Consumption-driven growth to stabilize China’s economic fundamentals
Published: May 21, 2020 10:28 PM
Editor's Note:

One of the biggest tasks for Chinese lawmakers and political advisors as they convene the annual two sessions is to offer the right prescription for the Chinese economy hit hard by COVID-19. This is the first of a multi-part series covering suggestions and proposals that stand out during the occasion about how to boost various growth drivers, including consumption, investment and exports, as well as areas related to livelihoods such as jobs.

An online influencer hostess promotes sportswear products via livestream in Lianyungang, East China's Jiangsu Province on Tuesday. Since the outbreak of COVID-19 epidemic, the city has been taking advantage of e-commerce opportunities to boost consumption. Photo: cnsphotos

As the COVID-19 epidemic has been brought under control in China and the country has embarked on an economic recovery, how to boost consumption, a major driving force for the growth of the world's second largest economy, has become a focal point of the most important political event of the year, where prescribing a cure for the virus-hit Chinese economy tops the agenda. 

A large number of proposals from Chinese lawmakers and political advisors submitted during the two sessions were focused on boosting consumption, which is improving but remains under pressure. Suggestions range from ramping up the value of spending vouchers, trickling down policies to benefit medium- and low-income earners to restore their purchasing power, and tapping into the huge consumption potential in the country's rural areas.

Instead of mulling over how to stimulate market consumption, it is more pragmatic to help consumers restore confidence and become more capable of spending based on their demands, economists and entrepreneurs said.

Consumption contributed to 57.8 percent of China's economic growth last year, driving GDP growth up by 3.5 percentage points, being the main driving force of China's GDP growth for the 6th consecutive year, official data showed.

As the pandemic situation has not seen an inflection point in the overseas market, which directly impacts Chinese foreign trade, also an economic growth engine, it has become a matter of urgency to optimize the domestic consumption environment.

Leverage effect

China started issuing consumption coupons from early March in a bid to instill confidence for consumers, whose purchasing demand has been impaired throughout the epidemic.

Data from Alibaba's mobile payment platform Alipay showed on Thursday that governments of more than 100 Chinese cities have issued digital vouchers, and a one-yuan ($0.14) voucher could drive consumption of 8 yuan on average, having an eightfold leverage effect. 

Consumption recovery could be first tracked on Taobao, Alibaba's e-commerce platform, as its daily active users in March had begun to surpass the peak in December last year.

Li Daokui, a prominent economist at Tsinghua University and a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), China's top political advisory body, told the Global Times in an exclusive interview that consumption plays a key role in maintaining China's economic growth. And the current phase should focus on instilling confidence into consumers.

Many people are still afraid to go traveling or take plane even as the virus has subsided, according to Li, and such psychological barriers will only be removed by time.

"Consumption will drastically rise, yet that moment will be delayed, maybe in September or October," Li forecasts.

Liu Huihao, a member of the National Committee of CPPCC and head of the Financial Research Institute at Zhongnan University of Economics and Law, told the Global Times Thursday that as the recovery of foreign trade hinges on the extent to which the overseas COVID-19 pandemic is put under control, consumption is poised to be the main driver of China's economy this year. 

"Chinese policymakers should double down on efforts to shore up pent-up demands," Liu said.

"We have confidence regarding the nation's consumption ability, but it just may take some time for consumers to allay concerns," Liu noted.

Official data showed April's social retail sales registered 2.82 trillion yuan, down 7.5 percent year-on-year, a decline of which shrank 8.3 percentage points compared to March, showing warming signs. In the first quarter, the sales volume plunged by 19 percent year-on-year.

The Chinese auto sector, where the market has been cooling since the second half of 2018, grew in terms of sales and production turning positive in April, ending a 21-month streak of declines.

Vehicle sales totaled 2.07 million in April, up 4.4 percent on a yearly basis, while production rose by 2.3 percent to 2.1 million, the China Association of Automobile Manufacturers (CAAM) said earlier this month.

Chen Hong, chairman of state-owned auto company SAIC Motor and a deputy to the National People's Congress (NPC), the country's top lawmaking body, proposed to the government during this year's two sessions that the housing provident fund could expand its scope for usage to cover people's needs of purchasing vehicles.

Infographic: GT

Trickling down

Along with the government's efforts in rolling out timely policies to cure the virus-hit economy, it is equally crucial to make sure those policies trickle down to people in need, and fuel up their consumption enthusiasm.

Zhang Lianqi, a member of the CPPCC National Committee and deputy head of the Chinese Tax Institute, suggested that it should guarantee medium- and low-income groups receive subsidies, a process of which could resort to the individual income tax system. 

Special measures are needed in a special time caused by the virus for disadvantaged individuals, who have consumption demand but are yet inhibited by insufficient purchasing power, Tian Yun, vice director of the Beijing Economic Operation Association, told the Global Times Thursday.

Tian suggested transfer payments. "The nation could issue bonds worth 1-2 trillion yuan meanwhile making sure the policy would benefit targeted people," Tian said.

Ye Qing, deputy director of the Statistics Bureau of Hubei and a former NPC deputy, told the Global Times Thursday that Chinese policymakers should set up a long-term mechanism to guarantee the consumption ability of low-income individuals, who have an urgent need to purchase daily necessities.

"In the provincial capital of Wuhan, the basic living allowance for low-income individuals should be raised to more than 1,000 yuan a month from the current 830 yuan," Ye said. He also urged Chinese policymakers to further take advantage of consumption power in the countryside through rural e-commerce channels.

Ye estimated that China's consumption will bounce back to normalcy around July, after the overseas pandemic ebbs. "But it's hard to tell whether the scale of consumption this year will exceed that of last year."

Zhang Jindong, an NPC deputy and chairman of e-commerce giant Suning Holdings, noted in his proposal that agricultural production bases should be established to help rural revitalization via an upward channel toward consumers' demand for organic and healthy food, the move of which will pad farmers' pockets and lift up their purchasing power.