China’s unorthodox plan to boost economy

China has unveiled a plan to boost economic growth by stimulating consumerism in the country. The plan has made provisions for increasing wages and income, of creating tourism hot spots in snow-bound regions.

The plan was announced by the General Office of Communist Party of China Central Committee and the Central Office of the State Council, the Cabinet. The details have not yet been revealed as to how much the wage increases would be, and how much would be spent on creating the tourism centres.

There is a mention of asking the companies to provide for annual leave and vacationing of the workers and their families. So, far China had been focused on export growth. Its economic growth over the decades had been predicated on exports and also savings. But the emphasis has completely shifted to consumption-based economic growth.

The government has been encouraged to harp on consumption after the rebound in the housing sector and in the stock markets due to policy stimulus ushered in September last. Guo Chunli, vice president of the Chinese Academy of Macroeconomic Research, said, “The upward trends have helped to stabilise asset prices, which is a crucial prerequisite for consumers to feel more secure about their financial situation and be more willing to spend.”

It is interesting that the Chinese government and the Communist Party of China are nudging people to marry and have more children on the one hand, and also asking them to spend more money on travel and other things like investing in real estate once again. Both these initiatives are addressed to the domestic domain. This is to ensure that China spends enough in the country to boost economic growth, and that Chinese people marry to have children to keep the demographic balance needed to keep the economy in top gear.

External observers and critics of China are likely to argue that the new policy of consumerism-led economic growth would not be of much benefit to the struggling global economy if the Chinese do not travel abroad or they do not buy foreign goods and services. Spending in China and on Chinese goods and services will benefit China but it will not help the struggling world economy.

But this is not likely to happen. It is not certain that the Chinese will become globe-trotters as had the Japanese and South Koreans in the earlier decades. There is indeed a thriving Chinese middle class which buoys up the Chinese economy, but the middle class is not large enough or rich enough to become conspicuous consumers the way Americans, Europeans and Japanese have been.

China is the second biggest economy but it is not too rich for middle class Chinese spend on luxury living at home and abroad. Chinese companies cannot increase salaries and wages of its employees beyond a limit because otherwise the companies would not be able to keep their margin profits high enough.

The other option for China is to attract foreign tourists, and to do so it would have to open up many parts of the country including Tibet. Chinese authorities might hesitate to throw open the country because of security concerns.

China hopes to meet its growth target of 5 per cent in 2025 through its consumption programme. As any advanced economy, China’s growth rate will not be as rapid or as high as it had been in the last 40 years, when it clocked 10 per cent growth annually. Its growth rate could stabilise at the new normal of 5 per cent, though when Xi Jinping took over in 2013, it was assumed that 6 per cent growth would be the new normal for China.