A direct stimulus of 4 trillion yuan ($580 billion) paid directly to Chinese households is an option to spur a recovery in consumer spending that has been slowed by weak wage growth during the pandemic, a central bank adviser said.
(Bloomberg) — A direct stimulus of 4 trillion yuan ($580 billion) paid directly to Chinese households is an option to spur a recovery in consumer spending that has been slowed by weak wage growth during the pandemic, a central bank adviser said.
Relatively sluggish income growth means “short-term measures” are needed “such as putting four trillion in the hands of households,” Cai Fang, a member of the People’s Bank of China’s monetary policy committee, said in a speech on Saturday.
Resident income has “not increased very well in the last few years, so the recovery of consumption is not sufficient to support economic growth,” Cai said at a forum organized by financial magazine Caijing. He also floated the use of China’s social security system to stimulate consumption as another option, though he did not give details.
China’s consumers are in focus after officials at a key political meeting earlier this month suggested they would avoid large stimulus through infrastructure investment or the property market. That means household spending is likely to drive demand in the world’s second-largest economy and support its recovery this year.
Recent official data has shown a recovery in retail sales and services spending in the first two months of the year, though high-frequency data for March also indicated a weakening of some consumer purchases, such as car sales.
Some economists have also questioned the strength of the consumer spending boost, with Bloomberg Economics calculating last month that Chinese households had not stashed away as much excess cash during the pandemic as some have estimated.
China’s top leaders, meanwhile, have so far rejected calls from Chinese academics and economists to finance direct payments to households, instead favoring subsidies to businesses to maintain employment and expand investment.
At the Saturday forum, Cai said bank deposits amassed by Chinese households during the pandemic were concentrated among a relatively small group with high-incomes. That means such savings are unlikely to fuel “revenge consumption” this year, he added.
“That requires the government to put four trillion into the hands of low-income groups,” Cai said.
The central bank adviser also highlighted China’s elevated rate of unemployment in recent years. He argued that joblessness “is bound to hurt households’ balance sheets” — referring to the balance between their assets and debts — as well as their spending power and confidence.
“That will lead to a longer period of restraint,” he said.
Cai, who is also vice-dean of China’s Academy of Social Sciences, suggested the high youth unemployment rate also has an impact on consumption. He cited research saying that 16-to-24 year olds spend more than any other age group in the country.
Economist Wang Yiming — who is also a member of the PBOC’s monetary policy committee — said in a separate article published Saturday that the balance sheets of households had been “systematically damaged” in recent years, leading to “more cautious consumption.”
He suggested the government spend more on public services to improve the consumption capacity of low and middle-income groups.
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