How to Stimulate Domestic Consumption?

By CHENG XIAOBEI

    DAYS ago I received an e-mail, the heading of which was "No-one Should Buy Clothes in the Next Few Months Because Prices Will Soon Fall Sharply." The sender is a casual acquaintance that I don't have frequent contact with. I was just one of scores of people she forwarded the e-mail to.

    The e-mail goes on to claim, "Nearly half of export-oriented enterprises have started selling their products inside the country due to the economic slowdown. Recently the prices of clothes and all kinds of accessories in many big marketplaces were cut. As these domestic small and medium-sized enterprises gradually find it difficult to sell their goods, they will be sure to cut prices in fierce market competition." This is considered to be the beginning of domestic consumers enjoying high-quality goods at low prices.

    I canceled my weekend shopping plan with no hesitation, and forwarded the e-mail to some of my friends. My family has stopped buying goods beyond daily necessities. We suspended, for example, a plan to buy a Nikon camera lens. We go out to eat much less often, and have partly replaced purchases at marketplaces with online shopping.

    At the Tianya Forum, the most popular Internet forum among Chinese netizens, vogue and entertainment used to be my favorite sections. However, now the economy column has become a must read. I have found some people's situation is worse than mine; they are threatened with the possibility of losing their jobs. Most of those facing such troubles are employees of export-oriented enterprises, such as manufacturing companies and IT firms.

    Lots of businesses have begun to downsize and cut employees' salaries in order to minimize expenses. Even governments have curbed expenditure in next year's budgets in anticipation of coming difficulties. Months ago the Chinese government also adjusted macroeconomic policies, shifting the focus from curbing inflation to preventing recession. The CPI has plunged to around four percent from a high of around nine percent. Expectations of a recession will continue to limit many people's consumption.

     Exports, investment and consumption have previously been considered the three pillars of development for the Chinese economy. In circumstances in which exporting has become difficult, how do we stimulate domestic demand? This has become the government's most pressing problem.

    The government raised the price of grain to increase farmers' income, with the intention of developing the rural consumer market, representing a population of 900 million. It also raised the minimum subsistence allowance for urban residents. However, farmers without much security in terms of medical care, education and other basic services won't significantly increase their spending just because they earn a few hundred extra yuan. They will probably just save the money.

    From a policy perspective, the government should focus on stimulating consumer demand among the middle class. The wealthy that make up one percent of the total population will not hesitate to spend on luxury goods just because of economic recession. The 80 percent of people on low incomes will not increase their daily spending just because they earn a little more. So the government needs to focus on the middle class, who were the main consumers before and have now reduced their spending. However, the government has ignored proposals to raise the individual income tax threshold.

    The government plans to prevent a slowdown through investment. The central government pledged a RMB 4 trillion economic stimulus package, accounting for 16 percent of China's GDP. The Chinese stock market seemed to approve of the stimulus plan, given the reaction of the market. However, if consumer demand cannot catch up, it is still possible we will fall into recession.

    The key to stimulating public consumption is investing in the social security system. People are more willing to consume if the government can help with education, medical care, housing and other life essentials that make up the lion's share of most people's spending. The economic crisis should be considered an opportunity to expand social security coverage in China.

    However, the Chinese people always feel confident with their government. A survey jointly launched by People's Forum magazine and Sina.com shows that 48 percent of the interviewees have a certain confidence and 22 percent are very confident that the Chinese government will tackle the economic crisis well.