Boosting consumption essential

Experts have advised the government to take proactive measures to boost consumption and stabilize employment as pent-up demand restrained by the novel coronavirus epidemic may not be sufficient without massive stimulus.

A recent online poll found that half of Chinese families surveyed plan to increase savings and reduce consumption when the contagion comes fully under control.

"The general public has become more conservative and more aware of risks due to shocks to the economy from the epidemic. If we do not take strong measures to boost consumption, the phenomenon of inadequate consumption and excessive savings may continue," said Gan Li, director of the Survey and Research Center for China Household Finance at Southwestern University of Finance and Economics.

Apart from issuing vouchers and offering cash grants, the government should also stabilize the job market for low-income earners, expand coverage of unemployment benefits and encourage the development of small-scale consumer loans by giving full play to internet companies and online banks, Gan said.

Conducted between Feb 21 and March 10, the survey collected 30,688 replies from active users of Alipay, a third-party mobile and online payment platform established by Alibaba Group Holding Ltd.

In the first quarter, family income among freelancers－those without a designated employer or stable income－dropped from the previous quarter due to the epidemic while daily expenses increased. Similar pressure was identified in low-income families, especially those whose annual income before tax was no more than 50,000 yuan ($7,053), as their employment stability declined, according to the survey jointly released by the center and Ant Financial Research Institute on April 21.

The most important element of consumption stimulation is to retain job security, especially the task of helping low-income earners find and keep jobs. This will ensure not only their incomes, but also the willingness to consume, because low-income earners are likely to spend 80 percent of additional income, said Li Hongbin, a senior fellow at the Stanford Institute for Economic Policy Research.

"Low-income earners mainly include freelancers and those who work for individual businesses and small and medium-sized enterprises. The government could help them by cutting taxes, lowering social security payments and providing subsidies to small businesses to help workers retain jobs," Li said.

A consumption rebound is not easy to achieve. After the severe acute respiratory syndrome epidemic in 2003, China's consumption growth was 7.34 percent for the year, lower than the growth rate of 8.02 percent in 2002, said Zhu Min, chair of the National Institute of Financial Research at Tsinghua University.

"It is particularly important for the government to drive up consumption," Zhu said in an interview with China Central Television on April 21.

"China could carry forward the issuance of vouchers and the provision of cash grants at the same time. By issuing vouchers, the government will boost consumption of certain products to give targeted support to certain industries, but considering that cash is essential for some elderly people and low-income earners to satisfy their needs, we could combine the two measures," Zhu said.

He added that both approaches should be more focused on low-income and unemployed people.

As of May 3, local governments, merchants and companies in more than 90 cities across the country had issued over 11 billion yuan worth of vouchers to boost consumer spending and domestic demand, according to media reports.

Alipay said vouchers have benefitted more than 10 million offline merchants nationwide, of which over 90 percent are micro, small and medium-sized merchants. In cities like Hangzhou, Zhejiang province, and Zhengzhou, Henan province, local governments have stimulated consumption with funds worth over 10 times the value of vouchers issued through Alipay.

Lian Ping, chief economist at Zhixin Investment, suggested the government make more flexible rules for vouchers, such as allowing consumers to use vouchers combined with discounts offered by merchants, so that those who receive vouchers will actually use them.

In some cities, however, vouchers are allowed to cover only a small proportion of consumption expenditure. Consumers have to pay additional fees three to four times the value of vouchers' face value in order to redeem them. This may dampen enthusiasm for their use, Lian said.

Policymakers should also consider applying moderate stimulus measures to real estate, automobile and home appliance industries by taking such measures as lowering down payments and mortgage rates for first-time homebuyers, he said.

Holding a more positive attitude toward a potential consumption rebound, Lian expects to see a noticeable rebound in the cinema and catering industries in the short term.

"Consumption growth may occur in a few areas including airlines and railways, but it is hard for overall consumption to rebound continuously. So we should think about how to boost consumption in a sustainable manner," said Jia Kang, chief economist at the China Academy of New Supply-side Economics.

To support consumption over the long run, China should optimize the structure of income distribution and improve its social security system. It is also necessary to increase investment in large infrastructure projects, especially new infrastructure, to catalyze economic vitality, support household income growth, inspire public confidence and eventually stimulate sustainable consumption growth, Jia said.