Consumption tops agenda

The State Council, China's cabinet, announced additional policies on Oct 29 to boost domestic consumption. The announcement came just a day before the US Federal Reserve officially started withdrawing its quantitative easing (QE) stimulus program.

China has to maintain a healthy level of growth as the global economy wanders into the post-QE territory, which is full of uncertainties because the impact of QE is not yet clear. To protect its interests as well as those of its trade partners, China cannot afford to go into too steep a fall in overall growth, even though a mild slowdown will help it squeeze out some wasteful and non-competitive industrial capacity.

A deep decline in growth will hurt too many Chinese companies and their global market partners, which don't want China's consumer market to become any worse than what its third-quarter retail data show.

So, the challenge facing China is to sustain the dynamics of its consumer market without the old method of injecting stimulus into the economy, which brought immediate benefits for industrial production and investment in big-ticket building projects instead of ordinary consumers. Premier Li Keqiang has been reiterating that he has no intention of recycling such stimulus practice.

Alternative policy weapons, both monetary and administrative, have been developed to tackle the problem. Some of them were discussed at the State Council executive meeting on Oct 29, where officials decided to further open up the clearing service market for bank cards. The bank card market has been monopoly territory of China UnionPay card.

The State Council also mapped out policies in six other areas:

· Expanding and upgrading the Internet, especially e-commerce and its logistics services;

· Providing more incentives to people using energy-saving products, and developing the urban infrastructure for electric vehicles;

· Preventing the housing market prices from declining abruptly;

· Making paid vacations a standard practice and upgrading services for individual tourists;

· Accommodating more private sector initiatives in the education sector, including cooperation with overseas institutions; and

· Establishing and improving necessary services for retired people.

These policies are more consumer-oriented. And compared with the old policy weapons, they don't demand as much investment in fixed assets as, say, giant office towers and high-speed railways would require. As stimulus, the new policy weapons certainly have less harmful side effects.

The only question now is whether these policies can be implemented effectively.