Powering Up
Investment and consumption will play major roles in China’s growth
Effective investment, particularly from the private sector, and stronger consumption are expected to propel high-quality growth in China this year, according to experts.
Zhu Ning, deputy dean and professor at the Shanghai Advanced Institute of Finance, or SAIF, said on Jan 31 that investment and consumption would lead to strong growth momentum during the year and play vital roles in leading the nation’s economic rebound.
As part of the country’s new development model, investment and consumption are expected to play new roles.
Fruitful investment, particularly in the high-tech and lifestyle sectors, will rise notably this year, spurring consumer spending, Zhu said.
Last year, retail sales in China fell 3.9 percent year-on-year, while investment grew 2.9 percent, the National Bureau of Statistics, or NBS, said on Jan 18.
“As distortion due to COVID-19 diminishes and average household income picks up, consumer spending confidence is likely to rise, while last year’s low base for consumption will add to such growth this year,” Zhu said.
“In addition, there is likely to be a notable improvement in the employment situation this year, with a robust resumption of business activities.”
Last year, investment in high-tech industries rose 10.6 percent year-onyear, 7.7 percentage points above the overall level. Investment from the nation’s private sector reached 28.93 trillion yuan, up 1 percent year-onyear.
Zhu, noting that 2021 is the first year of the 14th Five-Year Plan (202125), a strategic policy framework for the nation’s development blueprint, said this is usually the time when more long-term infrastructure investments are planned.
“In particular, high-tech and social investment is expected to lead the way this year, as both play a key role in high-quality development and effective fiscal spending,” he added.
Zhu noted that COVID-19 has changed people’s lives and consumption habits, meaning more investment in new infrastructure will become increasingly crucial this year.
He said additional investment should go to high-quality education, more-accessible childcare and care for the elderly, as it will also help boost consumption.
Long Shaobo, deputy director of the Center for Public Economy and Public Policy at Chongqing University, said investment in new infrastructure and high-tech will help optimize the overall investment structure and quality.
“There has been robust rise in building new infrastructure, including 5G base stations. These are important aspects for improving lives and are expected to make our investment more effective in coping with the impact of COVID-19,” Long said.
Presiding over a State Council (China’s Cabinet) seminar on Jan 22, Premier Li Keqiang said: “Chinese people and market players have shown strong resilience in facing the unforeseen shock brought by the pandemic, and this is a very important fundamental for China’s steady economic recovery.”
The premier’s remarks were reported in a statement released by the State Council after the seminar.
Zhu, the SAIF professor, said: “Private investment is and always will be critical for China to achieve highquality development. Capital from the private sector is a vital supplement to that of the State.”
He added that private investment is more responsive to evolving market dynamics, as it optimizes resource allocation and flexibility, adding to the effectiveness of conventional State investment.
The figures issued by the NBS in January showed that investment from the private sector rose just 1 percent last year, compared with 2.9 percent growth in overall investment. Notably, investment in the manufacturing sector declined 2.2 percent.
Zhu said the sluggish growth was partly due to a sudden “liquidity crunch” for private businesses in the first half of last year due to the pandemic.
Long said such a decline may even suggest that the market in general is cautiously optimistic, but he stressed that forceful measures are needed to bolster sentiment.
Xiao Lisheng, a senior international finance researcher at the Chinese Academy of Social Sciences, believes that while the level of investment in infrastructure and real estate will remain “basically appropriate”, outlays in manufacturing will re-emerge and take a lead in boosting overall investment this year.
“With COVID-19 vaccines being rolled out in Europe and the United States, major global economies are likely to see a quick recovery, driving up overseas demand. This, in turn, will boost China’s manufacturing sector,” Xiao said.
Zhu said that to boost private businesses, stronger efforts are needed to level the playing field for them compared with State-owned ones. Private businesses should also have unimpeded financing channels and benefit from cost-cutting policies such as reduced taxes and fees, he added.
Since the pandemic emerged, the government has introduced policies to support the market and get businesses rolling again. Such measures include cutting taxes and fees, provisionally deferring social insurance payments, and finding ways to directly benefit smaller businesses.
The State Council recently urged authorities to strictly curb any arbitrary charges imposed on businesses, in order to reduce their burden.
Hailing such moves, Zhu expects the reductions in taxes and fees introduced early last year to be extended, given the complexity of the pandemic and the economic situation.
He stressed that building a multilevel capital market, particularly the bond financing market, is crucial to helping directly finance smaller, private businesses.
“This will allow the level of risk return to help in allocating financial resources to the market, instead of managing risk and lending requirements from conventional banks, thus solving financing woes for smaller, private businesses,” he said.
The figures released by the NBS suggest that domestic consumption continued to accelerate last year, accounting for 54.3 percent of GDP.
Releasing the data, NBS head Ning Jizhe said consumption plays an increasingly significant role in spurring economic growth, and with the pandemic effectively contained, consumer demand will gradually strengthen.
In particular, the Business Activity Index for services stood at 54.8 percent in December, remaining above 50 percent, which indicates expansion.
“Manufacturers and service providers need to rapidly diversify supplies to meet shifting consumer demand, and there is plenty of room for improvement in this regard,” said Zhu, who has carried out extensive research into consumer behavior and behavioral economics over the years.
He added that public demand is rising for good education, moreaccessible care for children and the elderly, and goods such as top-quality electronic devices.
Diversified supply will also require more participation from the social and private sectors, which is why a level playing field and lower market threshold are important for private investors, he said.
Effective investment, and delivering it to the lifestyle sector, will effectively “shore up weak links” and ensure that economic growth raises spirits — vital to achieving high-quality growth, Zhu said.
Feng Ming, a senior researcher at the Chinese Academy of Social Sciences, said the strong savings tradition among Chinese households has played a major role in the nation’s resilience to the pandemic. He added that more government efforts are needed to boost confidence in spending, particularly in ensuring medical care and basic education.
Feng said that last year, while significant policy support was given to businesses, “limited liquidity backing” went directly to households, particularly when compared with the US and European countries, which have continued to allocate cash relief to individuals and families.
Feng said direct payments and consumer coupons issued to households, particularly in areas where people have to be isolated, can be a viable option in the event of a resurgence in COVID-19 cases.
China’s GDP exceeded 100 trillion yuan ($15.42 trillion) last year, the NBS figures show.
In January, a forecast by Moody’s Analytics predicted that last year, when adjusted for inflation, China’s economy likely accounted for 16.8 percent of the global total.
Zhu said that while there is no perfect index for assessing economic development, for the past 50 years, GDP has been the key factor for gauging a country’s growth, and topping 100 trillion yuan in this respect is clearly an “exciting message” for China.
He said it also suggests the nation has a vast domestic market and that income levels are rising significantly.
Zhu said these factors will provide solid support for the “dual circulation” development pattern, in which domestic and overseas markets reinforce each other, with the former acting as the mainstay. He said they also add to the nation’s attraction for overseas investors and give domestic enterprises tremendous opportunities to widen their influence abroad, signifying that China has integrated into the global economy.
“As the economy expands, so does its complexity. We need to be clear about the complexity facing macroeconomic policy coordination and must always keep an eye on the risks, in order to ensure healthy, steady and sustainable growth,” he added.