Structural Adjustment Approaches and Policy Design of the Chinese Economy: A Comparison Between New and Old Structural Economics

Abstract

The structural adjustment of China’s economy requires the support of economic theories dedicated to structural issues. But new structural economics (NSE) is significantly different from old structural economics (OSE) in terms of development strategies and policies. They expound on the paths of industrial structure improvement and steady economic growth for developing countries from two different perspectives, comparative advantage and first-mover advantage, which result in a toss-up. From the clashing theories and observations of the true state of Chinese economy, we can see that the core features of China’s current economic structure are a cumulative result of the insufficient “complementary” and “inducing” roles of government investment, which requires the introduction of certain investment models to design an effective structural adjustment plan. From the perspective of investment priority, scope (public service or production), motives, capacity and decision-making and multi-sectoral coordination, this paper analyzes the key connections between NSE and OSE and strives to design an appropriate and accurate investment plan from the perspective of stability, flexibility and underpinning in the hope of resolving the issues facing the structural adjustment of the Chinese economy. The first step is to identify investment priorities and enable the market to play the decisive role and the government the guiding role. The second step is to identify crucial nodes and adapt investments to trends of the new industrial revolution. The third step is to focus on the resolution of livelihood issues to steer China out of the low-income trap and clear of the middle-income trap. Not only do investment variables have to become an instrument to continuously improve China’s factor endowment structure, but also investment as a mechanism underpinning development has to be adopted throughout the entire duration of the process of reform to fulfill the goal of structural adjustment pursued by both NSE and OSE.