Industrial Upgrade Driven by DomesticDemand: Rationale, Pathway and PolicyCoordination

Liu Jiejiao*1,2, Wang Xuye3, and Liu Bingbing3

1 Business School, Jiangxi Institute of Fashion Technology, Nanchang, China

2 Institute of Industrial Economics (IIE), Chinese Academy of Social Sciences (CASS), Beijing, China

3 School of Applied Economics, University of the Chinese Academy of Social Sciences (UCASS), Beijing

Abstract: Domestic demand motivates businesses to develop innovative products, servicesand industries to pursue a high-tech, high-value, and high-quality path of development. Asindustrial upgrade is fueled by domestic demand, it is essential for China to expand supplysidestructural reforms, establish a modern industrial system, and increase the momentumof endogenous development via dual domestic and international circulations. Industrialupgrade and domestic demand are mutually reinforcing. Consumption provides theimpetus for industrial upgrade, while investment serves as the guarantee. Conversely,industrial upgrade stimulates consumption and investment. Consumption and infrastructureinvestment should therefore be increased in a manner that supports industrial upgrade. Asit is a catalyst for industrial upgrade, the objective of policymakers should be to increasedomestic demand. In addition, there should be more coordination between policy objectivesand instruments and more connectivity between policymakers and implementing agencies.Sound market policies should be adopted to create a market and institutional environmentthat increases domestic demand, improves industrial upgrade, and spurs high-qualitydevelopment.

Keywords: Domestic consumption, external demand, industrial upgrade, policy

JEL Classification Code: F124

DOI: 10.19602/j.chinaeconomist.2023.07.03