Professor / Vice Dean of National School of Development
Under the background of China's economic growth in the latest decade, we analyze the advantages and disadvantages of the multi-variety of tools in regulating aggregate demand and discuss the reform direction. We will review the characteristics China's economic growth in the recent decade and divide it into four periods. Base on the in-depth analysis of the regulation practice, we will summarize the specialties of the policy tools and give some advice on future reform direction.
We can casually divide the latest decade into 4 periods. From 2000 to the first half of 2003, though inflation was not very serious, the quick recovery paved the way for the future inflation pressure. After 2003, China's economy grew very rapidly, and inflation gradually becomes an important issue.
During 2003 to the first half of 2005, tackling inflation became a vital task for the government. However, our open macroeconomic policy framework was defected. Therefore, parameter adjustment was not very effective, and quantitative, sectorial, administrative regulation became main instruments in controlling inflation. Though the policies showed effects in 2005, inflation became more serious in 2006 and 2007. From the second half of 2005 to the first half of 2008, other than previous tools, exchange rate policy also contributed to control inflation. Since the second half of 2008, because of the subprime loan crisis, inflation was fairly tamed.
Although various policy tools played a central role in controlling inflation, there are many criticisms. The main point is that those policies intervene too much in micro economy, which is detrimental to the stability and perfection of our market economic system and order. Therefore, we need to make exchange rate and interest rate more functional in aggregate demand management and improve the open macroeconomic policy framework.