BEIJING (Reuters) – China will seek to change its economic policies to encourage consumers to spend more, policy advisers in Beijing said after retail sales emerged as a soft spot in better-than-expected GDP data, stressing the need for reform.
They said that while employment support was essential in the short term, reforms to help fatten the wallets of ordinary citizens were needed to boost domestic spending – a priority for President Xi Jinpings’ dual circulation strategy to reduce China’s dependence on foreign markets.
We need to discuss ways to increase income, said Yao Jingyuan, adviser to the Chinese cabinet. Who doesn’t spend if they’re rich?
The advisers are influential in Beijing and their recommendations will likely be taken into account. Calls for deeper reforms to boost domestic consumption have increased since Xi unveiled the dual circulation strategy last year.
Allowing more migration to cities, raising the minimum wage and easing restrictions like the one on the sale of cars on major subways could be some of the policy initiatives to consider, the advisers said.
According to official data this week, China’s economy grew 2.3% in 2020, possibly making it the only major economy to grow last year.
But retail sales fell 3.9% year-round, marking the first contraction since 1968, and final consumption slowed growth for the first time in at least four decades, the data showed.
(Chart: Consumption slows growth for the first time since 1978 🙂
Worryingly for policymakers, retail sales rose only 4.6% year-on-year in December, missing expectations and slowing for the first time since the continued acceleration of the crisis induced by the pandemic of the previous winter.
Restaurant revenues fell 16.6% in 2020, and average citizen spending on education, culture and entertainment fell by nearly a fifth.
Wage losses, more savings, job losses and lingering fears over COVID-19 accounted for much of the sluggish consumption, analysts said. They warned that if prolonged, the slowdown could slow economic recovery and undermine goals of rebalancing the economy, away from unnecessary investments in infrastructure and polluting industry.
Officials tout the vast potential of the Chinese market – 1.4 billion people, with 400 million middle-class consumers – but many of them have grown wary amid the pandemic, racking up precautionary savings.
(Chart: Chinese household savings are increasing amid the pandemic 🙂
KEY TO JOBS
Political advisers told Reuters that to stimulate consumption incomes must increase and that for that, jobs are essential.
Official polled unemployment rates, which economic analysts say underestimate actual job losses, rose sharply at the start of the year before falling back to 5.2% in December. Although the export sector has recently experienced a hiring boom, analysts believe labor demand remains weak in some sectors, particularly services.
We should start by stabilizing employment, because we can only increase the income of ordinary people when employment is guaranteed, said Xu Hongcai, deputy director of the economic policy commission of the China Association of Political Science.
Xu said raising the minimum wage, allowing more rural residents to settle in cities, and strengthening social safety nets would help increase incomes, and therefore expenses, in the long run.
Some regulations could also be relaxed, said Yao, the cabinet adviser.
In Beijing and major cities, we still restrict auto purchases … there are no such restrictions in London or New York or Tokyo, he said.
INTERESTING FEARS Income has suffered from lockdowns and strict movement restrictions. Some, especially migrant workers, have lost months of wages. Urban disposable income growth slowed to 1.2% in 2020 from 5.0% the previous year.
Consumers have chosen to fill their bank accounts rather than empty their wallets. Households added 11.3 trillion yuan ($ 246.69 billion) of new banking savings in 2020, up from 9.7 trillion yuan the previous year, according to central bank data.
Fear of the virus and continuing small-scale epidemics continue to deter spending.
After a recent rebound in COVID-19 cases in the north of the country, around 30 million people have been placed in some form of lockdown. Millions more have been urged to avoid traveling for the Lunar New Year, usually a consumer hot spot.
I will not go out unless it is absolutely necessary. It saves me worry and also saves me money, said Hou Aiping, a retired woman in her 50s who now only leaves home in Beijing to visit her parents and at the supermarket.
Even though the outbreak is contained and I still wear my mask, I cannot guarantee that I will be completely safe, she said.
($ 1 = 6.4858 Chinese renminbi yuan)
Additional reporting by Cheng Leng and the Beijing Newsroom; Edited by Raju Gopalakrishnan
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