Chen Yulu: Deepening the Understanding of the Relationship Between Aggregate Supply and Aggregate Demand Through the Integration of Theory and Practice
Supply and demand are two sides of the same coin in economic development. Coordinating the relationship between aggregate supply and aggregate demand is a vital component of Xi Jinping economic thought. Recently, the first volume of the Selected Economic Works of Xi Jinping was published and distributed, providing authoritative teaching material for the entire Party and the people of all ethnic groups throughout the country to deeply study and implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, especially Xi Jinping economic thought. Several works within it offer profound expositions on coordinating the relationship between aggregate supply and aggregate demand. For example, "Accelerating the Construction of a New Development Landscape to Grasp the Initiative for Future Development" points out: "The key to constructing a new development landscape lies in achieving the unimpeded flow of the economic cycle. Whether this can be achieved depends primarily on whether the supply and demand ends possess strong momentum, an overall match, dynamic equilibrium, and positive interaction." Furthermore, "Ensuring the Ship of China's Economy Braves the Wind and Waves to Sail Steadily into the Distance" notes: "We must coordinate the relationship between aggregate supply and aggregate demand and smooth the domestic economic cycle." Coordinating the relationship between aggregate supply and aggregate demand is an important new proposition put forward by the Party Central Committee with Comrade Xi Jinping at its core in the face of a complex and severe economic situation. It represents a continuous deepening of the understanding of the laws governing economic work, contains rich ideological content, and further develops Xi Jinping economic thought. Taking Xi Jinping economic thought as guidance, persisting in a systems perspective [1], and deepening the understanding of the relationship between aggregate supply and aggregate demand through the integration of theory and practice is the prerequisite for such coordination. This approach is conducive to accelerating the construction of a new development landscape and solidly promoting high-quality development.
Grounding in the domestic economic cycle to profoundly grasp the relationship between aggregate supply and aggregate demand
Supply and demand exist in a dialectical unity characterized by mutual interdependence and reciprocal conditioning. In "Deepening the Understanding of New Development Concepts and Promoting Supply-Side Structural Reform," General Secretary Xi Jinping pointed out: "Without demand, supply cannot be realized, and new demand can give rise to new supply; without supply, demand cannot be satisfied, and new supply can create new demand." From the perspective of macroeconomic operations, the supply-demand relationship in the market is expressed as the relationship between aggregate supply and aggregate demand. Aggregate supply reflects the total volume of products and services provided to the whole society by the market in a given period; aggregate demand reflects the market demand backed by purchasing power for the society's total products and services during the same period. Whether the domestic economic cycle is smooth can be judged by the balance between aggregate supply and aggregate demand. Generally speaking, when aggregate supply exceeds aggregate demand, the domestic economy operates in a state of "surplus," characterized by stagnant sales and a decline in the general price level. When aggregate supply is less than aggregate demand, the economy operates in a state of "shortage," characterized by insufficient supply and a rise in the general price level. When aggregate supply equals aggregate demand, the economy operates in a state of overall stability.
The supply-demand relationship is a vital relationship in the operation of a market economy. For a country or society, the balance of aggregate supply and demand is not decided solely by the supply-demand relationship itself, but also by the relationships between various links of social reproduction hidden behind aggregate supply and demand. Among the four links of social reproduction—production, distribution, circulation, and consumption—the production link determines the distribution, circulation, and consumption links. In the supply-demand relationship, production is on the supply side; in the domestic economic cycle, production occupies a fundamental position. The consumption link holds a unique status in the domestic economic cycle as it is both the end point of the previous cycle and the starting point of the next cycle in social reproduction. In the supply-demand relationship, consumption is on the demand side, including both productive consumption and individual consumption. Individual consumption is final consumption, constituting real and direct demand; productive consumption usually manifests as investment. Investment increases purchasing and thus increases aggregate demand. However, at the same time, the purpose of investment is production; therefore, from a future perspective, its essence is to increase aggregate supply. Thus, the role of investment in increasing aggregate demand requires specific analysis. The distribution and circulation links do not directly form supply-demand relationships, yet they play indispensable intermediary roles in the domestic economic cycle. Without income distribution, consumption is out of the question; without circulation, the cycle between production and consumption cannot be connected.
