enhance the adaptability and flexibility of the supply structure to changes in demand, and increase total factor productivity.
Second, using demand-side management as a grasp, we have focused on expanding aggregate demand so that supply-side structural reform and demand-side management complement each other. Since the 18th Party Congress, under the strong leadership of the Party Central Committee with Comrade Xi Jinping at its core, China has firmly implemented the strategy of expanding domestic demand, accelerated the cultivation of a complete domestic demand system, and treated the expansion of domestic demand as a key focus for accelerating the construction of the New Development Paradigm. In recent years, profound changes have occurred in the domestic and international situations, and the problem of insufficient internal demand—especially sluggish consumption—has become increasingly prominent in China's economic development. During the 38th collective study session of the 18th CPC Central Committee Political Bureau, General Secretary Xi Jinping proposed "demand-side management," requesting the effective use of this important tool so that supply-side reform and demand-side management complement and reinforce each other.
Third, we have persisted in ensuring that deepening supply-side structural reform and expanding effective demand work in synergy. Supply-side management and demand-side management are the two basic means of regulating the macroeconomy. To discuss the supply side while abandoning the demand side, or vice versa, is one-sided; the two do not have an "either-or" relationship where one replaces the other. Rather, they must cooperate and advance in coordination. The report to the 20th Party Congress explicitly proposed "organically combining the strategy of expanding domestic demand with the deepening of supply-side structural reform." General Secretary Xi Jinping emphasized at the 2024 Central Economic Work Conference the need to persist in the synergistic effort and dynamic balance of both the supply and demand sides. All of this has further deepened the regular understanding of the relationship between aggregate supply and aggregate demand.
Under the overall deployment of the Party Central Committee, various departments have worked in synergy and implemented multiple measures to achieve a dynamic balance between aggregate supply and aggregate demand. By persisting in dual-directional efforts on both supply and demand, and continuously deepening supply-side structural reform—"advancing in some areas while retreating in others, protecting some while curbing others" [4]—we have enhanced the suitability and balance between supply and demand. On the demand side, we have continued to expand effective investment to drive high-quality capital accumulation and solidify the foundation of aggregate supply. On the supply side, we have emphasized improving supply quality to meet and generate new demand, continuously injecting momentum into aggregate demand. Since the New Era, by coordinating aggregate supply and aggregate demand, China has not only achieved steady economic growth and price stability but has also made significant achievements in areas such as people's livelihoods, innovation, and green development, laying a solid foundation for high-quality development.
Breakthroughs Relative to Western Macro-Policy Theory
Over the past century, Western macro-policy theory has undergone several milestone evolutions, including Keynesianism, monetarism, and New Keynesianism, gradually building a theoretical system with short-term counter-cyclical adjustment at its core. The core of this theory is the use of short-term stabilization policies, such as monetary and fiscal policies, to conduct aggregate demand management to achieve objectives of short-term economic and financial stability; thus, it can also be called aggregate demand management theory. Western macro-policy theory primarily focuses on aggregate demand and pays less attention to aggregate supply; moreover, it lacks a modern consideration of coordinating the three major categories of macro policies—stabilization, growth, and structural policies—to achieve healthy macroeconomic development.
There are several main reasons why Western macro-policy theory pays less attention to aggregate supply:
First, Western macro-policy theory is rooted in the macro-policy practices of the industrial era in developed European and American economies, where economic growth has already stabilized. Therefore, the operating mode of aggregate supply is in a relatively stable state. In this steady state, the rate of economic growth is mainly determined by factors such as technological progress and institutions, upon which Western macro-policies centered on monetary and fiscal tools find it difficult to have a substantive impact. Based on this, Western macro-policy theory holds that attention should be concentrated on the demand side, which macro-policy can adjust, without needing to pay excessive attention to aggregate supply.
Second, Western macro-policy theory assumes that economic fluctuations caused by aggregate supply shocks can be handled to some extent through the effective combination of aggregate demand management and efficient expectations management. However, with the continuous development of the digital economy, the laws of economic operation, economic structures, and growth trends have all undergone significant changes in all countries, and the applicability of Western macro-policy theory derived from the industrial era has weakened. Not only that, but supply shocks in the digital economy era are increasingly multi-sourced; even when combining aggregate demand management with expectations management, it is difficult to effectively respond to aggregate supply shocks.
