China’s economic growth engine shifts to consumption from investment
(Yicai Global) April 21 — China’s economy has entered an era where consumption has become a major driver of demand, having increasingly contributed to the growth of the country’s gross domestic product in recent years.
Just as the driver of a steam locomotive converted into an electric train cannot simply copy past experience and practice, the change in the country’s economic engine means that he will no longer be able to stimulate economic growth simply by based on investment.
What needs to be done is to know the pattern of consumption growth and rely more on market power and new economic levers to promote consumption. Changes in consumption depend on variables such as income, interest rates and the propensity to consume, and policies must be designed according to these variables.
First, the country must provide large consumption subsidies to low-income people as soon as possible in the face of increased pressure from Covid-19 control and prevention measures, while deepening income tax refunds. individuals and paying attention to the stable development of the stock market to raise people’s income and consumer confidence.
Second, the nation must use the leverage of interest rates to promote consumption. China’s interest rate cuts are much smaller than those of Western countries amid the pandemic. A sharp drop in rates should be considered, with a reset if necessary. This will greatly decrease people’s propensity to save and reinforce their tendency towards marginal consumption.
Residential mortgages currently total 40 trillion yuan ($6.2 trillion) and the government debt burden is around 50 trillion yuan. A drastic reduction in the interest rate on loans by 1 basis point can reduce borrowing costs for residents and the government, thereby stimulating consumption.
Third, social insurance and public service coverage for the new urban population and gig-economy workers is grossly inadequate, so these people must spend less and save more to obtain health insurance. life. Strengthening social insurance for these groups can also increase the propensity to consume.
Finally, policies should favor the growth of new consumption on the basis of its stabilization. Traditional consumer items such as food seasonings, clothing and household appliances have limited room for growth, but new consumer demand such as new energy vehicles, consumer electronics and cultural and entertainment activities , is very flexible and has a wide space to grow.
The shift of the main demand driver of China’s economic growth from investment to consumption is both an irreversible trend and a major opportunity. China is the second largest consumer market in the world and will soon become the first. This gives the country the greatest confidence and the advantage of creating an economic growth structure with consumption as the main driver.
(Teng Tai is director of Wanbo New Economic Research Institute and Zhang Haibing is deputy director.)
Publisher: Pierre Thomas