context: The PRC has made expanding domestic demand a core priority, but household spending still lags relative to its large industrial capacity. A weak labour market, the property downturn and patchy social security keep precautionary savings high. Recent calls to support service consumption with greater force signal a shift from short-term subsidies toward improving services supply through policy incentives and channeling more capital into labour-intensive services to rebalance growth away from real estate and infrastructure.
Zhang Junkuo 张军扩 China Development Research Foundation chair shares some thoughts on how to tackle the supply-demand imbalance through boosting services consumption
- the past approach of relying on investments in real estate, infrastructure and depending on external demand and factor inputs is now difficult to sustain
- as the PRC progresses through new development stages, the demand environment also changes
- this necessitates not only an increase in domestic demand, but also a transformation and upgrade of production capacity
- this ensures that the economy is continually adapting the changing development and demand environment
- this necessitates not only an increase in domestic demand, but also a transformation and upgrade of production capacity
- as the PRC progresses through new development stages, the demand environment also changes
- the weakness in consumer demand is a result of both short-term shocks and market volatility as well as structural problems
- the structural issues include persistently low household spending and inadequate services consumption
- Zhang believes low household spending is the result of a weak social security net, unstable and inconsistent consumer expectations and weak consumer confidence
- Zhang also notes that PRC consumers are consuming nearly as many goods as consumers in other developed countries, but face a significant gap in services consumption
- weak services sectors include education, healthcare, housekeeping services, aged-care and cultural tourism
- the reason for this lag is again due to weak social security, low spending power and supply-side mismatches, including supply shortfalls
- the structural issues include persistently low household spending and inadequate services consumption
- Zhang believes the policies to address consumption issues should be three-fold
- counter-cyclical policies aimed at stimulating demand and maintaining demand volumes while optimising the scope of support and structure for goods consumption
- Zhang believes that the sectors that need the most support include education, healthcare, aged-care and childcare
- support can come in the form of subsidies
- Zhang believes that the sectors that need the most support include education, healthcare, aged-care and childcare
- improvements to social security and public services for low-income groups
- this can boost consumer confidence and security expectations
- expanding the supply of high-quality services
- this can be done through reducing import barriers, optimising regulations and improving domestic standards, branding and environmental protection efforts
- counter-cyclical policies aimed at stimulating demand and maintaining demand volumes while optimising the scope of support and structure for goods consumption
- another issue related to weak consumption is 'involution' or price wars
- Zhang believes that a strong legal framework is needed to tackle the issue
- local governments should be regulated to avoid market resource allocation interference through subsidies and administrative action
- law enforcement needs to be strengthened to regulate corporate behaviour for a more transparent and competitive market that is fair and in line with the principles of a market economy
- Zhang believes that a strong legal framework is needed to tackle the issue