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Perk Up the Consumption

May 15-2020   



 

Following the IMF’s downbeat adjustment of global economic growth, the National Bureau of Statistics (NBS) revealed that China’s GDP plunged by 6.8% year-on-year in the first quarter, the first negative growth figure in the reform and open-up era. Governments at all levels have been implementing stimulus policies, but to rapidly overturn economic downturn, more needs to been done, writes Prof. Yao Yang, Dean of the NSD, in his commentary for the Global Times.

 

In the short run, few changes can be expected to happen to technological advances and capital accumulation; meanwhile, the sputtering economy has resulted in job losses. To steer clear of a recession, the wager must be squarely placed on consumption growth. The supply side, though at a pause due to the pandemic, is ready to jumpstart; however, the demand side is plagued by sharp decreases in consumption and thus constitutes the bottleneck for economic recovery.

 

Efforts to pump up liquidity and cut down on taxes are hamstrung by the dormant consumption. As of new infrastructure construction, it will spread out in a long cycle and have limited impacts on employment and income growth in the short term. Looking into the future, it might compromise the de-leveraging measures adopted by the central government since 2017.

 

The plunging consumption can be attributed to three reasons: One, most people are still yet to regain full confidence to leave their homes; Two, local governments remain highly vigilant on the pandemic and still maintain strict controls over consumption venues, which in turn reinforce the public’s alertness; Third, people are wary of loosening their purse strings due to decreased income – 4.6% less year on year in the first quarter, according to the NBS.

 

Therefore, the foremost measure should be to perk up the public’s aspiration for consumption by striking a balance between pandemic fighting and economic recovery. Before the arrival of a vaccine – perhaps over seven months to go – one must learn to live with the virus. In other words, the only feasible option is to make pandemic fighting an integral part of normal life. On the government front, some officials worry about being ‘vetoed down’ due to any single misstep in pandemic fighting and thus prefer to keep enforcing monolithic measures. It’s advisable that health care departments be given sole responsibility for anti-pandemic work and the other departments can duly dedicate most of their efforts to resumption of production.

 

Along with changing the ways of pandemic fighting, more should be done to spur consumption, which rarely was a priority of governments in the past but is absolutely needed this time round. Giving cash or consumption coupons to the public can not only ginger up demand but also succor the low-income people who are most impacted by the economic stoppage. Some well-off cities have started to hand out such allowances at limited values, while financially strapped regions can hardly do so. The central government can consider increase fiscal budgets for this year to subsidize the consumption of low-income residents, suggests Prof. Yao.

 

Perk Up the Consumption

May 15-2020   



 

Following the IMF’s downbeat adjustment of global economic growth, the National Bureau of Statistics (NBS) revealed that China’s GDP plunged by 6.8% year-on-year in the first quarter, the first negative growth figure in the reform and open-up era. Governments at all levels have been implementing stimulus policies, but to rapidly overturn economic downturn, more needs to been done, writes Prof. Yao Yang, Dean of the NSD, in his commentary for the Global Times.

 

In the short run, few changes can be expected to happen to technological advances and capital accumulation; meanwhile, the sputtering economy has resulted in job losses. To steer clear of a recession, the wager must be squarely placed on consumption growth. The supply side, though at a pause due to the pandemic, is ready to jumpstart; however, the demand side is plagued by sharp decreases in consumption and thus constitutes the bottleneck for economic recovery.

 

Efforts to pump up liquidity and cut down on taxes are hamstrung by the dormant consumption. As of new infrastructure construction, it will spread out in a long cycle and have limited impacts on employment and income growth in the short term. Looking into the future, it might compromise the de-leveraging measures adopted by the central government since 2017.

 

The plunging consumption can be attributed to three reasons: One, most people are still yet to regain full confidence to leave their homes; Two, local governments remain highly vigilant on the pandemic and still maintain strict controls over consumption venues, which in turn reinforce the public’s alertness; Third, people are wary of loosening their purse strings due to decreased income – 4.6% less year on year in the first quarter, according to the NBS.

 

Therefore, the foremost measure should be to perk up the public’s aspiration for consumption by striking a balance between pandemic fighting and economic recovery. Before the arrival of a vaccine – perhaps over seven months to go – one must learn to live with the virus. In other words, the only feasible option is to make pandemic fighting an integral part of normal life. On the government front, some officials worry about being ‘vetoed down’ due to any single misstep in pandemic fighting and thus prefer to keep enforcing monolithic measures. It’s advisable that health care departments be given sole responsibility for anti-pandemic work and the other departments can duly dedicate most of their efforts to resumption of production.

 

Along with changing the ways of pandemic fighting, more should be done to spur consumption, which rarely was a priority of governments in the past but is absolutely needed this time round. Giving cash or consumption coupons to the public can not only ginger up demand but also succor the low-income people who are most impacted by the economic stoppage. Some well-off cities have started to hand out such allowances at limited values, while financially strapped regions can hardly do so. The central government can consider increase fiscal budgets for this year to subsidize the consumption of low-income residents, suggests Prof. Yao.