China’s economic planner wants people to buy more homes and furniture, but some just need a job
- Boosting consumption is essential in shoring up China’s economic growth this year, but piecemeal plans announced on Monday reflect Beijing’s dilemma
- To ‘stabilise big-budget consumption’ of homes and cars, the NDRC says some restrictions must be lifted, including those aimed at reducing pollution
Beijing is trying to get China splashing out on big-ticket items like it used to, and a new plan to that end features incremental measures aimed at improving both the supply of goods and consumer sentiment, but some analysts say that such piecemeal policy tweaks will do little to restore battered confidence.
Measures unveiled in the consumption-stimulation plan on Monday are extensive but still much more restrained than many had hoped, and this reflects the dilemma Beijing faces in trying to strike a balance between curbing systematic risks and convincing everyday citizens to tap into their savings at a time rife with uncertainties.
The plan is a far cry from the shock-and-awe stimulus package Beijing unleashed in the wake of the global financial tsunami in 2007. This time around, the country’s top economic planner is instead focused on reducing the business costs for goods and services, in hopes that this will trigger more spending.
But while the country’s top economic planner pledged to lower prices to boost spending, it said little about raising income and employment levels – critical fuel for the consumption machine.
Covering expenditures across nearly all aspects of life, the plan aims to give full play to “the fundamental role of consumption in economic growth”, the National Development and Reform Commission (NDRC) said.
Coming at a time when China’s post-Covid recovery has lost momentum, with falling exports and suppressed investment figures, the plan includes 20 measures targeting various sectors – from property and cars to dining – and it is in line with Beijing’s recent calls and directives at high-level meetings
However, “some residents have weak confidence in spending, and they have many concerns”, he conceded.
In a bid to “stabilise big-budget consumption”, the NDRC decreed that authorities must ensure that first-time homebuyers and those who seek to improve their housing conditions are supported. It also banned local-level governments from issuing further car-purchasing restrictions that had been widely imposed in a bid to cut carbon emissions.
Additionally, it said the services sector will benefit from more rapid approvals of large-scale concerts and sporting events.
The plan’s unveiling also came after the NDRC, at an economic meeting on Sunday, said that expanding household consumption was one of the major tasks for the central government over the remainder of this year.
Officials are hoping to see big-budget expenditures recover steadily, with spending on services growing at a “relatively quick growth rate”, while private investment revives, according to an official readout of the meeting on the commission’s website.
In July, multiple ministries jointly rolled out two separate plans to support purchases of cars, household appliances and furniture.
What the government is offering is subtraction – offering lower prices – but what’s more needed is addition – higher income
Weak consumer confidence has been one of the top challenges for China since the onset of the pandemic. Last year, consumption accounted for 32.8 per cent of China’s gross domestic product (GDP) growth, down from 54.5 per cent in 2021.
Shao Yu, chief economist at Shanghai-listed Orient Securities, said spending will still be a very important part of the economy this year, but these types of government policies may not do much to boost growth.
While they focus on tax cuts and coupons, the key to boosting consumption is people’s job security and pay rise, he noted.
“What the government is offering is subtraction – offering lower prices – but what’s more needed is addition – higher income,” he said.
Despite a robust rebound in some consumer sectors this year, the recovery in spending on long-lasting consumer durables – such as homes and vehicles – has remained sluggish, largely due to consumers’ weak income expectations, he said.
“People will spend on big items only when there’s more certainty about economic growth,” he said.
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In the first half of the year, China’s real estate investment dropped by 7.9 per cent from a year earlier, which led to a decrease in big-budget spending on related expenditures, including household appliances and furniture.
Meanwhile, the jobless rate among China’s young adults aged 16-24 climbed to a record 21.3 per cent in June, continuing to raise the record from 20.8 per cent in May, according to official figures.
Standard Chartered also noted an uneven recovery in China’s consumption of different goods and services, in its latest research note.
While spending on cheaper items such as food, clothing and transport saw a robust recovery, bigger expenditures such as rents and utilities fell further below the pre-pandemic 2017-19 trend level, “reflecting the continued slowdown in China’s housing market”, the multinational bank said in a note on Monday.
Overall, China’s household consumption saw a strong rebound in the first six months, contributing 4.2 percentage points to its 5.5 per cent GDP growth, it said.
It is expected to continue to recover in the next half of the year, but “at a slower pace than in the first half as the post-reopening boost dwindles”, it added.