Third, Western macro-policy theory emphasizes the logic of "market-led supply, government-regulated demand." However, in the digital economy era, data has become an important factor of production. From the supply side, the data factor may break traditional economic laws, such as diminishing marginal returns or constant returns to scale, leading to mutations in macro-policy transmission mechanisms. Focusing only on demand-side regulation while ignoring the supply side, Western macro-policy theory cannot effectively respond to the major changes on the supply side in the digital economy era.
Due to these reasons, in the nearly 20 years since the 2008 international financial crisis, developed European and American economies have struggled to escape the predicament of sluggish economic growth. The flaws of Western macro-policy theory—focusing on aggregate demand while ignoring aggregate supply and lacking a "Great Macro" [5] perspective—have continuously become apparent, triggering profound reflections on Western macro-policy theory across various sectors.
The new regular understanding of "coordinating the relationship between aggregate supply and aggregate demand well" proposed by the Party Central Committee is based on China's long-term practical experience in using stabilization, growth, and structural policies to simultaneously regulate aggregate demand and aggregate supply. It achieves breakthroughs relative to Western macro-policy theory in three main aspects, contributing to the construction and improvement of an independent knowledge system of Chinese economics and possessing major academic value.
First, coordinating the relationship between aggregate supply and aggregate demand can more effectively deal with aggregate supply shocks and promote steady economic development. Western macro-policy theory focuses policy efforts on the demand side, making it difficult to provide effective strategies when faced with complex and multi-source aggregate supply shocks. By coordinating the relationship between aggregate supply and aggregate demand and acting from the supply side, enterprise profitability can be improved, pushing firms to increase R&D investment, which in turn improves human capital accumulation and technological research levels. This helps counter aggregate supply shocks and promotes steady economic development.
Second, coordinating the relationship between aggregate supply and aggregate demand can more effectively deal with aggregate demand shocks and improve the governance capacity of macro-policy on the demand side. The prerequisite for the application of Western macro-policy theory is that the potential growth rate remains in a stable state over the long term; however, since the 2008 international financial crisis, the potential growth rates of major economies have shown a significant downward trend. Coordinating the relationship between aggregate supply and aggregate demand can push the long-term potential growth rate higher, thereby exploring feasible paths to smooth the national economic cycle and form a higher-level dynamic balance between supply and demand.
Third, coordinating the relationship between aggregate supply and aggregate demand can better adapt to the laws of economic operation in the digital economy era. The key lies in using stabilization policies like monetary and fiscal policy to regulate aggregate demand, while also using growth policies and other important economic policies to regulate aggregate supply, thereby better leveraging the positive driving role of data factors in forming new drivers of economic growth. This can effectively remedy the policy failure in the digital economy era caused by Western macro-policy theory's exclusive focus on aggregate demand to the neglect of aggregate supply.
The new regular understanding of "coordinating the relationship between aggregate supply and aggregate demand well" has upgraded the "Aggregate Supply-Aggregate Demand" (AS-AD) analytical framework. It is a major breakthrough and innovation of Western macro-policy theory, providing academic support for improving the macroeconomic governance system and comprehensively enhancing macroeconomic governance capabilities.
Providing a Basis for Situational Analysis and Policy Formulation
The new regular understanding of "coordinating the relationship between aggregate supply and aggregate demand well" has the following three characteristics:
First, it is supported by the "Aggregate Supply–Aggregate Demand" analytical framework as its foundation, emphasizing the theoretical logic of economics. Although in Western economic policy practice, aggregate demand is primarily regulated through demand management, theoretically, the AS-AD framework is a crucial analytical framework in macroeconomics. By considering the interaction between aggregate supply and aggregate demand, one can grasp the laws governing changes in macro-variables such as total output and price levels, providing an important theoretical basis for judging the state of supply-demand balance in economic operations.
Second, attention must be paid not only to expanding domestic demand but also to broadening external demand. Both domestic and external demand are vital components of aggregate demand. Expanding domestic demand is a major strategy that China has long adhered to. Making domestic demand the primary driver and stabilizing anchor of economic growth not only helps enhance the initiative, resilience, and flexibility of the domestic cycle, promoting consumption upgrading and investment optimization, but also better fulfills the increasingly diversified needs of the masses. At the same time, external demand remains significant in China’s economic development. Stabilizing and broadening external demand assists in further exploring international markets, optimizing export structures, and elevating the position of industrial chains in the global division of labor, thereby better smoothing the economic cycle. Domestic and external demand complement and reinforce each other, contributing to the formation of a New Development Landscape with the domestic cycle as the mainstay and the domestic and international dual circulation promoting one another.
