Whether expressed as “strong supply, weak demand”, overcapacity or some form of a “K-shape”, a consensus has emerged that insufficient demand is the central weakness of the Chinese economy. The persistent debate centres on how best to fill that demand gap.
Economists of a Keynesian bent, such as Yao Yang, Yu Yongding and Zhang Ming, all concede to varying degrees that the pre-2021 economic model had problems. However, they all argue that the most urgent task is to repair local government balance sheets in order to restore economic activity in traditional construction and manufacturing. They suggest that reform to the economic model, whether in favour of emerging industries or household consumption, would be too slow and inadequate to meet the current challenges of stagnant demand, investment and employment.
Such thinking was prominent in a recent, widely shared speech by the Tsinghua economist Li Daokui. Li argues that while the new industries have failed to expand sufficiently to repla…