China should make greater efforts to boost household income over the next five years as the world’s second-largest economy looks to consumption to power future growth, a former senior official said.
Yang Weimin, a former deputy head of the Office of the Central Leading Group on Financial and Economic Affairs, made the comments ahead of next month’s fourth plenum of the Communist Party’s Central Committee.
Committee members will discuss the country’s next five-year plan, with the economic blueprint likely to emphasise income and gross domestic product growth, the upgrading of industry and technological innovation.
“Where will the growth momentum come from over the next five years? It lies in shared development, the pursuit of common prosperity, and gradually narrowing the [income] gap,” Yang said at Tsinghua University in Beijing on Wednesday.
“The main reason for weak consumer demand in China is fundamentally a matter of income.”
Yang, who helped draft multiple five-year plans while working as head of the National Development and Reform Commission’s planning department before joining the leading group in 2011, specifically mentioned the need to raise the share of household disposable income in national income and boost consumer spending’s share of total demand.
He said the government should also increase the portion of fiscal spending devoted to people’s livelihoods, and transfer more profits from state-owned firms to help address the country’s pension problem.
A report released by the Chinese Academy of Social Sciences in 2019 warned that the surplus of the national urban employee basic pension fund could be fully depleted by 2035 as the number of elderly people increased and the working population shrank.
Beijing has since begun enforcing stricter collection of the payments that fund pensions and medical, maternity and unemployment insurance.
It has also vowed to empower the domestic market and unleash domestic spending power amid an ongoing trade war with the United States, and has a long-held commitment to seeing incomes increase in line with gross domestic product growth.
The government has said that China’s economy is rebalancing away from a reliance on exports, with consumer spending driving 52 per cent of economic growth in the first half of the year, according to the National Bureau of Statistics (NBS), and exports contributing 31.2 per cent.
But the shift towards a consumption-driven growth model – including consumption subsidies being offered this year on top of a national consumer goods trade-in programme – is being held back by a lack of confidence among Chinese consumers, who have seen the value of their assets shrink as the country’s property slump drags on.
Meanwhile, heavily indebted local governments face severe fiscal challenges amid dwindling land sales. While national fixed-asset investment rose by 0.5 per cent year on year in the first eight months of the year, the NBS said property investment fell by 12.9 per cent.
Yang also highlighted a further constraint on the supply side, with domestic production failing to meet evolving consumer demands, and said that underscored the need to develop appropriate industries.
A large portion of China’s consumer-facing industries relied on imports of products such as cosmetics and pharmaceuticals, he said.
“[China] has high-income groups, and with that comes high-end consumption,” Yang said.
He said the country should boost the production of high-end consumer goods, including luxury products, and ease restrictions on premium spending. He also said that in developing the service sector – particularly in areas with high potential such as education, healthcare, sports, elderly care and culture – the government should provide basic public services, with the rest opened up to market forces, allowing private enterprises and foreign investors to participate.
“In short, during the 15th five-year plan period [2026 to 2031], China should actively promote consumer-facing industries, giving them a distinct policy focus separate from traditional sectors,” Yang said. “This would help guide markets and local governments to prioritise their development and better align supply-side and demand-side policies.” - SOUTH CHINA MORNING POST
