China Is Trying to Make Its Gloomy Consumers Spend More

Chinese drivers who trade in older cars for newer models will be eligible for subsidies, as will rural households that buy insulation and other home renovation materials to improve energy efficiency. Entrance fees at scenic sites will be cut to promote tourism.

Those were a few of a long list of measures detailed on Monday by the Chinese government in an effort to stimulate consumer spending. Attempts by officials in Beijing to juice the economy have taken on greater urgency as it has become clear that the recovery is flagging.

Li Chunlin, vice chairman of the National Development and Reform Commission, acknowledged at a news conference that consumers are wary. “Some consumers lack confidence and have many concerns,” he said.

Real estate prices have tumbled, leaving many Chinese feeling poorer and less willing to spend. Youth unemployment reached 21.3 percent in June, leaving them and their nervous parents more cautious about spending. After two decades of brisk increases, wages have stagnated.

Economists have said that policies to encourage Chinese consumers to spend are greatly needed, but largely met the government’s plans with skepticism.

The development commission, China’s top economic planning agency, did not indicate how much national government spending would be provided to support the measures, meaning their cost will likely fall to local budgets.

“These measures don’t make it look like the central government is planning 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 financial condition. Many are struggling to pay civil servants’ salaries and interest on debts, much less to pay for new consumption subsidies.

The measures announced on Monday were vaguely described. For cars, the national government told local governments to “increase financial support for auto consumption” and “encourage the trade-in of old ones,” without providing specifics. The government is not sending cash directly to consumers.

The government also promised to make it easier for people to sell and register used cars. But easing the obstacles to transferring car ownership could prompt more people to see inexpensive used cars as alternatives to new ones, adding fuel to a price discounting war for new cars already underway in the Chinese car industry, said Tu Le, the managing director of Sino Auto Insights, a Beijing consulting firm.

Some of the policies that were announced Monday are also not new. The planning agency, for example, called for adding elevators to older apartment buildings — a national program that former Premier Li Keqiang proposed in a speech in May 2020, which is already well underway.

Surveys of consumer confidence, among the best barometers of households’ willingness to spend, plummeted during a two-month lockdown 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 the central government lifted lockdowns nationwide in early December.

China’s National Bureau of Statistics has responded to the weak data by halting the public release of any monthly readings of consumer confidence past March, discontinuing a series that it launched 33 years ago.

China’s approach to stimulating consumer spending differs considerably from the tactics embraced by the United States and other advanced economies during the pandemic: sending checks to consumers. That approach produced soaring trade deficits in the West, as households spent heavily on manufactured goods imported from China, like consumer electronics or exercise equipment.

Instead, China’s policies provide incentives for the purchase of goods and services that are almost entirely produced in China, from electric cars and household appliances to domestic tourism. That is in keeping with the longstanding policy impulse in China to assist the industrial businesses that also power its exports.

Louise Loo, an economist in the Singapore office of Oxford Economics, said that China might be making the right approach in choosing subsidies for specific kinds of consumer spending, rather than direct cash assistance. Sending checks to nervous households might prompt them just to put the money in the bank.

Direct cash handouts “could well just substitute for 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 underlined why China’s policymakers are concerned: Surveys of purchasing managers indicated that the country’s vast manufacturing sector was on track in July to shrink for the fourth straight month.

More worrisome, growth in service sectors slowed markedly in July. That was mainly because of considerable weakness in construction, which has been dragged down by widespread delays over the past two years in the completion of new apartments.

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