China needs consumption surge for full-blown economic recovery, researcher says

A former research official with China’s Communist Party has stressed the importance of consumption and shoring up the service sector in advance of major conclave

China’s third plenum

Ke HanyanandRalph Jennings

Published: 9:00pm, 19 Jun 2024

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The third plenum of the Central Committee of China’s Communist Party, scheduled for next month, is expected to set the tone for the country’s economic policy for the next several years. In advance of that meeting, the Post is reviewing the work of notable scholars and observers about their own expectations – as well as their thoughts on China’s economy at large. The first part of this series can be found here and the third here.

China should increase household incomes and improve its social security system to stimulate consumption, a former Communist Party research official has said, adding that authorities should not hastily impose restrictions on the purchase of big-ticket items like houses and cars.

“The market conditions of products like homes and cars have a greater impact on economic stability,” said Zheng Xinli, former deputy director of the party’s Central Policy Research Office.

He made the remarks in a commentary last month for the Study Times – an organ of the Central Party School, the country’s top ideological training centre for up-and-coming officials.

“We need to improve management of production and sales channels, not impose administrative restrictions hastily, and create a favourable policy environment for sustainable growth of the real estate and automobile industries.”

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The piece was published ahead of the landmark third plenum of the party’s Central Committee, scheduled for July. Expectations are high for economic reform as ebbs in factory output, property purchases and consumer spending are holding back a full-throated post-pandemic recovery for the world’s second-largest economy.

Last month, Beijing announced several measures to help stabilise its property market, including an injection of 300 billion yuan (US$41.3 billion) to help clear excess stock. Many cities have lifted previously imposed purchase restrictions, leaving only the southern island province of Hainan and five urban centres – including Shanghai and Beijing – maintaining some curbs as of May, China News reported.

However, the government’s rescue package has yet to make an impact as new home prices saw a further decline in May, the steepest drop in nearly 10 years.

The researcher also called for expanding service sectors like education, tourism, culture, law and sports, saying all carry “huge potential” to serve as new growth drivers as traditional stalwarts falter.

China is tangling with concerns over deflationary pressure as domestic demand remains weak. The country’s consumer price index (CPI) has broken ranks with most Western economies, holding at near-zero since last April in contrast to those countries’ high inflation. It expanded by 0.3 per cent year-on-year in May, still falling far short of the government’s target of 3 per cent.

Meanwhile the China Retail Performance Index, a barometer of retail sector sentiment, stood at a 12-month high of 50.4 per cent in April, reflecting assurances from Beijing it would expand domestic demand and buoy the wider economy – a role previously filled by manufacturing.

All levels of education should be improved to develop “new productive forces”, Zheng said in his Study Times piece. The term has been used more frequently in official rhetoric to describe emerging industries that could become pillars of economic growth, feature advanced labour and technological standards and will require a highly skilled and educated workforce.

To address the current shortage of skilled personnel and high rates of unemployment among college graduates, China should step up vocational education, increase salaries and offer opportunities for upward mobility among skilled workers, Zheng said.

The economist further recommended forming “super strong” technology research teams and enterprises with the capacity for innovation, using taxation and finance policy to support investment in hi-tech research and development.

Zheng, 79, was an early advocate for the creation of the Beijing-based Asian Infrastructure Investment Bank, a multilateral development bank which now has 109 member nations. In an interview with the Ma Hong Foundation, he said he took part in the drafting of four reform documents produced at earlier plenary sessions.