If there’s one thing China’s policymakers have called for consistently, it’s a boost to consumption. On April 13, an executive meeting of the State Council called for concerted efforts to stabilize consumption and unleash its potential through a combination of short- and long-term measures. In response, the General Office of the State Council issued Opinions on Further Unleashing Consumption Potential and Promoting a Sustainable Recovery of Consumption. Then, at a meeting on April 29, the Political Bureau of the Communist Party of China (CPC) Central Committee emphasized that consumption should be an important driving force of China’s economy. These measures attest to the urgency of the situation.
At present, consumption in China is rather weak. In fact, since the fourth quarter of 2021, domestic spending has trended downward. According to national statistics, retail sales of consumer goods fell by 3.5% year-on-year in March 2022, marking the first contraction since August 2020. Online consumption, an important driving force since the coronavirus outbreak, also experienced a significant growth slowdown. It’s commonly believed that stabilizing consumption in the second quarter will be a challenge, hampered not only by the latest waves of Covid-19 but also by certain mid-to-long-term factors. Unleashing the potential of consumption requires comprehensive policymaking. In addition to scientifically and accurately preventing and controlling the pandemic, China needs long-term mechanisms to promote consumption and make effective short- and mid-to-long-term arrangements.
The opinions mentioned that consumption, as an ultimate indicator of demand, plays a key role in promoting domestic circulation and is a lasting economic growth driver related to safeguarding and improving the wellbeing of the people. The opinions also addressed the slow recovery of consumption, especially contact-based consumption, and the difficulties of micro, small and midsize enterprises, individual businesses and service industry companies due to the impact of disease control measures. The opinions mentioned practical solutions to side effects of pandemic prevention that have stalled the orderly recovery of consumption that include enhancing support for enterprises facing difficulties, ensuring supply and price stability of basic consumer goods and developing new forms and models of consumption.
The coronavirus pandemic has directly affected consumption. China’s main economic growth poles such as the Pearl River Delta and Yangtze River Delta have felt the force of coronavirus outbreaks repeatedly as the highly infectious omicron variant spread. Many places have been forced to take strict containment measures. The pandemic has a severe impact on both supply and demand sides of China’s domestic economy. The retail, restaurant, tourism and transport industries have been severely affected, especially in terms of consumption. In March, consumption in the restaurant industry decreased by 16.4% year-on-year, hitting a low not seen since June 2020.
Consumption is based on income, while income is based on the premise of employment. Micro, small and midsize enterprises, especially those in the service industry, are major job providers. The longer the pandemic lasts, the more they will be negatively affected. If companies can’t produce and operate normally, large numbers of employees will lose income or even face unemployment, which will reduce consumption in something of a vicious circle. Therefore, in order to boost consumption, mitigating the negative impact of the coronavirus pandemic on consumption as soon as possible is essential. This should be done through scientific and accurate prevention and control.
Areas seeing coronavirus outbreaks should resume business and production as soon as possible under the premise of effective pandemic prevention. The logic is quite simple: for employees, business and production suspension has the same effect as layoffs. Without sufficient income, people are not willing to increase consumption. However, many local governments adopted the one-size-fits-all approach, excessive prevention and control measures and static management, which is not conducive to the recovery of consumption. Some losses can’t be made up by compensatory or retaliatory consumption. Panic hoarding only temporarily stimulates the consumption of necessities such as grain, oil and food and medicines. It is not conducive to consumption growth in general. A lesson should be drawn. Local governments should adopt scientific and accurate prevention and control measures, maximizing the prevention and control effect at minimal cost and minimize the pandemic impact on economic and social development.
At present, growth in China’s domestic consumption is limited by a slowdown in income growth for its people, an urgent and long-standing pain point. As the downward pressure on China’s economy has increased, the growth rate of per capita disposable income has dropped significantly. This will undoubtedly lead to a decrease in the willingness of residents to consume. In order to boost consumption, it’s necessary to enhance economic vitality and promote the reform of economic, employment and income distribution systems. Local governments should be prudent in the introduction of contractionary policies.
Consumption depends on disposable income and is subject to consumption willingness, while consumption willingness is affected by expectations. According to the People’s Bank of China and other institutions, the coronavirus pandemic had led to a slowdown in the income growth of residents, thus lowering the consumption willingness of residents and increasing passive and precautionary saving. It has been over two years since the first coronavirus outbreak and people in China have become tired of the never-ending pandemic. Relevant government agencies should face up to this change because it affects both pandemic prevention and consumption.
Besides, in China, boosting consumption is a complex task involving short- and medium-to-long-term factors. In fact, the short-term predicament is largely because of deep-seated mid-to-long-term problems that remain unsolved. The opinions has put forward a complete series of specific short-term measures for boosting consumption. Many local governments have issued consumption vouchers to ensure a basic livelihood for low-income groups and households. In the medium and long term, measures to boost consumption should promote both supply and demand. The opinions pointed out the need to improve spending power by increasing employment-based income, including optimizing wage determination, growth and payment guarantee mechanisms, raising wage income among urban employees and migrant workers, optimizing the minimal wage standard adjustment mechanism, promoting rural industries that benefit local residents, implementing direct subsidies for farmers and expanding stable employment and constant income generation channels for villages, especially farmers in poverty-stricken areas. These measures all have far-reaching implications. Nevertheless, only economic vitality can truly stimulate consumption. In order to boost consumption, it’s essential to accelerate the new form of urbanization through system reform and promote the expansion and quality improvement of the service industry. Besides, it’s necessary to reform the tax system, improve the social security system and pragmatically encourage childbirth.
The Chinese government has long proposed that consumption should become one of the country’s main economic growth drivers alongside investment and export. In China, the proportion of consumption in GDP has largely increased, but it is still far lower than that of developed economies. Local governments at all levels should pay attention to pandemic prevention and control as well as economic and social development in a well-coordinated way. It’s usually pointless to focus merely on consumption. The stimuli for consumption go above and beyond consumption itself.
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