China’s 300 million migrant workers key to boost consumption, not lavish infrastructure, ex-adviser says

Former central bank adviser Liu Shijin says China’s 1 trillion yuan (US$139 billion) of ultra-long term special bonds should be used to improve services for migrant workers
China is eager for consumption to drive its economy, but the ongoing slump in the property market is weighing on spending

China's economic recovery

Luna Sunin Beijing

Published: 8:00am, 22 Mar 2024

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China should spend more on public services for its nearly 300 million migrant workers, rather than on lavish infrastructure projects, a former central bank adviser has argued, as the country struggles to pivot towards a consumption-driven growth model.

Liu Shijin, former deputy director of the Development Research Centre of the State Council, said the key to expanding spending lies in bridging the gap between the income and demands in basic public services for China’s 900 million low to medium income group, which includes migrant workers.

The comments followed debates over how China should effectively utilise the 1 trillion yuan (US$139 billion) of ultra-long term special treasury bonds that will be issued this year, as well as how Beijing can boost its weak consumer sector and shift away from the export and investment-driven growth model that has sparked disputes at home and abroad.

“Millions of rural migrant workers in the city are still faced with unsolved challenges in housing, [children’s] education, social insurance, if you give them their own apartments, they will spend more on interior decorating and buying household appliances,” Liu said at the event organised by the China Europe International Business School in Beijing on Tuesday.

From a utilitarian perspective, this approach is more cost-effective

Liu Shijin

Many municipalities have rolled out supportive measures to boost economic growth at the beginning of the year, mostly large-scale projects worth hundreds of billions or even trillions of yuan.

“Even if 10 per cent of the money was taken out to finance the basic public services for these rural migrant workers, the money will pay off much better in terms of expanding demand, and the effect will be much bigger than building a few subway lines,” Liu added.

“From a utilitarian perspective, this approach is more cost-effective.”

And as China’s real estate sector remains depressed, the government could also purchase the great number of flats that remain unsold and make them available as preferential housing for rural migrant workers, he said.

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The ultra-long term special bonds should be used to improve public services for rural migrant workers, Liu added.

China had about 298 million migrant workers at the end of 2023, with their average monthly income rising by 3.6 per cent to 4,780 yuan (US$664) last year, according to official statistics.

Liu, one of China’s leading voices for structural reforms, made the comments on the day he and Cai Fang, a prominent labour economist, were replaced as policy advisers to the People’s Bank of China by two financial experts. Liu had been a member of the monetary policy committee since 2018.

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China’s economy has endured a challenging exit from its zero-Covid policy, with its 5.2 per cent gross domestic product (GDP) growth last year hardly felt by consumers or the job market.

Analysts have called for a shift from its old pattern of reliance on investment to make up for the lack of consumption, and instead count on the spending power of the world’s largest middle-income group to drive economic growth.

China’s middle-income population has passed the 500 million mark, a state-owned newspaper said earlier this month, but the ongoing slump in the property market has weighed on consumer spending.

Last year, consumption accounted for 82 per cent of China’s GDP growth.