In "Grasping the New Development Stage, Implementing New Development Concepts, and Constructing a New Development Landscape," General Secretary Xi Jinping pointed out: "Economic activity requires the combination of various productive factors to be organically linked across the links of production, distribution, circulation, and consumption, thereby achieving a circulatory flow." Smoothing the domestic economic cycle requires not only coordinating the relationship between aggregate supply and aggregate demand but also promoting the interaction and organic connection between the various links of social reproduction. If the cycle between these links is smooth, material products will increase, social wealth will accumulate, people's well-being will improve, and national strength will grow, thereby forming a spiral-upward development process. If "bottlenecks" [2] or "break points" occur, the cycle will be obstructed. Macroscopically, this manifests as declining growth rates, increased unemployment, accumulation of risk, and imbalances in international payments; microscopically, it manifests as overcapacity, declining corporate efficiency, and falling household incomes.
Regarding macroeconomic governance, if one looks only at the supply-demand relationship, it is generally believed that supply-side management is for the long term while demand-side management is for the short term, making it difficult for both sides to exert force simultaneously and thus impossible to coordinate them. This understanding abstracts away the internal laws governing the interaction and organic connection between the links of social reproduction and carries a certain degree of one-sidedness. Under modern market economy conditions, the national economy is a complete and continuous whole in terms of time and space; it is a complex system in constant motion and interconnectedness. As long as social reproduction activities do not stop, the relationship between aggregate supply and aggregate demand is always in a state of mutual influence and interaction, making the coordination of the two a necessary requirement. This provides the theoretical basis for the Party Central Committee’s proposal to organically combine the strategy of expanding domestic demand with deepening supply-side structural reform. China persists in taking the deepening of supply-side structural reform as the main line, comprehensively optimizing and upgrading industrial structures, enhancing innovation capabilities, competitiveness, and comprehensive strength, and strengthening the resilience of the supply system. This effectively boosts supply capacity, thereby penetrating cyclical bottlenecks, eliminating constraints, creating jobs, and increasing income, which in turn forms demand capacity. Simultaneously, based on the actual conditions of China's economic development, fully leveraging the advantages of a super-large-scale market, establishing effective systems for expanding domestic demand, releasing demand potential, and accelerating the cultivation of a complete domestic demand system will make the construction of a super-large-scale domestic market a sustainable historical process.
Among the nine key tasks for 2025 proposed by the Central Economic Work Conference [3], the first is to vigorously boost consumption and improve investment efficiency to expand domestic demand in an all-around way; the second is to lead the development of new quality productive forces through scientific and technological innovation to build a modern industrial system. Organically combining the strategy of expanding domestic demand with deepening supply-side structural reform is precisely intended to form a higher-efficiency and higher-quality input-output relationship, clear the "stuck points" [4] and bottlenecks in the economic cycle, promote positive interaction between supply and demand, and achieve dynamic equilibrium of the economy at a high level.
Grounding in the promotion of high-quality development to profoundly grasp the relationship between aggregate supply and aggregate demand
The economic development of a country or society always seeks to achieve a balance between aggregate supply and aggregate demand, thereby realizing macroeconomic goals such as economic growth, price stability, full employment, and balance of international payments. At the same time, it must be recognized that simply promoting the balance of aggregate supply and demand does not necessarily represent growth, let alone high-quality development. Profoundly grasping that we "must coordinate the relationship between aggregate supply and aggregate demand and smooth the domestic economic cycle" cannot remain an abstraction of the balance between the two; it must be implemented within the practice of promoting high-quality development since the New Era.
Since the beginning of the New Era, the Party Central Committee with Comrade Xi Jinping at its core has proposed new development concepts, leading China's economy onto a path of high-quality development. The 19th Party Congress proposed that "China's economy has transitioned from a stage of high-speed growth to a stage of high-quality development." The 20th Party Congress further emphasized that "high-quality development is the primary task of building a modern socialist country in all respects." The Third Plenary Session of the 20th CPC Central Committee made important deployments for improving the systems and mechanisms for promoting high-quality economic development, emphasizing that "we must lead reform with new development concepts, ground ourselves in the New Development Stage, deepen supply-side structural reform, improve incentive and constraint mechanisms for high-quality development, and shape new drivers and advantages for development." This indicates that coordinating the relationship between aggregate supply and aggregate demand and smoothing the domestic economic cycle must firmly grasp high-quality development as the primary task. To this end, we must grasp it from the supply-demand relationship in economic operations and the dialectical relationship between various links of the economic cycle.
