Stoking consumption resolutely against all odds
Amid several stiff challenges, fresh measures to increase spending, sustain recovery
Despite multiple challenges posing questions about sustained economic recovery in China this year and beyond, economists remain sanguine and aver it would probably be a big mistake to forget the country was the only major economy in the world that posted positive growth last year in spite of the COVID-19 pandemic.
What's giving them confidence is their conviction that China's consumption recovery story is largely intact.
First, about the challenges, which seem to abound: loss of steam on the exports front due to reopening of developed economies; resurgence of COVID-19 cases due to the Delta variant; recent heavy rains that wreaked socioeconomic havoc in certain key parts of the country; structural problems like a slowdown in population growth; high housing prices; low-income groups facing difficulty due to struggling small businesses whose hiring is at lower levels; surge in raw material prices that hurt the manufacturing sector; and offline consumption like travel that cannot simply be moved online.
"The heavy rains and the Delta variant are limiting offline consumption. Not every type of offline consumption can be replaced online. For example, domestic travel can't be replaced," said Iris Pang, chief China economist at Dutch bank ING.
Agreed Cheng Shi, chief economist at ICBC International. The global supply chain has been recovering on the back of better control of the COVID-19 pandemic overseas. This factor could weigh on China's surging exports. Also, the nation's strong investment in property development will soften due to tougher government policies to stabilize housing prices, he said.
Yet, most economists and business leaders argue that consumption, which contributed more than half of China's GDP in 2020 (101.6 trillion yuan or $14.7 trillion), is estimated to account for as much as about 60 percent of full-year GDP growth (China's GDP is projected by the International Monetary Fund to grow by 8.1 percent this year).
China's consumption recovery will sustain, no matter what－that's the consensus among experts who are pleased that positives abound too: the overall employment situation is stable; the mass vaccination has helped anchor consumer confidence; surging industrial profits bode well for household income; policies supportive of consumption may come to fruition; and new forms of online consumption are becoming popular.
What's more, unlocking domestic demand is central to the "dual-circulation" development pattern, which takes domestic circulation as the mainstay while letting domestic and foreign markets support each other.
Hu Zuquan, a macroeconomic analyst with the State Information Center (SIC), a Beijing-based national policy advisory body, said: "China is a super large market with a population of 1.4 billion, a middle-income group of more than 400 million, and per capita GDP exceeding $10,000. It still has huge, multi-tiered potential for consumption upgrade."
With positives and challenges seemingly hanging on either side of a balance, policymakers, economists and business leaders have stressed the need for stepping up policy efforts to boost domestic consumption. Both short-term policy easing and longer-term reform measures would be in order, they said.
It is critical to ensure the recovery in consumption keeps a good shape and powers China's economy, Cheng of ICBC International said.
At a meeting on July 30 in Beijing, the Political Bureau of the Communist Party of China Central Committee underlined efforts to tap domestic market potential. The top leadership stressed accelerating the development of new energy vehicles, and the integration of rural e-commerce and logistics delivery systems.
