Call for fixing consumption imbalance

As China pushes ahead with a shift away from its investment and export-driven growth model to one centered on innovation and consumption, addressing the structural imbalances in consumption patterns has emerged as a critical challenge, although it presents a significant opportunity as well, senior economists said.

"The consumption deficiency in China is not primarily a problem of the average consumption level, but rather a structural imbalance," said Liu Shijin, former deputy director of the Development Research Center of the State Council.

The root causes of this issue include "the uneven distribution of essential public services, the slow progress of urbanization, and the disparities in income distribution," Liu added.

Policies, including consumption vouchers and trade-in programs, can indeed deliver immediate benefits in shoring up consumer willingness to spend, said Liu Yuanchun, president of the Shanghai University of Finance and Economics.

"Improving income distribution and strengthening the social security net are crucial in empowering the broad population, particularly lower-income groups, to play a bigger role in driving consumption-led growth. This is a priority that will lay the foundation for stable and sustainable economic development," said Liu Yuanchun.

There is a lot of work to be done in this regard, experts said, stressing that one key task is to raise the level of basic public services for the low-income population, with a focus on migrant workers, as this will drive up their spending.

Robin Xing, chief China economist at Morgan Stanley, said that policymakers could deliver deeper social security reforms, such as easier access to public housing and healthcare for migrant workers, which will reduce people's precautionary saving habits and unleash huge consumption potential.

"It's probably the central government's turn to try to fill the gap by either channeling dividends from State-owned capital to the social security system, or gradually shifting China's policy focus from supporting infrastructure to spending more on social welfare," Xing said.

The country's basic old-age insurance program for rural and nonworking urban residents, which covers over 550 million people, or more than half of the total pension insurance participants, currently provides an average monthly pension of around 220 yuan ($30) to its 170 million elderly people, said Liu Shijin.

Last month, China announced plans to "raise the minimum basic old-age benefits for rural and nonworking urban residents by 20 yuan "in the Government Work Report.

"If we can dedicate 500 billion yuan from the fiscal funds toward this pension system, we can double the monthly pension payouts, from the current 220 yuan to over 400 yuan," Liu Shijin said. "This will have a more immediate and effective impact on boosting consumption."

Rural residents represent the lowest income group in China, and they have a relatively high propensity to consume. If government can increase their pension spending by 1 trillion yuan, it would translate into around 1.2 trillion yuan in GDP growth — contributing nearly one percentage point to annual economic expansion and playing a pivotal role in stabilizing growth, according to Liu Shijin.

"While structural imbalances in consumption present major challenges, resolving them could unlock growth potential comparable to what was once provided by the real estate sector. This transformation will establish a foundation for sustained medium-speed economic growth, ensuring stability for China's economy in the years ahead," Liu Shijin said.