PBOC Adviser Says China Urgently Needs to Boost Consumption

An adviser to China’s central bank says the top priority for policymakers needs to be stimulating household consumption, comments that come amid further signs the economic recovery is faltering.

(Bloomberg) — An adviser to China’s central bank says the top priority for policymakers needs to be stimulating household consumption, comments that come amid further signs the economic recovery is faltering.

“The most urgent goal now is to stimulate household consumption, and it is necessary to use all reasonable, legally compliant and economic channels to put money in residents’ pockets,” said Cai Fang, a member of the monetary policy committee at the People’s Bank of China.

Cai added in the article posted late Monday on a social media account of the China Finance 40 Forum, one of the nation’s top economic think tanks, that continued unemployment in the wake of the pandemic is crimping household spending and that consumer confidence is expected to weaken without new policies.

He is among a group of economists who have called for providing direct stimulus to consumers to boost spending, a path that Beijing has so far been unwilling to follow. Earlier this year, Cai said direct stimulus of 4 trillion yuan ($551 billion) paid directly to Chinese households is an option to spur a recovery in consumer spending that has been slowed by weak wage growth during the pandemic.

Cai, 66, is one of the most well-known economists in China to focus on demography and labor economics. The former vice president of the Chinese Academy of Social Sciences, a state think tank, joined the PBOC’s policy advisory body in early 2021, and has helped the government map five-year plans for economic and social development. In July, Cai called on officials to reform the household registration system to unleash the consumption potential of the nation’s large pool of migrant workers.

See: China’s Economic Recovery Faces Risks From Property Crisis

Authorities have so far indicated they are not seriously considering handing out cash straight to consumers. Former Premier Li Keqiang said last year that tax and fee cuts for companies were the most “direct, fair and efficient” way to stimulate the economy, as opposed to consumer vouchers and large-scale investment — underscoring a preference to help employers instead of giving cash directly to individuals. 

Senior Communist Party officials also have a history of warning against “the trap of welfarism,” saying the country aims to encourage people to accumulate wealth through hard work. There are also practical constraints to handouts, including local governments’ deteriorating finances and ensuring fair distribution.

China’s economic rebound is facing headwinds from a worsening property slump. Official data released Tuesday showed a faltering recovery, with consumer spending, industrial output and investment sliding across the board and unemployment picking up. The government suspended publishing data on its soaring youth unemployment rate, saying it needed to iron out complexities in the numbers.

The data is putting more pressure on Beijing to add stimulus. Some economists are calling for extra fiscal policy support following the PBOC’s surprise rate cut on Tuesday, especially with broad government spending declining in the first half as local governments see income from land sales plunge.

The interest rate cut “is probably only part of the policy reaction,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd. “More important is what the government will do on the fiscal front. That’s probably the key to resolving the current challenge.”

Also late Monday, state television reported that the PBOC plans to boost sales of bond and asset-backed securities by consumer and automobile finance companies. Eight such firms are expected to sell a combined 50 billion yuan of bonds and the securities in the near future, according to the report, which cited an unidentified person close to the central bank.

(Updates with rate cut and economist comment.)

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