In "China's Economy Has Transitioned from a Stage of High-Speed Growth to a Stage of High-Quality Development," General Secretary Xi Jinping pointed out: "From the perspective of supply, high-quality development should achieve a relatively complete industrial system, networked and intelligent production organization, strong innovation, demand-capturing ability, brand influence, and core competitiveness, along with high product and service quality. From the perspective of demand, high-quality development should continuously satisfy the personalized, diversified, and upgrading needs of the people, which in turn leads changes in the supply system and structure, while supply transformations continuously give rise to new demand." Building on this, General Secretary Xi Jinping further pointed out the inherent requirements of high-quality development from the deeper relationships of a smooth economic cycle: "From the perspective of the macroeconomic cycle, high-quality development should achieve smooth cycles of production, circulation, distribution, and consumption, with relatively rational major proportions and spatial layouts of the national economy, and steady economic development without major ups and downs." This shows that only by grounding the coordination of aggregate supply and aggregate demand in the promotion of high-quality development can we better smooth the domestic economic cycle.
To promote high-quality development and achieve the unimpeded flow of the economic cycle, we must accelerate the construction of a new development landscape. This is because the construction of the new development landscape profoundly explains that the characteristics and advantages of a large-country economy lie in domestic demand as the mainstay and internal circulation, providing theoretical and practical guidance for us to continuously improve the quality and efficiency of national economic operations. The unimpeded economic cycle under the new development landscape is not a balance between aggregate supply and demand in the general sense, but a balance based on achieving high-level self-reliance and self-strengthening in science and technology. From the inherent requirements of the domestic economic cycle, constructing a new development landscape requires: in the field of production, persisting in innovation-driven development, achieving breakthroughs in key core technologies to solve "stranglehold" problems [5], developing new quality productive forces according to local conditions, and promoting the optimization and upgrading of industrial and supply chains; in the field of distribution, optimizing the distribution structure, developing and expanding the middle-income group, and solidly promoting common prosperity; in the field of circulation, constructing a unified national market, promoting the unification of basic market institutional rules, fair market supervision, and high-standard connectivity of market facilities; and in the field of consumption, accelerating the cultivation of a complete domestic demand system to continuously consolidate the important foundation for enhancing the dominant position of the domestic internal cycle.
Since the New Era, the Party Central Committee with Comrade Xi Jinping at its core has scientifically coordinated the relationship between aggregate supply and aggregate demand, profoundly grasped the laws of smooth domestic economic cycles, and pushed China's high-quality development to continuously open new horizons, while the total volume and quality of the economy have continuously reached new heights. From 2013 to 2024, China's GDP grew from 56.9 trillion yuan to 134.9 trillion yuan, with an average contribution rate to world economic growth exceeding 30%. Strategic emerging industries have expanded, and digital technologies such as artificial intelligence, cloud computing, and 5G have developed rapidly, with new drivers growing stronger by the day. Meanwhile, China has become one of the countries with the fastest reduction in energy consumption intensity globally, possessing the world's largest installed capacity of renewable energy and the fastest growth rate. This fully proves the vital significance of "coordinating the relationship between aggregate supply and aggregate demand and smoothing the domestic economic cycle" for promoting high-quality development.
Grasping the principal aspect of the contradiction, coordinating the relationship between aggregate supply and aggregate demand, and smoothing the domestic economic cycle
Currently, influenced by numerous internal and external factors, the circulation of our national economy still faces many problems and challenges, primarily manifested in the following ways: On one hand, the world is undergoing changes unseen in a century [6] at an accelerated pace, and the external environment is becoming more complex and severe, potentially dealing a greater blow to our country's trade, technology, and other sectors. Unilateralism and protectionism are intensifying, and the momentum of certain countries to contain and suppress China remains unabated. The adjustment and restructuring of global industrial and supply chains have obstructed the international economic circulation. Furthermore, the systems and mechanisms for our high-level opening up need to be improved and perfected, and our capacity to attract high-quality global production factors and resources needs further enhancement. On the other hand, the problem of unbalanced and inadequate development in China persists; the foundation for the economic recovery and improvement is not yet solid, and effective demand is insufficient, leading to operational difficulties for some enterprises. The populace faces pressure regarding employment and income growth, and shortcomings exist in fields related to people's livelihoods. The capacity for scientific and technological self-reliance and self-strengthening [7] needs improvement, the resilience of industrial and supply chains is not strong, and there remain many hidden risks in key areas.
Analyzing the causes, from the demand side, insufficient domestic demand—characterized primarily by sluggish consumption—has resulted in inadequate momentum and blockages within the domestic Great Circulation [8]. Moreover, since the construction of the New Development Pattern [9] is a gradual process, and the adjustment of the relative relationship between domestic and international demand cannot be achieved overnight, the adverse impacts brought by changes in the external environment will increase the challenges facing China’s economic operations. From the supply side, the transition between old and new growth drivers in China is not yet complete. It will take time for technological innovation to spawn new industries, new models, and new drivers, and to empower traditional industries. In particular, the aforementioned process requires the optimization of resource allocation; until this is achieved, the problem of uncoordinated supply and demand will emerge in the short term. From a broader perspective, deeper issues involve the transformation and upgrading of the entire structure of social reproduction and economic circulation. To this end, we must accelerate the effort to shore up the weak links in domestic demand, especially consumption.
