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Boost real buying power

(China Daily)
Updated: 2009-03-18 07:45

Some local governments introduced consumer vouchers with much fanfare to help the poor celebrate the Spring Festival.

As a one-off aid package, such consumer voucher programs were a laudable attempt to enable the needy to better share the sunshine of public finance.

However, if policymakers want to make them an important part of boosting consumption growth, they should rapidly come up with an institutionalized solution to raise consumers' real purchasing power. Otherwise, the current jump of consumer spending will prove short-lived.

A first-quarter survey by the People's Bank of China, the country's central bank, indicates that Chinese citizens are now more willing to spend than save compared with the previous quarter.

But higher propensity to spend does not guarantee consumers will loosen the purse strings as much as they say.

Statistics showed retail growth slowed slightly in the first two months of the year, rising by 15.2 percent year-on-year. This was 5 percentage points lower than the same period last year and six under the 2008 rate.

The steady slowdown of retail sales growth since it hit 23.3 percent last July is little cause for pessimism because the country's consumer inflation simultaneously dropped considerably.

Compared to the plunge of exports in the first two months, domestic consumption has actually held up quite well.

Yet, the problem remains whether consumers will continue to spend as their incomes are gradually eroded by the economic slowdown at home and abroad.

Distribution of more consumer vouchers, not discount coupons in disguise, will directly cushion the poor against the impact of current economic woes for the moment. By targeting the very needy, these programs may achieve their desired effect promptly.

Nevertheless, consumer vouchers neither stimulate higher spending among the few poor, who would rather cover essentials with this one-off measure, nor boost consumption among the majority of the public who will spend according to their real income level.

Hence, to boost domestic consumption as a means to stimulate economic growth, policymakers should focus on raising the real purchasing power of Chinese consumers.

That means authorities should assess all needed taxation reforms, healthcare reforms and social welfare reforms and find out how they can add to consumer confidence to spend more and spend now.

(China Daily 03/18/2009 page8)