Big stimulus unlikely as China considers steps to help consumers-source According to Reuters


© Reuters. A person walks on the street in Beijing, China February 3, 2023. REUTERS/Tingshu Wang


By Kevin Yao

BEIJING (Reuters) – China’s policymakers plan to show more support for domestic demand this year but are likely to stop splashing subsidies directly on consumers, focusing focused mainly on investment, said three sources familiar with the policy discussions.

In recent weeks, top policymakers have repeatedly expressed their intention to tap into the consumption power of China’s 1.4 billion people, after economic growth in 2022 fell to one in two. weakest levels in nearly half a century.

That raised expectations that large-scale household stimulus measures could be announced at the annual parliamentary meeting in March. Prominent academics have felt encouraged to speak out publicly. on large demand stimulus measures such as 1 trillion yuan ($148.28 billion) or more in nationwide consumer coupons.

However, sources close to the policy discussions expect China to stick more closely to its familiar policy playbook to support key industries and splurge on infrastructure. floors, aimed at bolstering jobs and incomes, which will eventually lift consumer sentiment above record lows.

“There are very few options to stimulate consumption,” said one insider, who, like other sources, spoke on condition of anonymity due to the closed nature of the policy debate. “The possibility of cashing out is very small.”

China’s National Development and Reform Commission, the state’s top planning body, did not immediately respond to a request for comment.

Last year was a dismal year for Chinese consumers, who had to bear the brunt of the harsh COVID-19 containment measures that were abruptly lifted in December. Retail sales fell 0. 2%, the second worst since 1968, while disposable income per capita grew by only 2.9%, the second smallest increase since 1989.


Many economists have argued for years that the world’s No. 2 economy should rebalance, relying more on domestic consumption and reducing its reliance on debt-based investment, which currently generates more debt. is growth.

A quick recovery in consumer demand is even more important to this year’s economic recovery as the country’s exports falter amid a global slowdown and a sluggish property market. crisis struggled to recover.

But policymakers’ apparent reluctance to shift too quickly, or too far, from their old investment playbook highlights the difficulty of any rebalancing for the economy. economy worth 18 trillion dollars.

Since the Communist Party’s Central Economic Work Conference in December, top policymakers have repeated their intention to boost consumer spending without specifying how.

President Xi Jinping said on Wednesday that China should take steps to let consumers “dare to spend without worrying about the future”.

World Bank data shows that China’s investment share of GDP is nearly 20 percentage points higher than the global average, while household consumption is nearly 20 points lower, an imbalance. equal to that of Japan in the 1980s, before stagnation for a long time.


Change is easier said than done.

China’s leaders have repeatedly signaled their intent to boost domestic consumption over the past decade, with little to no further steps.

Policymakers are concerned that large cash payments will exacerbate wealth inequality, lower productivity and inflation risks, sources involved in the domestic policy discussions said. ministry said. Some economists also say that any sales gains can be short-lived.

“The government prefers to invest and launch projects,” said Guo Tianyong at Beijing Central University of Finance and Economics.

In the face of such concerns, arguments in favor of Beijing-sponsored consumer vouchers exceeding 1 trillion yuan are made by influential academics such as Yao Yang, dean of the School of National Development. researchers at Peking University, or to bolster China’s barely noticeable social safety net put forward by most proponents of the consumer-centric growth model, are gradually lost its position.

Advisers to Chinese policymakers worry that weakening demand in the West will jeopardize manufacturing jobs. They argue that a wide range of industries, including emerging technologies like AI, need support and infrastructure spending needs to continue if youth unemployment is to drop from near record.

“We must ensure that economic growth this year is above 5%. If economic growth recovers, companies will have money and people will have jobs and income,” said an adviser to the Chinese cabinet.

The government is expected to widen the budget deficit to around 3% of GDP this year to meet those spending needs, policy insiders said, adding to the total debt in the economy.

Some analysts think pent-up demand during the pandemic could be enough to keep consumption growing without policy support. They point out that household savings only hit 17.8 trillion yuan last year, up 7.9 trillion yuan from 2021.

But others warn that a large part of the increase can be explained by consumers’ safety-preferred reallocation into bank deposits and many such deposits have long maturities.

“The increased amount of household deposits in China is unlikely to be fully converted to private consumption,” wrote ANZ economists.


Policies that promote consumption still have a place on the agenda, but they can be local and modest in nature, government advisers say.

Several Chinese cities have provided a total of about 5 billion yuan in consumer vouchers and subsidies since December. The Jiangsu provincial government has pledged subsidies for shopping festivals, while Other jurisdictions have promised subsidies for electric vehicle purchases or aged care services, local media reported.

“Calls for consumer vouchers and direct subsidies are growing, but we should let local governments do the work based on local conditions,” said a third source familiar with the discussions. policy paper said.

($1 = 6,7440 Yuan)

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