China's Economic Policy to Focus on Consumption while Maintaining Adequate Liquidity

 

 

At the Asian Financial Forum in Hong Kong, Pan Gongsheng, chief of China's central bank, said the focus of macroeconomic policy should shift from investment in the past to both consumption and investment in the present, placing more emphasis on consumption.

 

According to Pan, the decrease in domestic demand, especially consumer demand, and price decreases threaten China's economic growth. So, China will seek to increase households' incomes, strengthen consumer subsidies, and upgrade social welfare to improve consumption.

 

Although China may realize its vision of economic growth of around 5% in 2024, geopolitics has magnified uncertainty about China's economic outlook. US President-elect Donald Trump's high-tariff schemes will weaken the support for China's output from growing exports. Amidst persistently low inflation, China urgently needs to elevate sluggish consumption as an alternative booster.

 

 

Beijing has lifted domestic consumption by enlarging its consumer trade-in program and enhancing pension spending and health insurance subsidies. These actions provide incremental support and are not yet the ultimate stimulus package for household consumption. Household spending currently accounts for only about 45% of China's gross domestic product.

 

On the optimistic side, Pan said the real estate market which represented the investment spending has been recovering with the resilient home sales.

 

Additionally, Pan said the Chinese government would support a moderately expansionary monetary policy, using tools such as interest rates and reserve requirement ratios to Maintain adequate liquidity. Liquidity adequacy will fuel the economy and reduce geopolitical uncertainty.

 

Finally, Pan reiterated that the central bank would strive to maintain Chinese currency at a reasonable equilibrium level and would correct any pro-cyclical behavior in the foreign exchange market.

 

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