Abstract: The challenges faced by the Chinese economy after the COVID-19 are no less than that brought about by the external demand collapse during the 2008 international financial crisis. Their common lies in the overproduction caused by insufficient effective demand for final consumption, rather than simply insufficient total demand. The reason is that the supply effect of China’s efficient investment far exceeds the demand effect that foreign markets and domestic private sectors absorb its output. In this case, the focus of economic policy should be to address the problem of insufficient effective demand for final consumption with increasing national fiscal expenditure as its main measure. The “four-trillion-yuan investment plan” in 2008 mistakenly focused on investment rather than insufficient effective demand for final consumption, which resulted in new overproduction. The superposition of old and new overproduction triggered the subsequent contraction, thus resulting in the continuous decline of economic growth rate, the high corporate debt ratio and the increased unemployment. The impact of the COVID-19 has made this situation even so serious that the current Chinese economy is in danger of falling into a “chronic depression period”. In order to quickly resolve this dilemma and return the Chinese economy to the track of “medium to high growth”, China should adopt more active fiscal policies in the next decade or so, i.e. we should, through fiscal support, continually and significantly increase the income level of workers, especially low-income groups, and enhance the level of public service consumption to solve the problem of insufficient effective demand for final consumption, which is also the fundamental way to solve the current unemployment problem. To this end, the Central government should take the following policy measures in terms of expenditure: implementing employment security plans on a large scale, significantly increasing fiscal expenditure on public services, solving local government financial difficulties through central government fiscal transfers, and making strategic investments in technology innovation, renewable energy revolution, and the next industrial revolution to prevent inflation.

Key words: the COVID-19, four-trillion-yuan investment plan, overproduction, national finance, effective demand, People’s Keynesianism