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Effective investment is key to promoting consumption

Jia KangJia Kang

Boosting consumption and improving people’s livelihoods are crucial to driving China’s development, given the country’s substantial consumption potential. However, consumption isn’t a one-size-fits-all solution for all developmental challenges. A better way to bolster the economy is by enhancing people’s purchasing power, which can be achieved through effective investment.

Effective investment can create job opportunities and ensure adequate resource supply, thereby increasing people’s purchasing power. Furthermore, China should accelerate the transition from “Made in China” to “Created in China,” shifting from traditional manufacturing to intelligent manufacturing. Currently, over 65% of China’s population lives in cities, but only over 45% possess urban hukou, which is urban residency registration. This implies that many migrant workers without hukou cannot access basic public services in cities. The government must take measures to unlock the full potential of urbanization and industrialization to meet people’s need for a better life.

Additionally, since the real estate sector remains a fundamental industry in the country, the government should create favorable conditions for its recovery and optimize its industrial structure. Effective investment can help private companies regain confidence and act as a catalyst for increased consumption.

By strengthening the social services system, the government can help people have more money to spend on consumption. Therefore, governments at all levels should provide necessary assistance and subsidies to vulnerable groups, including through direct cash transfers, to boost their basic consumption power.

Building a unified national market can ensure smooth circulation of goods and thus drive consumption, especially since, despite the continued recovery of catering and tourism sectors, people remain hesitant to purchase products like vehicles, electronics, and consumer goods. The desire of people to buy vehicles, apartments, and consumer goods will be revived by an active real estate market, strong consumer credit, and well-developed mortgage systems.

While many third- and fourth-tier cities have relaxed administrative controls over the real estate industry in response to changes in the supply-demand relationship, some first- and second-tier cities should adjust their policies to meet the demands of new homebuyers.

Furthermore, local governments should consider distributing consumption vouchers among people to stimulate spending. However, some local governments are hesitant to do so for various reasons. While consumption vouchers alone may not be able to solve all consumption-related problems, they can unleash part of the consumption potential of the middle-income group. For families with relatively low incomes, they need increases in subsistence allowances and other occasional financial aids.

Compared to giving money to low-income families, it would be better for governments to issue coupons that can be redeemed for the purchase of essential goods and services. This would prevent some beneficiaries from spending the money on non-essential or frivolous items.

Additionally, efforts should be made to optimize policies not only to unlock the entire consumption potential but also to promote common prosperity. Therefore, authorities should increase effective investment and help expand internal demand by stimulating consumption, ensuring that all people can share in the fruits of China’s development.

The author is the Chief Economist of the Chinese Academy of New Supply-Side Economics.

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