– by Kevin Yao
Beijing (Reuters) – China wants to stimulate its economy, which has come under severe pressure in the Corona crisis, with new economic stimulus measures.
The leadership in Beijing has issued the motto to boost domestic consumption of the billions of people. But, as people familiar with the policy debate told Reuters, there is unlikely to be any government coupons that consumers could use to indulge in a spending spree. Appropriate proposals had recently been made in the academic field and are likely to remain mind games. “The government favors investments and projects,” says Guo Tianyong of Beijing’s Central University of Finance and Economics.
The people familiar with the political processes in Beijing are also saying the following behind closed doors: The old recipes of supporting key industries and investing money in the expansion of the infrastructure in the Middle Kingdom will probably stick: “There are only limited options, the Boost consumption,” said one of the Beijing insiders, adding, “The opportunity to issue cash vouchers is slim.”
In the US, consumers had such government checks fluttered into their homes during the Corona crisis, which temporarily sparked a consumer frenzy. In the People’s Republic, however, the Beijing leadership’s strict zero-Covid line, which was only abandoned at the end of last year, spoiled the Chinese’s mood for consumption: retail sales fell by 0.2 percent, the second worst development since 1968. And the disposable per capita income rose just 2.9 percent – the second-smallest increase since 1989.
CONSUMERS SHOULD “DARE” TO SPEND MORE
The rapid revival of consumer demand is extremely important for a thorough economic recovery this year, as China’s export engine has faltered amid a global slowdown and the real estate market is mired in crisis. President Xi Jinping has therefore recently given the direction: China should take steps so that consumers “dare to spend money without worrying about the future”. But this is easier said than done. The Chinese leadership has signaled its intention to boost domestic consumption many times over the past decade, with little to no effect.
Policymakers fear cash checks will only worsen wealth inequality in the emerging economy while fueling inflation, people involved in internal policy discussions said.
Some experts expect pent-up demand during the pandemic could be enough for consumption to grow with little political support. However, other observers point out that the security needs of many consumers are likely to prevail and that a lot of money could end up in the account and not be used for consumption: “It is unlikely that the increased household deposits in China will be passed on to private consumption in full “, write the economists from the ANZ banking group.
Measures to boost consumption are on the agenda, but are likely to be implemented more locally and on a modest scale, government advisers said. Several Chinese cities have already offered consumer vouchers and subsidies with a total value of around five billion yuan (around 677 million euros) since December. Jiangsu’s provincial government has pledged to subsidize shopping festivals, while subsidizing electric vehicle purchases elsewhere. “Demand for consumer coupons and direct subsidies is increasing, but we should let local governments do the work based on local circumstances,” said an insider.
(Written by Reinhard Becker, edited by Kerstin Dörr. If you have any questions, please contact our editorial team at [email protected] (for politics and the economy) or [email protected] (for companies and markets).)