After a smooth transition from the pandemic, China's GDP for the whole of 2023 has reached 5.2 year-on-year growth, the economy is on a recovery track. While investment demand remains weak, consumer spending grew near double digits, contributing 4.0 percent to GDP growth3 percentage points, with a contribution rate of 825％。
The V-shaped household consumption expenditure in 2023 is directly related to the low base during the epidemic. After the base effect fades, the growth rate of consumer spending in 2024 is likely to be slower than in 2023, unless we increase policy support for real household income.
Therefore, it is necessary to launch the Chinese version of the "Household Income Doubling Plan" as soon as possible this year. We have seen that many countries and regions, including the United States, have increased their income support for households through fiscal policies during the epidemic, and the average income and spending power of households have increased. China did not launch a large-scale household income support program during the pandemic. Affected by the epidemic, a large number of micro, small and medium-sized enterprises and self-employed businesses are still facing greater pressure to survive, and behind them are a larger number of families. Based on this situation, starting from 2024, it is recommended to launch a large-scale plan to support and increase the real income of families, with fiscal spending tilted towards families, to help increase the real income of low- and middle-income families, and to significantly increase the amount of transfer payments to families, including free and subsidized programs for childcare, basic education, health, and medical care for children and the elderly. In addition, the multiplication plan should also cover rural areas, especially the basic pension of the elderly in more than 60 million rural families should be doubled or even quadrupled. This plan will effectively alleviate households' growing propensity to save precautionarily, which is essential to ensure the recovery and sustained growth of household consumption spending.
Implementing a plan to double household income requires curtailment of unnecessary investment spending. The macro economy has been plagued by over-investment, macroeconomic imbalances and debt in the past few years, so the direction of investment expenditure should be mainly enterprise equipment investment and modernization investment. Given the large stock and low marginal rate of return, it is neither necessary nor feasible to continue to launch large-scale infrastructure investment in 2024 and in the coming years.
In recent years, credit and liquidity to support effective investment have been abundant, and the central bank has created many new structures to release liquidity, emphasizing policy precision and differentiation in an attempt to avoid a recurrence of over-stimulating investment. There have been structural changes in investment growth, with investment in some emerging industries growing rapidly, and real estate and infrastructure investment slowing down compared to before. Considering that the marginal efficiency of most local infrastructure investment is not high, and it is difficult to recover costs financially, the advantages of controlling the pace of infrastructure investment generally outweigh the disadvantages. **A pause in the expansion of total infrastructure investment is necessary in the short term in some places, which are already heavily indebted. In this case, on the one hand, it is necessary to encourage the flow of limited financial resources into those areas that can generate new momentum and new structures; On the other hand, it is more important for all levels to allocate a larger share of budget expenditure to help households make up for the income gap, and to help restore local small, medium and micro enterprises and individual industrial and commercial households to return to the market and resume their operations, rather than blindly launching large-scale infrastructure investment projects.
Since the excessive borrowing of local governments has limited their ability to expand their expenditures to a certain extent, it is necessary for the state to consider a debt replacement solution as soon as possible. China's main debt risk is now concentrated in real estate and local debt. Although the scale of debt is not small, unlike Japan, China does not participate in cross-shareholding, the channels for financial transmission are narrow, and the national regulatory authorities have been committed to preventing the formation of systemic risks in recent years. However, in order to alleviate the drag of debt on aggregate demand, it is necessary to rely on the issuance of larger-scale special treasury bonds to replace local debts as soon as possible, and try to buy back part of the residential stock for affordable housing and long-term rental apartments, while easing the debt pressure of developers.
In the long run, to promote reasonable growth in domestic demand and household consumption expenditure, China needs to allow nominal wages to grow at a faster rate, at least at least at a rate not lower than nominal GDP. Slow wage growth has also constrained flexibility at the macro level. In recent years, some macroeconomic indicators, including the ** index, have not been corrected. The basic industry, including the regulated service sector, such as energy, transportation and urban basic services, etc., has a small range of changes in the medium and long term, and if more marketization can be allowed and distortions can be alleviated, the adjustment of the market mechanism will be more effective in eliminating some macroeconomic imbalances, and it can form a mutually influencing relationship with wages. In this way, the ** index is expected to eliminate the distortion component.
Finally, due to the fragmentation and regional differentiation of China's economy, China's economy has suffered such a large impact in recent years, but China's economy has not experienced a sharp stall, and has gained expansion opportunities in some areas. If we can make good use of this advantage, build a stable and optimized policy environment, make the right incentives, and set up more room for fault in the system, we can fully expect more policy innovation, more market-oriented reforms, and more straightforward responses to economic changes at the local level. I believe that China's economy will continue to gather the entrepreneurial and innovative vitality from the bottom, gain the potential energy to overcome short-term difficulties and challenges, and continue to return to and maintain the momentum of steady growth.
The author is dean of the School of Economics at Fudan University).
Issued in 20243.11. The 1131st issue of China News Weekly.
Magazine title: China's "Household Income Doubling Plan" should be launched as soon as possible
Author: Zhang Jun.