Ways to boost con­sump­tion

From build­ing aff ord­able houses to en­cour­ag­ing pri­vate funds in ser­vices, there are plenty of mea­sures to ex­pand de­mand

China Daily (Hong Kong) - - COMMENT - XIONG RUOYU

In the first half of this year, China’s eco­nomic growth rate was 7.6 per­cent, with the main in­dexes all within the ex­pected nor­mal range. How­ever, whether the econ­omy can main­tain sta­ble growth for the rest of the year is un­cer­tain.

The quandary is ev­i­dent: there is sur­plus pro­duc­tion, while the ser­vice sec­tor can­not meet de­mand. To re­solve this and pre­vent pos­si­ble risks, it is nec­es­sary to ex­pand do­mes­tic de­mand and ad­just the eco­nomic struc­ture to en­sure sta­ble de­vel­op­ment.

The first pri­or­ity must be to raise the in­comes of low-in­come fam­i­lies, thus in­creas­ing their con­sump­tion. Af­ter more than 30 years of de­vel­op­ment, most of the pop­u­la­tion are lead­ing a bet­ter life, but there are still many peo­ple liv­ing in poverty and their liv­ing stan­dards need to be raised.

The govern­ment is cur­rently pro­pel­ling dis­tri­bu­tion re­form to raise the in­comes of work­ers, but it needs to ac­cel­er­ate the process. Ac­tu­ally, the govern­ment could do more, such as rais­ing pen­sions and of­fer­ing bet­ter so­cial se­cu­rity to cover more peo­ple in need, so that those who can­not ben­e­fit from ris­ing wages can also af­ford higher con­sump­tion. Other mea­sures, such as help­ing low-in­come fam­i­lies pur­chase new en­ergy sav­ing elec­tronic de­vices and re­cy­cle their old ones, could also be in­tro­duced.

The real es­tate mar­ket is an­other field where the govern­ment can help raise peo­ple’s liv­ing stan­dards. If peo­ple’s need for ac­com­mo­da­tion was sat­is­fied, they would be in a po­si­tion to con­sume more.

But the govern­ment has a lot of work to do in this field. It should, first of all, pro­vide homes for low­in­come fam­i­lies by build­ing more pub­lic hous­ing and af­ford­able houses. It can also con­sider lift­ing the limit on high-end vil­las and al­low­ing rich peo­ple to spend more on hous­ing. But to pre­vent the wealth gap widen­ing, the govern­ment should in­tro­duce a na­tion­wide prop­erty tax at the same time. The money de­rived from those en­joy­ing big­ger houses can be used to sup­port the con­struc­tion of hous­ing for the less well-off.

Mean­while, the process of ur­ban­iza­tion is ac­cel­er­at­ing. How­ever, the govern­ment needs to open up ur­ban res­i­dence regis­tra­tion to mi­grant work­ers and col­lege stu­dents from ru­ral re­gions, and grant their fam­i­lies the same rights as ur­ban­ites to en­cour­age their as­sim­i­la­tion in cities. There also needs to be ac­cel­er­at­ing con­struc­tion of in­fra­struc­ture for trans­porta­tion, so that peo­ple find it eas­ier to travel.

More in­vest­ments in ed­u­ca­tion, health­care and cul­ture are nec­es­sary. In con­trast to the avail­abil­ity of ma­te­rial things, the short­age of th­ese ser­vices is as­ton­ish­ing. To change this, China should con­sider de­vel­op­ing high-end ser­vice in­dus­tries cater­ing to the rich as this will pro­mote em­ploy­ment and raise the gen­eral qual­ity of ser­vices.

Ac­tu­ally, tight State con­trol over the ser­vice sec­tor is the main cause of the short­age in cul­tural prod­ucts, and the nat­u­ral so­lu­tion is al­low­ing more pri­vate cap­i­tal to en­ter the mar­ket. The govern­ment can also en­cour­age com­pe­ti­tion among dif­fer­ent State-con­trolled ser­vice providers in or­der to de­liver bet­ter ser­vices.

Open­ing the cap­i­tal mar­ket will sat­isfy an­other do­mes­tic need that is eas­ily ig­nored, namely the need for in­vest­ment chan­nels. By the end of June, res­i­dents’ de­posits to­taled 100 tril­lion yuan ($16.3 tril­lion) and one of the main rea­sons for this was the lack of in­vest­ment chan­nels.

The govern­ment can deepen fi­nan­cial mar­ket re­forms and help re­vive the stock mar­ket, to­gether with mea­sures like al­low­ing more pri­vate cap­i­tal to join the ser­vice sec­tor; with more pri­vate cap­i­tal there will be in­vest­ment in schools, old peo­ple’s homes and mu­se­ums.

But a more im­por­tant pol­icy to widen in­vest­ment chan­nels in the long run should be fur­ther re­duc­ing the tax bur­den on smal­land mi­cro-sized en­ter­prises, and en­cour­ag­ing more peo­ple to start their own busi­nesses. Af­ter all, only when more peo­ple are shar­ing a big­ger cake will they have the means to con­sume more. The Chi­nese ver­sion of this ar­ti­cle ap­pears in Study Times.

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