China is seeking to boost consumption to spur the economy’s recovery, although the government has stopped short of providing direct fiscal support to consumers and companies to increase spending.
(Bloomberg) — China is seeking to boost consumption to spur the economy’s recovery, although the government has stopped short of providing direct fiscal support to consumers and companies to increase spending.
The National Development and Reform Commission, China’s top economic planning agency, released a wide-ranging policy document Monday focusing on removing government restrictions on consumption, such as car purchase limits, improving infrastructure and holding promotional events like food festivals.
The economy’s recovery has lost steam in recent weeks, with data on Monday showing a slide in services activity in July and a further contraction in manufacturing. Even so, investors have been encouraged by Beijing’s recent pledges, expecting policymakers to follow their recent dovish signals with more concrete measures.
Chinese stocks on Monday extended their gains from last week, with the Hang Seng China Enterprises Index, which tracks the nation’s stocks listed in Hong Kong, jumping as much as 3.2%.
Officials from the NDRC held a briefing Monday to elaborate on the consumption measures, most of which were previously announced.
“We’ve noticed that the growth momentum of some consumption categories is still not solid yet, and some residents have relatively weak confidence to spend,” NDRC Vice Chairman Li Chunlin told reporters. “This requires further policy support.”
Like the measures announced Friday — which are focused on boosting manufacturing in the consumer-goods industries — the latest steps are targeted toward improving the supply of goods in the economy, rather than demand. The government has refrained from giving cash subsidies to residents since the pandemic began, focusing its support instead on providing benefits and tax breaks to companies instead.
“Policies so far have tried to stimulate consumers to spend, but the fiscal policy has not stepped up,” said Hao Hong, chief economist at Grow Investment Group. “China’s fiscal deficit is even shrinking despite the mounting downward pressure on the economy.”
“There aren’t much new policies in the document, and there’s no real money provided to help families,” he said.
The NDRC’s Li said the agency is studying new measures to optimize broad-based policies to support car consumption. Even so, whether it comes to cars or other consumer goods, the country needs to create demand through supply-side reforms so that appropriate products are created, he said.
On property policies, the NDRC document repeats a pledge to push for the renovation of old buildings and megacities’ urban villages. Local regions are encouraged to provide subsidies for the purchases of home appliances and home renovation materials in rural regions.
Other key highlights of the consumption measures include:
- Regions with car purchase restrictions should optimize those limits
- Promote the consumption of electric vehicles in rural areas, improve infrastructure like EV charging stations
- Lengthen restaurants’ hours based on local conditions, support various food festivals and promotional activities
- Encourage local regions to slash ticket fees for tourist sites
- Accelerate approvals of movies and performances, increase cultural events
- Include qualified online medical services into medical insurance coverage
The Communist Party’s Politburo last week signaled concern about the economy’s recovery, with officials pledging more easing of property measures, support for consumption and resolving the debt problems of local governments. On Friday, three government agencies published a raft of measures focused specifically on the so-called light industry, which covers items from home goods, food and paper-making to plastic products, leather and battery.
The latest PMI data shows the recovery remains under pressure. Unemployment sub-gauges for manufacturing and non-manufacturing — a broad category that includes services as well as construction — remained below 50 for the month, the line separating expansion from contraction.
Separate data from China Beige Book showed Chinese consumers cut back on spending on everything but travel and restaurants last month.
“It’s difficult to stimulate the demand side with policies,” said Bruce Pang, head of research and chief economist for Greater China at Jones Lang LaSalle Inc. “When residents are generally unwilling to spend, and the government is unwilling to handout subsidies to increase the consumption tendency, policymakers can only adjust the supply for consumer goods and services to better meet the demand.”
–With assistance from Tom Hancock.
(Updates with official comments, details of policies)
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