General Secretary Xi Jinping pointed out in "Ensuring the Ship of China’s Economy Braves the Wind and Waves and Sails Steadily into the Distance" that "expanding domestic demand concerns both economic stability and economic security; it is not a temporary expediency, but a strategic move." The Central Economic Work Conference [10] placed "vigorously boosting consumption, increasing investment efficiency, and expanding domestic demand in an all-around way" at the top of the priority tasks to be tackled in 2025, fully reflecting the Party Central Committee’s profound grasp of the prominent contradictions in current economic operations. To coordinate the relationship between total supply and total demand and to ensure the smooth circulation of the national economy, we must persist in implementing the strategy of expanding domestic demand. At the same time, we must not weaken supply-side structural reform just because we emphasize expanding domestic demand. We must grasp the dialectical relationship between supply-side structural reform and the expansion of domestic demand, ensuring the ship of China’s economy braves the wind and waves and sails steadily through the systematic integration and coordination of a more proactive fiscal policy, a moderately loose monetary policy, and various policy "combination punches."
On the demand side, we must expand domestic demand in an all-around way and expand high-level opening up. We should allow consumption and investment to play their roles as engines in expanding domestic demand. Since income distribution affects final consumption, we must create more employment opportunities, increase the income levels of residents, and promote income growth and burden reduction for middle- and low-income groups. We must further shore up shortcomings in social security and basic public services, appropriately increase the basic pension for retirees, raise the basic pension for urban and rural residents, and increase the standards for fiscal subsidies for urban and rural residents' medical insurance to boost the willingness to consume. We should implement special actions to stimulate consumption. While upgrading traditional consumption, we must accelerate the cultivation of new types of consumption, innovate diversified consumption scenarios, and vigorously advocate for green and low-carbon consumption. Investment belongs to productive consumption and plays a dual role in the circulation of the national economy, requiring scientific guidance and management. On one hand, through the implementation of a more proactive fiscal policy, we should make good use of ultra-long-term special treasury bonds and leverage the leading role of major projects and the priming effect of government investment to guide and drive social investment. On the other hand, through the implementation of a moderately loose monetary policy, we should strengthen supporting financing for ultra-long-term loans, reduce financing costs, promote the recovery of profit margins, and stabilize the expectations of private investment. Because investment increases total supply in the long run, we must actively guide social investment along the path of high-quality development in accordance with national planning and macro-policy combinations, avoiding low-level redundant construction that causes new overcapacity and resource waste. The real estate industry plays a dual role in increasing consumption and stimulating investment, occupying a special position in expanding total demand; we must release demand potential while continuing efforts to promote the stabilization of the real estate market. The smooth circulation of the national economy is inseparable from an efficient and smooth distribution system; we must accelerate the construction of a national unified large market, improve the systems and mechanisms for high-level opening up, and create a favorable situation where the domestic and international dual circulations reinforce each other.
On the supply side, we must build a modernized industrial system centered on accelerating the development of new quality productive forces. We should highlight the following areas: First, promote the transformation and upgrading of traditional industries. Accelerate the high-quality development of key industrial chains in manufacturing, strengthen the reconstruction of the industrial foundation and the tackling of key problems in major technical equipment, and promote "increasing varieties, improving quality, and creating brands" in manufacturing. Second, optimize the regional layout of industries, promote the ecological development of strategic emerging industry clusters, and strengthen national strategic scientific and technological forces. Third, cultivate future industries such as bio-manufacturing, quantum technology, embodied intelligence, and 6G, and continue to advance the "AI Plus" initiative by relying on the advantages of our powerful manufacturing capacity and ultra-large-scale market. Fourth, accelerate the construction of systems and mechanisms to promote the development of the digital economy, and improve the policy system for promoting digital industrialization and industrial digitalization. We should promote the transition of manufacturing toward high-end, intelligent, and green development to create internationally competitive digital industry clusters. Finally, we should accelerate the construction of new infrastructure, enhance data security governance and supervision capabilities, and establish efficient, convenient, and secure mechanisms for cross-border data flows.
(The author is the President of Nankai University) Online Editor: Tong Xin Source: People's Daily (April 11, 2025, Page 09)