To revive the economy, China wants consumers to buy better stuff

livemint.com:

Everywhere you look, the world’s politicians face tough economic choices. In many countries, they must raise taxes, cut spending or put up with high interest rates to keep inflation in check and make room for investment in the future. China is different.

In the world’s second-biggest economy, inflation is too low, investment is excessive and interest rates are falling. The government’s most urgent economic task is to encourage citizens to loosen their belts, not tighten them. “We should focus on boosting consumption to expand domestic demand," the Communist Party’s Politburo said on July 30th.

It is right. The government’s economic-growth target for this year is “around" 5%. To meet it, demand and production must expand in tandem.

Consumption accounted for most of the necessary increase in spending last year, as households returned to eating out and travelling after the pandemic. Their spending was also strong in the first three months of this year. But it has since begun to flag, putting the growth target in doubt.

Consumer confidence is low. Retail sales grew by only 2% in June, compared with a year earlier, even before adjusting for inflation. Sales of cosmetics and clothing fell.

A survey by China’s central bank in April showed that over 60% of city-dwellers want to increase the amount in their savings accounts. Less than a quarter want to consume more. To change their minds, the government has expanded a programme introduced in March.

The scheme provides subsidies to households that renovate their homes and scrap old goods for shinier, greener replacements. Buyers of new electric cars will receive up to 20,000 yuan ($2,800). Other goods, including refrigerators and televisions, will attract subsidies of up to 2,000