Economists advocate direct support to consumers

China’s central government should consider additional direct support to consumers worth at least 1 trillion yuan ($139 billion) — either cash or vouchers — in the rest of the year to effectively address the pressing challenge of lackluster domestic demand, economists from government-backed think tanks said.

The likelihood of the Chinese government directly subsidizing consumers — a policy widely seen in developed economies — has significantly increased, they said, citing that a top-level meeting has decided to shift policy focus more toward boosting consumption.

Such a step, which would necessitate expanding this year’s deficit ratio or approving additional special treasury bonds, can play a significant role in reviving the country’s consumer sentiment and accelerating the transition of economic drivers in the face of trade tensions, they said.

“Compared with the past, it is true that the probability of the central government providing direct support to low and middle-income groups has increased notably,” said Zhang Ming, deputy director of the Institute of Finance & Banking at the Chinese Academy of Social Sciences.

“China is facing a rapid aging of the population and a change in the development trend of the real estate market. Using some new tools at this special stage would be a necessary and natural option,” said Zhang, who is also deputy director of the National Institution for Finance & Development.

Zhang suggested that the central government issue consumption vouchers by increasing fiscal deficits or issuing special treasury bonds, with a size of no less than 1 trillion yuan — if the measures are to generate a notable effect.

Previous economic stimulus policies focused on supporting business operations so that improved business conditions can translate into growing household income. Yet, the policy transmission now seems to have met some difficulties, Zhang said.

“At this time, directly backing households can revitalize people’s expectations and confidence and bolster household consumption,” he said, adding that experiences from developed economies have proven that issuing consumption vouchers to households can bear good results.

The remarks came at a time when policymakers are placing more emphasis on boosting consumption. At a meeting of the Political Bureau of the Communist Party of China Central Committee on July 30, it was stressed that the focus of economic policies should shift toward bringing real benefits to the people and promoting consumption while vowing to launch a batch of incremental policy measures in a timely manner.

China recently announced that it would allocate about 150 billion yuan in ultra-long-term special treasury bonds to support trade-in deals for consumer goods, such as appliances and autos, deemed by some analysts as a sign that the central government has turned more willing to directly subsidize consumers.

Consumption — which contributed to about 60 percent of China’s economic growth in the first half of the year — is assuming even more importance for the world’s second-largest economy as its exports could face downward risks amid a rise in protectionist trade policies, economists said.

Among exports, investment and consumption, the traditional “troika” powering China’s economic development, spurring consumption will be the key driving force boosting China’s economic growth, said Chen Wenling, chief economist at the China Center for International Economic Exchanges.

Data from the National Bureau of Statistics on Friday pointed to a strengthening of consumer confidence and demand, as the country’s consumer price index, a main gauge of inflation, grew 0.5 percent year-on-year in July, accelerating by 0.3 percentage point from June.

Analysts, however, debated whether the recovery in demand can be sustained as the core CPI growth — it excludes volatile food and energy prices and is seen as a better gauge of the demand-supply relationship — came in at 0.4 percent year-on-year last month, down from 0.6 percent in June.

Li Daokui, director of Tsinghua University’s Academic Center for Chinese Economic Practice and Thinking, said it is advisable for the government to issue consumption coupons worth 1 trillion yuan during the weeklong National Day holiday in October this year, which will significantly boost consumer sentiment.

Zhang Yansheng, former secretary-general of the Academic Committee of the National Development and Reform Commission, said cash handouts are an immediate and effective way to boost spending. “That will significantly boost consumption and prop up economic growth.”  ZHOU LANXU & OUYANG SHIJIA, China Daily, China Daily