China’s policymakers plan to show more support for domestic demand this year but are likely to stop short of splashing out big on direct consumer subsidies, keeping their focus mainly on investment, three sources said. | Reuters
“There are limited options to stimulate consumption,” said one insider, who like the other sources spoke on condition of anonymity due to the closed-door nature of policy debates. “The possibility of giving cash handouts is small.”
Reviving consumer demand quickly is even more critical for an economic recovery this year as the country’s exports falter amid a global slowdown and the crisis-hit property market struggles to get back on its feet. World Bank data shows investment as a share of China’s GDP is almost 20 percentage points above the global average, while household consumption is almost 20 points below, a greater imbalance than Japan’s in the 1980s, before its long stagnation.Chinese leaders have signalled their intention to boost domestic consumption many times in the past decade, without much follow-through.
Given such concerns, arguments for Beijing-funded consumer vouchers in excess of 1 trillion yuan made by influential academics such as Yao Yang, dean of the National School of Development at Peking University, or for bolstering China’s barely noticeable social safety net made by most advocates of a consumer-centric growth model, are losing ground.
The government is expected to widen its budget deficit to around 3 percent of GDP this year to accommodate those spending needs, policy insiders said, adding to overall debt in the economy.
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