Steps needed to bolster consumption

More steps are anticipated in boosting consumption, supporting smaller businesses and securing employment as the country's growth faces challenges amid scattered COVID-19 cases and a sluggish consumption recovery, analysts said.

An executive meeting of the State Council, China's Cabinet, last week, reiterated the importance of maintaining continuity and stability of macroeconomic policies. In particular, macro policies shall be delivered with a focus on securing employment, market entities and meeting the essential needs of the people.

The meeting statement noted that while economic recovery has been steady since early this year, uncertainty in the global environment has been on the rise. Domestically, growth is seeing a mix of challenges including sporadic COVID-19 cases and rising commodity prices. Synergy across the fiscal, financial and employment policies needs to be enhanced to keep proper market expectations stable.

Major economic indicators indicate the country's economic activity slowed in August with consumption and factory production held up by scattered COVID-19 cases and floods. The meeting signaled that efforts in advancing reform, opening-up, and enabling the country's business climate will continue to be put forward.

"Despite solid recovery in the first half, pressure facing China's economic growth is still notable. With the COVID-19 impact in place, supply chains globally are very unstable and most countries have not secured a strong economic stabilizer yet. With visible uncertainties in both real economy and financial sectors, market expectations in many countries are hovering," said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing. "This is why the State Council executive meeting underlined the need for securing jobs and essential living needs."

The meeting statement urged "more efforts for measures in boosting consumption shall be in the pipeline".

China's retail sales, a key gauge of consumption, grew 2.5 percent in August year-on-year, down from July's 8.5 percent growth, said data from the National Bureau of Statistics.

Yang Guangpu, associate research fellow at the Development Research Center of the State Council, said consumption momentum was recently battered by the impact of COVID-19.Strong consumption growth is of high importance for the growth potential of China's economy.

"Sluggish consumption may lead to a drop in prices, thus resulting in reduction of enterprises' profits," he said. "And this may further hurt the willingness of enterprises to invest and hire, which means the overall employment status might be affected. Therefore, solid efforts are needed to energize consumption, and shore up people's willingness to buy."

The meeting also adopted a plan for new infrastructure development as part of an effort to spur domestic demand, economic transformation and growth sustainability. In the 14th Five-Year Plan period (2021-25), a well-calibrated layout will be made for the development of new infrastructure, underpinned by information networks and technological innovation.

"This can also be seen as an effort to catalyze consumption and meet people's demand amid the country's high-quality growth," said Xiong Yuan, chief macro analyst at Guosheng Securities. "With solid new infrastructure facilities in place, it will help actualize new consumption and create more buying models for consumers. It will also catalyze the demand side by creating more consumption possibilities."