How is China Tackling the “Baby Formula Rush”?

By referring to China as the “world’s factory”, yielding a tremendous amount of low-quality goods, this may suggest an issue that China has long overlooked: the importance of “supply side”. Or, to put it in more clear terms, even though the Chinese market furnishes sufficient supply of diverse commodities, scores of Chinese customers are scrambling for overseas high-quality products, such as baby formula and electronic toilet seats. This has resulted from the supply side problems.

The idea of supply side is really new to Chinese. The term is similar to much other obscure political and economic jargon, without being easily understood though, signaling significant moves by the Chinese authorities. In fact, supply-side economics reform has been a buzz term in the latest economic sessions of China’s Central Committee. But what is it and why is it so important?

If we boil down the term in to its basic meaning, it is a reform initiated from production and supply by promoting the productivity and competitiveness of the manufacturing industry. The primary reform is removing the no-longer-processing enterprises and knocking out inefficient industries. In addition, innovative and emerging industries will be increasingly leading sectors in the economic development. In other words, the core tenet of supply-side economics reform is the overall promotion of productivity.

Noticeably, supply-side issues are correlated with everyday Chinese people. Currently, baby formula is among the most sought-after goods imported overseas in Chinese society. According to the report by the Dairy Association of China, the country saw 420,700 tons of infant formula exported during the first eight months in 2015 – that is 46.6 percent decrease from last year. On Singles Day (November 11, an online shopping festival) 2015, this product was the best seller among all cross-border goods in Tmall.com. In addition, paper diapers made in Japan and cosmetic products from South Korea were also amongst the most popular.

The problem stems from the inadequate supply of qualified products in the Chinese market, leading customers to resort shopping outside of China. It is probably one of the most important reasons that propel the supply-side reform. In the meanwhile, more intricate issues are rooted in the current Chinese society, including the rocketing costs of housing and uneven distribution of educational resources and medical treatment. These tricky problems are consequences of inappropriate supply-side structure.

As a matter of fact, the West has long-term experience in supply-side economics reform. The U.S. and Great Britain are two of the most referred examples in terms of conducting this reform. The former U.S. President Ronald Reagan put forth an economic recovery program in 1981, featuring tax cut in accordance with his Reaganomics. President Reagan’s program proposed to reduce tax rate, diminish government interference and lower public spending. This program is regarded as a pragmatic model of supply-side economics.

In comparison, the supply-side economics reform in China is more than adjusting the government regulation in economic reform as what President Reagan did; instead, the Chinese authorities expects to optimize the fundamental structure of Chinese economy.

On November 10, 2015, the mention of supply-side economics reform was first brought up by China’s central authorities and Chinese President Xi Jinping stated that the reform as “a remedy for China and the world’s economy” when addressing the APEC summit.

On one hand, China is pursuing an upgrade of the manufacturing industry, known as “Made in China 2025” plan, which requires efficient supply from both high-end and mid- and lower-end products. On the other, as the economic growth is slowing down, China is desperate for a better structure of its economy. The supply-side economics reform is faced with not only the sluggish Chinese economy but also Chinese people’s moans.