Third, while optimizing the supply structure, even greater emphasis must be placed on maintaining aggregate supply at a reasonable level. This requirement is not only an important supplement to supply-side structural reform but also a vital prerequisite for achieving steady macroeconomic operations. Deepening supply-side structural reform has, at its core, the task of starting from "structure," focusing on improving the supply structure and enhancing supply quality to better meet the needs of economic transformation, upgrading, and social diversification. From this perspective, the focus of reform is primarily centered on industrial structure optimization, the enhancement of factor allocation efficiency, and the improvement of supply quality. In comparison, the connotation of aggregate supply is more comprehensive: its scope includes both the continuous deepening of supply-side structural reform to promote structural optimization and the assurance that aggregate supply remains relatively stable at the aggregate level, thereby avoiding macroeconomic fluctuations caused by imbalances between supply and demand. The 2024 Central Economic Work Conference proposed the comprehensive rectification of "involutionary" competition [6], which is also an important measure aimed at implementing precision governance over aggregate supply.
In general, the "aggregate supply–aggregate demand" analytical framework helps in grasping the trends of macroeconomic operations more comprehensively and systematically. On this basis, adopting appropriate macroeconomic policies—including stabilization policies acting on aggregate demand, growth policies acting on aggregate supply, and structural policies capable of adjusting the respective structures of aggregate demand and aggregate supply—to achieve "the integration of the three policies" will help the macroeconomy better form a high-level dynamic balance between supply and demand and promote a virtuous cycle in the national economy.
Achieving a Higher-Level Dynamic Balance of Supply and Demand
The fundamental reality that China’s economy is trending toward long-term improvement has not changed, but coordinating aggregate supply and aggregate demand still faces challenges. We must adhere to a systems perspective and strive to promote a dynamic balance between the two at a higher level, where demand pulls supply and supply creates demand.
From the supply side, we must persist in deepening supply-side structural reform. There are various types of supply-side economic policies, of which supply-side structural reform is a critical one. Deepening this reform can fundamentally resolve structural contradictions between supply and demand, forming a favorable situation where high-quality supply leads and creates demand, providing proactive supply-side support for the coordination of supply and demand. First, we must leverage market mechanisms to encourage enterprises to increase the supply of high-quality products and services. The key lies in adhering to the lead of science and technology and the drive of innovation; this can promote the transformation and upgrading of traditional industries while fostering the growth of strategic emerging industries and future industries. By enhancing the adaptability and flexibility of the supply structure to changes in demand, we can achieve the creation and stimulation of new demand through new supply. Second, we must persist in "advancing in some areas while retreating in others, protecting some while pressuring others, and increasing some while decreasing others" [7]. For certain industries, we must comprehensively rectify "involutionary" competition, maintain reasonable capacity utilization rates, and form a healthy and sustainable industrial development ecosystem. Third, we must fully leverage the amplifying, overlapping, and multiplying effects of data as a key factor of production [8]. We should empower the improvement of total factor productivity through data, make the digital economy bigger and stronger, promote the integration of the physical and digital economies, expand new spaces for economic development, and build new advantages in national competitiveness.
