To spur consumption, China preps plan to boost disposable income by 2020

BEIJING (Reuters) - China’s state planner said on Friday it would roll out a plan to boost disposable income this year and in 2020 to spur private consumption, a major plank in the world’s second-biggest economy.

FILE PHOTO: A woman selects vegetables at a supermarket in Beijing, China, April 11, 2019. REUTERS/Jason Lee/File Photo

China will urge local authorities to adopt measures to quickly stimulate consumption, focusing on eliminating “pain points” and “blockages”, said Meng Wei, spokeswoman at the National Development and Reform Commission (NDRC).

She did not give details.

One consumption driver is income growth, which eased in China last year as corporate profits started to soften. Disposable income per capita rose 6.5 percent to 28,228 yuan ($4,224), slowing significantly from the 7.3 percent pace for 2017.

The other concern is jobs as the economy continues to cool while living costs remain elevated. Nationwide survey-based unemployment rose to 5.3% in July from 5.1% in June, though market watchers say it could be much higher, data this week showed.

“Even after the (detailed policies) are rolled out, I doubt their effectiveness. To spur incomes, you need to revitalize firms and support employment, and you need to ease people’s concerns and make them bold enough to spend,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai.

“This could be measures to stabilize consumption, rather than stimulating consumption.”

This week’s data broadly showed China’s economy stumbled more sharply than expected at the start of the third quarter, as the intensifying U.S. trade war took a heavier toll on businesses and consumers. Second-quarter economic growth slowed to a near 30-year low.

Retail sales in July pointed to consumer caution, growing at the weakest pace since April. Sales of automobiles and jewellery declined from a year earlier, while sales of garments, home appliances and telecommunications equipment posted low single-digit growth.

In recent months, some Chinese cities have even extended retail hours to promote “the night economy”, loosely defined as the 6 p.m. to 6 a.m. period, with cinemas, museums, gyms, supermarkets and tourist sites open longer.

Beijing also offered subsidies to households looking to buy electrical appliances like a television or a refrigerator.

The consumption stimulus plan will include further reforms of the hukou system, a family registration program that serves as a domestic passport and regulates rural-to-urban migration, and expanding channels for making non-salary income, Meng said.

China has been trying to speed urbanization by easing requirements to secure hukou in urban areas, although it keeps a strict cap in top-tier cities like Beijing and Shanghai.

“Hukou reforms cannot resolve fundamental problems - they (migrant workers) still need to find jobs once they enter cities. The July data showed pressure is big on consumption – dragged by consumption related to autos and housing,” Tang said.

A prolonged consumption slowdown will also ripple outside China, obscuring the outlook for global consumer brands and even tapping the brakes on international travel and tourist spending.

Reporting by Stella Qiu and Kevin Yao; Writing by Yawen Chen and Ryan Woo; Editing by Kim Coghill and Clarence Fernandez