Vibrant middle class can help China cope with economic impact of US trade tension

By Hu Weijia Source:Global Times Published: 2018/8/14 22:58:41

Amid uncertainty generated by China-US trade tensions, the Chinese economy needs adjustment to suit the changing situation. Trade conflicts can bring impetus for economic reform, which is always the driving force behind China's development.

China's transition to a consumption-driven economy is an indispensable part of its economic reform. Amid the trade conflict, promoting domestic consumption is particularly important for China to reduce its dependence on the US market.

China's retail sales growth unexpectedly eased to 8.8 percent year-on-year in July from 9.0 percent in June. Although the slide was tiny, it reminds us that China should promote consumption to cope with the effects of the trade conflict.

Forty years of economic achievement have created a burgeoning middle class in China. Some media reports said the US median household income was $59,039 in 2016. If we define middle class as family with a yearly income of that amount, many residents of China's big cities can meet this standard. However, few of them live an easy life because of high housing prices, the expenses of their children's education and other costs.

Amid the escalating trade conflict, consumption by China's middle-class households must be a reliable force in keeping economic growth on track. The country needs to create conditions to boost middle-class consumption.

This group spends a significantly larger proportion of its money on housing and children's education, so cost-cutting measures are needed to suppress housing prices, tame inflation, control education costs and reduce the tax burden. First-tier cities such as Beijing and Shanghai need to ease rising rent levels to reduce the cost of living and give their residents more discretionary income.

Reducing the cost of living in Chinese cities won't be easy, because many of those efforts are related to economic reform in areas such as finance and education. But we have to do it. Middle-class consumption will help create more jobs for low-income people and possibly lift them out of poverty to join the middle class, creating a virtuous cycle for sustainable economic growth. But if the middle class cuts spending, the poor will inevitably be affected. The government can offer poverty alleviation funds, but that isn't a permanent solution.

The trade dispute between China and the US is becoming a protracted one. China must draw up long-term plans to reduce the cost of living and lift middle-class spending. The trade conflict has added fresh urgency for China's economic reforms, but this is also an opportunity for China to transit to a more sustainable pattern of economic growth.

The author is a reporter with the Global Times.


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