By love-89.com On October 18, during the 2024 Financial Street Forum Annual Meeting in Beijing, People’s Bank of China Governor Pan Gongsheng emphasized the need for a shift in macroeconomic policy. He stated that the focus should transition from a heavy reliance on investment to a balanced approach that equally values both consumption and investment, highlighting that this is crucial for achieving a dynamic economic balance.
When asked how to achieve this balance between investment and consumption, Pan explained that during past economic cycles, the primary strategy was to combat downward pressure by expanding investment and maintaining supply-side capacity. In the current phase of high-quality development, investment should be adjusted in line with changes in economic structure, with increased focus on areas such as technological innovation and essential public welfare.
Pan stressed the importance of a people-centered development approach, aimed at increasing residents’ income, optimizing fiscal expenditure structures, enhancing the social security system, and stimulating consumer spending. He envisioned a virtuous cycle: “Governments nurturing consumption, consumption activating the market, the market guiding enterprises, and enterprises expanding investment.”
Commenting on recent economic data from China, Johnny Yu, Vice President of Wellington Investments, noted that consumer sentiment is gradually starting to improve. In the first three quarters, total retail sales of consumer goods rose by 3.3% year-on-year, buoyed by policies encouraging the replacement of old consumer goods. However, Yu also pointed to pressures in the income and employment sectors. Meanwhile, he mentioned that the services sector remained stable, with a 4.7% year-on-year growth in value-added, reflecting favorable trends in the structure of consumer spending.
Yet, Yu highlighted the ongoing adjustments in the real estate sector, describing it as a gradual process that still requires a recovery in price expectations and effective policy support. He pointed out that while the adjustments in real estate have constrained fiscal space, local governments continue to ensure necessary investments in livelihood and key sectors, supporting recovery efforts.
Professor Sheng Songcheng from the China Europe International Business School believes the main economic challenge currently lies in weak consumer demand, and he advocates for coordinated fiscal and monetary policies to support consumption. He argued that sustained and stable improvements in household cash flow would foster a rebound in consumer spending. He suggested utilizing proactive fiscal policies to further stimulate consumption, proposing that raising the personal income tax threshold to 8,000 yuan could potentially reduce annual tax revenue by approximately 30 billion yuan—just 0.17% of last year’s total. He believes this measure would have a minimal impact on fiscal revenues but would provide significant benefits to low-income populations, thereby promoting their consumption.
In recent years, there has been a noticeable shift in government spending towards safeguarding livelihoods and boosting consumption. Research from CICC indicates that the return on investment from government projects has been declining, and reallocating fiscal spending from infrastructure to welfare would enhance efficiency, build market confidence, and contribute to short-term growth while improving human capital for long-term development.
According to Haitong Securities, the recent policy combination focuses on repairing household balance sheets. As asset prices stabilize and recover, consumer confidence is likely to improve, leading to increased demand. Recent initiatives to stimulate consumption have been rolled out, including a 150 billion yuan super long-term special government bond fund for encouraging the replacement of consumer goods, which was distributed to localities in early August. The National Development and Reform Commission has reiterated its commitment to promoting consumption and enhancing people’s livelihoods.
Lastly, Huang Yiping, Director of the National School of Development at Peking University, called for a more robust macroeconomic policy, stressing the urgency of implementing planned fiscal expenditures. He remarked that overall fiscal spending in 2023 has significantly lagged behind initial plans and argued for a shift from a “heavy investment, light consumption” policy approach to one that actively supports consumption growth.