In China, the country's total purchasing power is distributed among various economic entities based on its income distribution structure. However, this distribution process may create problems, such as mismatches between purchasing power and spending willingness. Some individuals may have the desire to spend but lack the purchasing power, while others may have the purchasing power but lack the willingness to spend. This can result in inadequate economic demand or effective demand.
In situations where the government holds a substantial amount of assets and decides to portion out part of the national income, there are two ways the market can achieve demand-supply balance: one is for the government to transfer income to the private sector, enhancing the sector's ability to create effective demand; two is for the government not to transfer income to the private sector but to create effective demand itself. If the government chooses not to transfer income, it becomes the primary driver of spending.
In recent years, China has experienced instances of inadequate demand, which I attribute primarily to the government's failure to return income to the people and its lack of initiative in spending. As a result, the national economy remains in a state of stagnation, with effective demand continuing to deteriorate.
A misguided perspective holds that the government should not intervene in the market, believing that government spending will crowd out private demand and therefore should be reduced. However, proponents of this view fail to grasp the unique characteristics of China's income distribution structure.
In reality, the government's reluctance to intervene in the market has led to an imbalance in the distribution of income and wealth, exacerbating the issue of effective demand. To address this, the government must assume a more active role in creating demand and stimulate economic growth. This can be achieved through a range of measures, including investment in infrastructure, education, and social welfare programs.
Ultimately, the key to reviving China's economy lies in finding a balance between government intervention and market mechanisms. By recognizing the importance of government-led demand creation and investing in sustainable and inclusive economic growth, China can overcome its current economic challenges and restore its position as a global economic leader.