Optimize The Supply-deflation

Great changes had happened in China's economy after the Asian Financial Crisis broke out in 1997. The declines in domestic demand, export and investment in China, besides, the fall in the economic growth speed indicated the emergence of deflation had appeared gradually. In order to release the bad effects of deflation and bring economy out of the difficulties, the Government, inspired by the experiences of dealing with deflation in foreign countries, has put Keynes' expansionary fiscal and monetary policy decisively into practice since the latter part of 1998.In respect of finance policy, Government investment (mainly the State bonds) was implemented to stimulate demands and increase economic development. From 1998 to the end of 2002, up to 660 billion Yuan long-term State bonds had been issued to finance constructions of basic public facilities such as highway, electrified railway, electricity distribution network in rural areas and water conservancy project. The implementation of expansionary fiscal policy, to some extends, eased the bad effects of deflation and brings the downturn of economic growth to a halt. However, the low marginal propensity to consume, uncertainty of revenue expectation, defects in marketing economy frame, what's more, the crowding-out effect made the results of expansionary policy far from satisfaction. To speak of monetary policy, in order to cooperate with the expansionary policy, the Government has, in resent years, lowered the deposit rates eight times and reserve rate twice, moreover, abandoned the loan limit control on State-owned Commercial Banks. Unfortunately, the effectiveness of expansionary monetary policy remained doubtful due to the liquidity trap and the inefficient conduction of monetary policy.Nowadays, the inadequate aggregate demand is still the main factor that restricts China's economic development. It is obviously of great necessity to stimulate the aggregate demand under such circumstances. On the other hand, the aggregate supply play a ?consequential role in GDP, thus, the economic growth relies much on the aggregate supply status. As a result, something must be done to optimize the supply so as to fulfill the sustaining rapid development of our economy. The excess ofoverall supply than demand in respect of scale and quantity, in fact, accumulated a substantial overstocking. However, the excess of supply was not completely caused by the inadequate domestic consumption, and it contained the unappealing supply produced by the redundant low-standarded construction in the course of extensive development. To eliminate the unappealing supply, we shall optimize the supply that relies greatly on the successful implementation of structure adjustment policy. Besides, great effort shall be put on energizing civil economic strength, technical innovation, tax reduction and economic system reform.