Time To Buy

By Chen Ke

Visitors watch a robotic arm operating in a very limited space at the booth of Nachi-Fujikoshi Corporation,a Japanese exhibitor in the Intelligent Industry & Information Technology exhibition area of the sixth CIIE,on November 6,2023.(IC PHOTO)

China urgently needs to boost its economy by bolstering consumption

Consumption is critical for China’s economic growth,and securing comprehensive and continuous growth through an upgrade of consumption is a hot topic for discussions.During the sixth China International Import Expo (CIIE),many participants at the Sixth Hongqiao International Economic Forum,held on November 6 with the theme “Understanding New Consumption Trends and Tapping New Consumption Potential,” conducted in-depth discussions on the changes and new trends of the consumption sector as well as ways to stimulate consumption.

Lack of Momentum

Statistics show that the contribution of final consumption to China’s GDP growth has reached 65 percent,making consumption a central driving force for economic development.Therefore,China urgently needs to boost its economy by bolstering consumption.

Huang Qifan,executive vice chairman of the academic committee at China Institute for Innovation and Development Strategy and former mayor of Chongqing Municipality,summarized five basic and structural characteristics of the Chinese consumption in his keynote speech,“Analysis of Characteristics of the Chinese Consumption and Measures to Bolster Consumption,” delivered at the forum:

First,China’s per capita GDP exceeded the global level in 2021,marking a landmark structural change for global consumption.

Second,among China’s population of more than 1.4 billion,over 400 million are in the middle-income group.They are the main driving force for consumption in not only China but the world.

Third,regional gaps,and the gaps between urban and rural areas as well as the rich and the poor,are still large.Narrowing these gaps is fundamental to tapping China’s huge consumption potential.

Fourth,the high debt caused by home-buying has greatly constrained Chinese households’ daily expenses.

Fifth,family spending on education and medical care also inhibits consumption.

According to Huang,the five characteristics determine that China has a huge consumption scale and potential,but at the same time the country’s economic growth is restrained by these factors.

Liu Yunchun,president of Shanghai University of Finance and Economics(SUFE),noted that while people are paying a lot of attention to the sluggish recovery of consumption,it is actually a short-term problem.The mid-term issue is that consumption only provides a small proportion of the momentum for China’s economic growth.Shortterm fiscal or currency policies are not enough to tackle the problems,and over-stimulation may even lead to inflation and other financial disorders.

The U.S.is an example demonstrating that excessive liquidity leads to inflation.During the COVID-19 pandemic,the U.S.and some other Western countries released great liquidity to stimulate the economy.The prices of commodities in the upstream rocketed first,and then the prices of intermediate goods and consumer goods rose successively.Combined with the rapid reboot of the economy,supply remained stagnant while demand surged,resulting in a rapid rise of prices.

On economic cycles,Liu believes that the core problems China faces are inadequate consumption,an imbalance between demand and supply,and low consumption rate.While low salaries and income are contributors to low consumption,the essential reason for the problem is high mandatory savings determined by China’s excessively rapid development.

Liu added that the key to increasing the consumption rate is neither short-term consumption policies nor immediate lowering of the Gini coefficient.Rather,it is the changes of government functions and state-owned enterprises’ endogenous investment transformation system.

New Growth Points

At the Consumer Goods exhibition area of the sixth CIIE,exhibitors promoting eco-friendly,innovative,and cutting-edge technological products were most popular.The expo showed the world what consumer products the market needs,the changes of consumers’ expectation for products,and how new technology can facilitate new consumption forms.

Shen Jianguang,chief economist of JD Group and a visiting professor at the School of Economics at Fudan University,said that although the Chinese spending power needs to be improved,the recovery in consumption after the pandemic has been clear,especially in catering services.Online consumption significantly exceeded offline consumption,with online retail sales of goods and services accounting for 31.6 percent of the total retail sales.The number is not only the highest in history but the highest in the world.In addition,green and healthy consumption has been receiving great popularity,with spending on new energy vehicles as a highlight.

“We found that spending on new technologies and new types of products is surging,especially gaming laptops,folding phones and built-in refrigerators,” reported Shen.“Many products are domestic brands,and consumers are paying more attention to cost performance.”

County-level and rural consumption is also increasing rapidly.“Consumption in ‘low-tier’ cities and rural areas has demonstrated remarkable growth,” Shen said.He opined that infrastructure including logistics and e-commerce services has been penetrating “low-tier” cities and rural areas and that such services are now hardly different than in big cities like Beijing and Shanghai,which is equalization of both consumption level and service quality.

Noting that the key words for the forum were “new trends” and “new potential,” Jiang Xiaojuan,president of China Society of Industrial Economics and former deputy secretary-general of the State Council,called the role digital technology plays in facilitating consumption innovation and growth remarkable and predicted big things for digital technology.

“Support of 5G technology can significantly enhance the forms and increments of consumption,” said Jiang.In the first three quarters of 2023,new forms of consumption supported by digital technology contributed at least 15 percentage points to the growth of consumer spending,and digital technology served as a main force in the latest round of consumption expansion.

Jiang has great confidence that digital technology will support more consumption growth and improve the quality of consumer goods.She believes that digital technology helps form many spending scenarios to stimulate consumption,enabling efficient sales of products or services that were hard to realize in the past.

At the same time,digital trade brings more imported goods and services,offering high-quality and diversified consumption choices to Chinese consumers.Digital finance could provide consumers with more consumer credit and other financial services,while boosting and improving consumption through means such as expanding employment and creating spending scenarios.