Increasing Incomes Key to Boosting Domestic Demand, Professor Says
China is in dire need of more domestic consumption as global uncertainties hamper external demand. Key to this is increasing incomes and creating more places for consumers to spend money, a Chinese economics professor said at the Summer Davos Forum in Tianjin on Thursday.
Lu Ming, director of Shanghai Institute for National Economy at Shanghai Jiao Tong University, said that an effective way to increase personal incomes in the short term is to create more jobs and accelerate economic growth, which can be achieved through more proactive fiscal and monetary policies. And to boost household incomes, the government should roll out more policies aimed at easing burdens on major expenditures like education and housing.
“The government has pledged to increase its spending on education and affordable housing for rent, especially for young people and migrant workers,” he said. “If these two major household outlays can be increasingly covered by public funds, it will raise actual household incomes and unleash greater consumption potential.”
The government should also further relax barriers for private and foreign investors to enter some service sectors where supply is short including health care, elder care, education and sports, Lu said.
Meanwhile, the National Development and Reform Commission, China’s top economic planner, has been fostering new consumption scenarios in multiple sectors such as tourism and automobiles, with measures including expanding visa-free transit policies, broadening the acceptance of foreign bank cards and loosening car purchase restrictions.
Creating more consumption scenarios in urban areas requires a bigger labor force, said Lu. For that, a sweeping household registration reform is needed to attract more rural migrants to work and live in bigger Chinese cities, he added.
“Our research 10 years ago showed that a change in household registration status could bring about a 16%-21% increase in per capita consumption. Currently, there are 270 million migrant workers and more than 100 million urban residents who need to change their household registration,” Lu said, adding that the current household registration system reform in large cities is relatively slow. From the perspective of releasing consumption, the reform can be accelerated, he said.
Contact reporter Ding Yi (yiding@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)
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