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Yao Yang: Boosting Consumption Remains a Major Challenge

Mar 24-2022   



In the recent China Economic Observer, an event by the NSD, Prof. Yao Yang laid out his interpretations of the salient points in this year’s government work report and pointed out that weak consumption still acted as a drag on economic growth. He is Dean of the NSD and Director of China Center for Economic Research.

 

Three points shone out of this year’s government work report, which was presented by Premiere Li Keqiang in the recently concluded Two Sessions, said Prof. Yao. The first one was the extraordinary magnitude of the fiscal and monetary policies intended to spur growth. Monetary-wise, the Central Bank expanded its balance sheet by over 740 billion yuan in the first quarter of 2022 alone, a figure already superior to that of 2021 as a whole. Fiscal policy packed even more punch, as ad-hoc debts to pull local government investment amounted to 3.65 trillion yuan, to which tax exemptions of 2.5 trillion yuan would be added to ensure the functioning of companies.

 

Another conspicuous item highlighted by Prof. Yao was the fresh statement for the two major targets of carbon emissions, which called for setting ‘concretely feasible goals.’ Prof. Yao interpreted it as a timely and much-needed adjustment to movement-styled campaigns by local governments to achieve such goals over the last few years. He cited a major report by the NSD, freshly out this year, which indicated that China’s carbon peaking target was well within reach by adhering to the 14th Five-Year Plan and lowering carbon emissions in a gradual and steady manner. The declining proportion of coal in the total energy mix would be complemented by energy efficiency gains and technological upgrade to fully offset the extra emissions resultant from economic expansion in the years to 2030.

 

One more attention-worthy part of the work report, noted Prof. Yao, was the new wording for the real estate industry, which was plunged into negative growth in the second half of 2021. The work report encouraged long-lease housing and allowed cities to tailor policies according to their own circumstances, provided that the principle of ‘houses are for living and not speculation’ was strictly followed. Prof. Yao proposed that the government make it compulsory for real estate developers to use one fourth of its acquired land to build long-lease housing.

 

China had an uphill battle to achieve 5.5% GDP growth this year. Fiscal and monetary policies had worked effectively in the first two months, but they were not without constraints. Prof. Yao advised boosted domestic consumption by stimulating what John Maynard Keynes called ‘discreet consumption’. Rather than waiting for income rise to pull consumption along, Prof. Yao believed that giving out cash allowances to the residents would work the magic. If one third of the ad-hoc debts for local investment (3.65 trillion yuan in total) were to be allocated to this end, each resident would receive around 1,000 yuan, preferably in digital currency and with a deadline for spending. It’s likely to build up 4.5 to 6 trillion yuan in consumption nationwide, said Prof. Yao.

 

Yao Yang: Boosting Consumption Remains a Major Challenge

Mar 24-2022   



In the recent China Economic Observer, an event by the NSD, Prof. Yao Yang laid out his interpretations of the salient points in this year’s government work report and pointed out that weak consumption still acted as a drag on economic growth. He is Dean of the NSD and Director of China Center for Economic Research.

 

Three points shone out of this year’s government work report, which was presented by Premiere Li Keqiang in the recently concluded Two Sessions, said Prof. Yao. The first one was the extraordinary magnitude of the fiscal and monetary policies intended to spur growth. Monetary-wise, the Central Bank expanded its balance sheet by over 740 billion yuan in the first quarter of 2022 alone, a figure already superior to that of 2021 as a whole. Fiscal policy packed even more punch, as ad-hoc debts to pull local government investment amounted to 3.65 trillion yuan, to which tax exemptions of 2.5 trillion yuan would be added to ensure the functioning of companies.

 

Another conspicuous item highlighted by Prof. Yao was the fresh statement for the two major targets of carbon emissions, which called for setting ‘concretely feasible goals.’ Prof. Yao interpreted it as a timely and much-needed adjustment to movement-styled campaigns by local governments to achieve such goals over the last few years. He cited a major report by the NSD, freshly out this year, which indicated that China’s carbon peaking target was well within reach by adhering to the 14th Five-Year Plan and lowering carbon emissions in a gradual and steady manner. The declining proportion of coal in the total energy mix would be complemented by energy efficiency gains and technological upgrade to fully offset the extra emissions resultant from economic expansion in the years to 2030.

 

One more attention-worthy part of the work report, noted Prof. Yao, was the new wording for the real estate industry, which was plunged into negative growth in the second half of 2021. The work report encouraged long-lease housing and allowed cities to tailor policies according to their own circumstances, provided that the principle of ‘houses are for living and not speculation’ was strictly followed. Prof. Yao proposed that the government make it compulsory for real estate developers to use one fourth of its acquired land to build long-lease housing.

 

China had an uphill battle to achieve 5.5% GDP growth this year. Fiscal and monetary policies had worked effectively in the first two months, but they were not without constraints. Prof. Yao advised boosted domestic consumption by stimulating what John Maynard Keynes called ‘discreet consumption’. Rather than waiting for income rise to pull consumption along, Prof. Yao believed that giving out cash allowances to the residents would work the magic. If one third of the ad-hoc debts for local investment (3.65 trillion yuan in total) were to be allocated to this end, each resident would receive around 1,000 yuan, preferably in digital currency and with a deadline for spending. It’s likely to build up 4.5 to 6 trillion yuan in consumption nationwide, said Prof. Yao.