Local governments urged to encourage consumption

Local governments in China should step up efforts to spur investment and boost consumer spending to tackle the dual challenges of sluggish domestic and external demand, experts said on Friday.

They made the comments as weakening export momentum has begun to erode regional growth in some export-oriented powerhouses, such as Guangdong and Fujian provinces.

As of Friday, 30 of the 31 provincial-level regions on the Chinese mainland, apart from Anhui province, had released their first-half regional economic growth results.

Growth in about half of the 30 areas outperformed or was the same as the nationwide growth rate of 5.5 percent year-on-year, with Jiangsu province growing by 6.6 percent and Zhejiang province rising 6.8 percent, indicating that China's economic recovery is holding its own across a wide range of regions.

However, Guangdong province, which has the highest regional GDP and contributed nearly one-fifth of the country's total foreign trade value last year, was one of the underperformers and reported only a 5 percent growth in the first half, partly dragged down by negative export growth, which fell by 3.3 percent in US dollar terms.

Fujian, a major exporter in East China, saw its GDP grow 3.8 percent year-on-year in the first half, with its exports contracting 5.3 percent in renminbi terms, official data showed.

"Looking into the second half, southeast coastal areas may encounter downward economic pressure due to a slowdown in external demand," said Ying Xiwen, a senior researcher at China Minsheng Bank.

It is therefore necessary for local governments in export-oriented regions to counter such pressure by boosting domestic demand, taking measures such as subsidizing consumption of automobiles and home improvement goods, and realizing faster and better use of local government special bonds, he said.

Noting that the Chinese economy is facing new difficulties and challenges such as insufficient domestic demand and a grim and complex external environment, a meeting of the Political Bureau of the Communist Party of China Central Committee called for efforts to actively expand domestic demand on Monday.

Yang Haiping, a researcher at the Central University of Finance and Economics' Institute of Securities and Futures, said local governments should further create a more enabling environment for private enterprises and remove remaining entry barriers facing private investment in certain sectors.

As part of the country's efforts to boost the vitality of market players, the country added 927.9 billion yuan ($129.7 billion) in tax and fee cuts, refunds and deferrals in the first half, the State Taxation Administration said on Friday.

Lou Feipeng, a researcher at Postal Savings Bank of China, said it is also necessary for the central government to increase its leverage level and beef up transfer payments to local governments, given that hidden debt risks and tight fiscal balances facing some local governments may limit their ability to support economic vitality.

Lou added that efforts to promote economic restructuring will continue to boost the growth of Northeast China's Liaoning and Jilin provinces for the rest of the year, which grew by 5.6 percent and 7.7 percent, respectively, in the first half.