Consumption tops agenda

The State Council, China's cabinet, announced additional policies on Oct 29 to boost domestic consumption. The announcement came just a day before the US Federal Reserve officially started withdrawing its quantitative easing (QE) stimulus program.

China has to maintain a healthy level of growth as the global economy wanders into the post-QE territory, which is full of uncertainties because the impact of QE is not yet clear. To protect its interests as well as those of its trade partners, China cannot afford to go into too steep a fall in overall growth, even though a mild slowdown will help it squeeze out some wasteful and non-competitive industrial capacity.

A deep decline in growth will hurt too many Chinese companies and their global market partners, which don't want China's consumer market to become any worse than what its third-quarter retail data show.

So, the challenge facing China is to sustain the dynamics of its consumer market without the old method of injecting stimulus into the economy, which brought immediate benefits for industrial production and investment in big-ticket building projects instead of ordinary consumers. Premier Li Keqiang has been reiterating that he has no intention of recycling such stimulus practice.

Alternative policy weapons, both monetary and administrative, have been developed to tackle the problem. Some of them were discussed at the State Council executive meeting on Oct 29, where officials decided to further open up the clearing service market for bank cards. The bank card market has been monopoly territory of China UnionPay card.

The State Council also mapped out policies in six other areas:

· Expanding and upgrading the Internet, especially e-commerce and its logistics services;

· Providing more incentives to people using energy-saving products, and developing the urban infrastructure for electric vehicles;

· Preventing the housing market prices from declining abruptly;

· Making paid vacations a standard practice and upgrading services for individual tourists;

· Accommodating more private sector initiatives in the education sector, including cooperation with overseas institutions; and

· Establishing and improving necessary services for retired people.

These policies are more consumer-oriented. And compared with the old policy weapons, they don't demand as much investment in fixed assets as, say, giant office towers and high-speed railways would require. As stimulus, the new policy weapons certainly have less harmful side effects.

The only question now is whether these policies can be implemented effectively.

　　Other views:

The power of an economy depends not on the products it exports but on its exported capital, for the latter better shapes global economic patterns. Therefore, it is more important for China to become a capital net exporter than a country with flourishing trade data, because it would symbolize its growing ability to influence the global industrial structure, which is essential at a time when it faces economic slowdown and transition.

Ma Guangyuan, independent economist, Beijing News, Oct 29

Hardly any effect will result in the withdrawal of QE by the US Federal Reserve on China's real economy because its purchase of $15 billion a month is very small and global liquidity levels remain high. But China must prepare to tackle another development - the flight of high-end manufacturing industries back to the US at an accelerated pace. China's economic future will be decided not by the Fed, but by its own reform policies.

　　Ye Tan, business columnist, National Business Daily, Oct 29

The favorable policies China has implemented for State-owned enterprises will make it difficult to arrest the economic slowdown. China needs to provide equal opportunities for SOEs and private enterprises to help the healthy development of the economy.

　　finance.sina.com.cn, Oct 30

Domestic consumption has huge potential, waiting to be cashed in on. This is the general belief among economists and decision-makers. So, compared with the past measures, the State Council's latest move of stimulating consumption will be more effective.

youth.cn, Oct 30

The government's indicative growth number for 2015 will signal the priority that the authorities put on growth and reforms. The current emphasis on meeting short-term growth targets will make it more challenging to implement the policies necessary to shift growth to a more sustainable medium-term path ... China's key medium-term policy challenge remains implementing reforms that support China's next transformation toward more efficient, equitable, and sustainable growth.

World Bank, China Economic Update, Oct 29