Social Sciences in China (Chinese Edition)

No.1, 2020

The Expansion of Domestic Demand during the Transition of the Economic Structure: A Perspective Based on Supply Restraints in the Service Sector

(Abstract)

Xu Zhaoyang and Zhang Bin

China’s economic structure is undergoing a transition from manufacturing industry to the service sector, but there are still supply restraints due to various factors in the service sector. Construction of a structural transition model of these two features can show that their combination leads to a mismatch of supply and demand, a problem of overcapacity, and insufficient domestic demand, leaving economic growth below potential. Analysis of our theoretical model and numerical simulation shows that we should eliminate supply restraints and expand effective supply in the service industry, implement a management policy conducive to expanding total consumption demand and promote the transformation of active fiscal policy from taking supporting production as the main task to taking supporting consumption as the main task. This will not only effectively expand domestic demand and lift economic growth but will also refrain from jeopardizing the sustainability of public debt.