From the demand side, we must treat the expansion of domestic demand as a long-term strategic move. Expanding domestic demand concerns both economic stability and economic security; it is not a temporary expedient but a long-term strategic endeavor. Focusing on the field of consumption: First, we must vigorously improve employment so that residents have higher and more stable incomes to enable consumption. Employment and income are the foundational forces supporting household consumption, and we must persist in a multi-pronged approach. We must stabilize employment by increasing efforts to help enterprises retain staff to ensure the stability of the overall employment situation; we must expand positions by vigorously developing new business forms and models to continuously create new jobs and open new spaces for employment; and more importantly, we must increase incomes. This involves improving wage growth mechanisms and promoting income increases through multiple channels—especially promoting income growth and burden reduction for middle- and low-income groups—to strive for resident income growth to be basically synchronized with economic growth, and for labor remuneration increases to be basically synchronized with labor productivity gains. Second, we must further improve people's livelihoods so that residents can consume without worries. We should increase fiscal investment and deepen reforms in fields such as education and healthcare to continuously improve systems and mechanisms. Third, we must focus on improving the consumption environment so that consumers have good experiences and are willing to consume. This involves strengthening the protection of consumer rights and interests to create a safe and secure consumption environment, as well as innovating and enriching consumption scenarios to accelerate the development of new types of consumption such as digital, green, and smart consumption. Fourth, we must increase high-quality supply to release consumption potential and promote the upgrading of consumption quality. Starting from relaxing market access, reducing restrictions, and optimizing supervision, we should expand the supply of diversified services such as healthcare, elderly care, childcare, and domestic services.
Focusing on the field of investment: First, we must improve investment quality. We should apply precise force in project selection and capital direction, increasing investment in fields such as technological innovation and industrial upgrading, with a focus on supporting breakthroughs in key core technologies and the development of strategic emerging industries. We must strictly control project entry to avoid low-level redundant construction. Second, we must improve investment efficiency. We must not only innovate and optimize investment and financing mechanisms and deepen the reform of the investment and financing system, but also innovate financial products and services, broaden financing channels, and reduce financing costs. Furthermore, we must strengthen the whole-process management of projects, performing well in feasibility studies and risk assessments to ensure the scientific nature of investment decision-making and expand investment demand with reasonable returns. Third, we must improve the investment structure. Regarding the direction of investment, we must emphasize both "hard investment" such as infrastructure and increase "soft investment" such as education, achieving an organic combination of investing in things and investing in people. Regarding the subjects of investment, we must leverage the guiding role of government investment while stimulating the vitality of private investment, forming a virtuous interaction between government and social investment.
From the perspective of policy coordination, we must strengthen the synergy and cooperation between stabilization policies, growth policies, and structural policies, focusing on enhancing the consistency of the macroeconomic policy orientation. Both the theory and practice of macroeconomic policy demonstrate that relying on a single type of policy is insufficient to effectively regulate aggregate demand or aggregate supply, let alone coordinate the balance between them. Regarding aggregate demand, we must use not only stabilization policies such as monetary and fiscal policy to regulate the scale of aggregate demand, but also structural policies to regulate its structure. Regarding aggregate supply, we must use not only growth policies to regulate the scale of aggregate supply, but also structural policies to regulate its structure. To target the virtuous cycle between aggregate demand and aggregate supply, we must use structural policies to lift the potential growth rate to the optimal growth rate corresponding to the optimal macroeconomic structure, and we must coordinate stabilization, growth, and structural policies to form a higher-level dynamic equilibrium of supply and demand. The key to coordinating the relationship between aggregate supply and aggregate demand lies in enhancing the consistency of the orientation of various macroeconomic policies. First, we must enhance the consistency of monetary and fiscal policy orientations. This facilitates the coordination between the two, more effectively expanding aggregate demand and addressing the primary contradictions in current economic operations. Second, we must enhance the consistency of the orientations of stabilization, growth, and structural policies. The institutional mechanisms of macroeconomic policy in Western developed countries have flaws; the divergent interests of multiple interest groups mean that macroeconomic policies often find it difficult to achieve effective coordination. Unlike Western developed countries, the long-term policy practice in China's macroeconomic governance is able to effectively coordinate stabilization, growth, and structural policies to achieve the "integration of the three policies," thereby exerting force from both the aggregate supply and aggregate demand sides simultaneously to form an important support for sustained economic development. Therefore, in addition to using stabilization policies to regulate the scale of aggregate demand and growth policies to regulate the scale of aggregate supply, we must also use structural policies to regulate the structures of both. Third, we must improve the system of macro-control policies. This will help relevant departments rationalize the logic of regulation, enhance the ability to exert force from both the supply and demand sides, and provide institutional guarantees for enhancing the consistency of macroeconomic policy orientations, thereby coordinating the relationship between aggregate supply and aggregate demand and smoothing the national economic cycle.
(The author is a specially invited researcher at the CASS Research Center for Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and Director of the Institute of Industrial Economics)
Source: Economic Daily (October 14, 2025) Web Editor: Huihui