BEIJING: China has issued a set of directives aimed at boosting household consumption, a weakness weighing on growth in the world’s second-largest economy, with the plan targeting sectors including child and elder care, and food and beverage. Leaders including President Xi Jinping pledged last month to help boost domestic consumption and ease pressure on China’s ailing property sector, following a gathering of the ruling Communist Party’s top brass.
The State Council, China’s cabinet, published a list of 20 general directives on its website on Saturday evening, constituting a general roadmap for ministries and local authorities as the economy recovers after the lifting of strict pandemic measures at the end of 2022 that had hindered growth.
The plan, which does not include proposed budgets, urges authorities to "increase the supply of care services for the elderly”, a sector with growth potential in a country with an ageing population.
It also calls for the development of childcare services, as fewer young people opt to have babies due to the high cost of education and lack of social benefits. Income tax reductions are also planned to offset the cost of caring for children under three and senior citizens, according to the document.
Beijing also pledged to ensure that eligible small businesses in the service sector can benefit from greater financial support, particularly from banks. The plan calls for more food-themed festivals to be held, and for the promotion of street food "snacks” — popular with locals — as well as pledges to encourage major foreign companies in the food and beverage industry to open their first outlets in China. China is aiming for GDP growth of "around 5 percent” this year, but second-quarter growth slowed sharply to 4.7 percent year-on-year, according to official figures published last month.
Its growth has been battered by a long-running debt crisis in the property market, which accounts for a quarter of gross domestic product. China’s efforts to boost household spending are expected to help the economy hit the government’s 2024 growth target of roughly 5 percent, but the authorities may have to do more for consumers from next year or accept slower growth. Trade tensions and local government debt risks leave Beijing few alternatives to revving up consumer stimulus in coming years, but vague promises of "incremental measures” look likely to fall short, analysts say. — Agencies
China’s leaders signaled this week that fiscal support for the rest of the year will "focus on consumption”, aiming to boost incomes and social welfare, days after announcing plans to use 150 billion yuan ($20 billion) in government debt to finance trade-ins on consumer goods such as appliances. This marks a departure toward boosting chronically weak domestic demand after decades of reliance on exports and infrastructure spending that helped vault China to the world’s second-biggest economy.
Still, the trade-in program, China’s first debt-funded step to directly support household consumption nationwide, amounts to just 0.12 percent of gross domestic product. Further consumption stimulus is "plausible next year in the face of potentially stronger external headwinds”, Citi analysts said.
The fridges-not-bridges shift is driven by growing unease with China’s trade dominance, which has pushed the United States, Europe and emerging economies from Turkey to Indonesia to raise tariffs and place other barriers on Chinese products. In addition, the authorities are growing wary of debt-funded projects as they increase scrutiny on heavily indebted municipalities. Most of China’s fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt. Local governments sold 1.49 trillion yuan ($200 billion) of the special bonds used to fund stimulus in the first half of the year, just 38 percent of the full-year quota, making China’s fiscal stance unexpectedly tight.
"The number of really good projects that produce stable income keeps getting smaller,” an economic adviser to the government said on condition of anonymity.
China’s export outlook is likely to keep worsening, especially if Donald Trump returns to the White House, as the US former president and Republican candidate for November’s election has threatened tariffs of up to 60 percent on all Chinese goods. Yue Su, principal China economist at the Economist Intelligence Unit, estimates that a 10 percent increase in US import tariffs could cut China’s real economic growth by 0.3-0.4 percentage points next year and in 2026. — Agencies