Chinese drivers who trade in older cars for newer models will be eligible for subsidies, as will rural households who buy insulation and other materials for home renovations to improve energy efficiency. Entrance fees at scenic spots will be cut to promote tourism.
Those were some of a long list of measures the Chinese government detailed on Monday in an effort to stimulate consumer spending. Attempts by officials in Beijing to boost the economy have become more urgent as it has become clear that the recovery is slowing.
Li Chunlin, vice chairman of the National Development and Reform Commission, acknowledged at a news conference that consumers were cautious. “Some consumers lack confidence and have many concerns,” he said.
Property prices have fallen and many Chinese feel poorer and less willing to spend. Youth unemployment hit 21.3 percent in June, leaving them and their nervous parents more cautious about spending. After two decades of sharp increases, wages have stagnated.
Economists have said policies are sorely needed to encourage Chinese consumers to spend, but they largely met the government’s plans with skepticism.
The Development Commission, China’s top economic planning agency, did not specify how much national public spending would be provided to support the measures, meaning their costs are likely to fall to local budgets.
“These measures don’t make it look like the central government plans to pay for any of this,” said Michael Pettis, an economist at the Carnegie China Center.
With the exception of Beijing and Shanghai, as well as Guangdong and Fujian provinces, most of the local governments in China are in a precarious economic situation. Many are struggling to pay civil service wages and interest on debt, much less to pay for new consumer subsidies.
The measures announced on Monday were vaguely described. For cars, the national government asked local governments to “increase financial support for car consumption” and “encourage the trade-in of old ones,” without giving details. The government does not send cash directly to consumers.
The government also promised to make it easier for people to sell and register used cars. But easing the barriers to transferring car ownership could prompt more people to see cheap used cars as alternatives to new ones, adding fuel to a new-car price discount war already underway in the Chinese auto industry, said Tu Le, chief executive of Sino. Auto Insights, a consulting firm in Beijing.
Some of the policies announced Monday aren’t new, either. The planning bureau, for example, called for adding elevators to older apartment buildings — a national program that Li Keqiang, China’s premier at the time, proposed in a May 2020 speech that is already well underway.
Surveys of consumer confidence, among the best barometers of households’ willingness to spend, plummeted during a two-month shutdown in Shanghai, China’s most populous city, in the spring of 2022. Confidence barely began to recover in the early months of this year, even after that the central government lifted nationwide lockdowns in early December.
China’s National Bureau of Statistics has responded to the weak data by halting the public release of any monthly reading of consumer confidence last March, halting a series it launched 33 years ago.
China’s approach to stimulating consumer spending differs significantly from the tactic adopted by the United States and other advanced economies during the pandemic: sending checks to consumers. That approach created soaring trade deficits in the West as households spent heavily on manufactured goods imported from China, such as consumer electronics or exercise equipment.
Instead, China’s policies provide incentives to buy goods and services that are almost entirely made in China, from electric cars and home appliances to domestic tourism. That’s in line with the long-standing political impulse in China to help the industrial companies that also drive its exports.
Louise Loo, an economist at Oxford Economics’ Singapore office, said China may be taking the right approach in opting for subsidies for certain types of consumer spending instead of direct cash assistance. Sending checks to nervous households can make them just put the money in the bank.
Direct cash distributions “might just replace what they would have spent anyway and allow them to save more of their own money,” she said.
Also on Monday, the government released more economic data that underscored why China’s policymakers are worried: Surveys of purchasing managers indicated that the country’s vast manufacturing sector was on track in July to shrink for a fourth straight month.
More worryingly, growth in service sectors fell sharply in July. This was mainly due to significant weaknesses in construction, which has been dragged down by extensive delays over the past two years in the completion of new apartments.