•As there is a direct correlation between consumption and income, the country must raise the incomes of both urban and rural residents through various channels.
•The country should seize the opportunities arising from changes to the structure and layout of global industry to open up new fields and succeed in new arenas.
Chinese Premier Li Qiang on August 17 laid more strategies for ongoing work to achieve China’s annual economic targets and high-quality development. As chairman of the second plenary session of the State Council and Cabinet, Li said the government will fully implement the policy decisions and agreements of the Communist Party of China Central Committee, strive for progress while maintaining stability, and implement macroeconomic control precisely and vigorously.
Li’s remarks resonated with the speech by President Xi Jinping during the Central Economic Work Conference on December 15, 2022. Xi said one of China’s current main economic challenges is insufficient aggregate demand, which requires vigorous implementation for expanding domestic demand and adopt more effective measures to ensure a virtuous cycle of social reproduction.
In the past, China has expanded domestic demand in order to effectively respond to the Asian financial crisis in 1998, the international financial crisis in 2008, and the impact of Covid-19 since 2020, and has thus accumulated successful experience in this regard. The country now needs to optimise its policy initiatives to give full play to the fundamental role of consumption and the key role of investment.
With China making steady strides in new industrialisation, informatisation, urbanisation, and agricultural modernisation, consumption is now playing a fundamental role in driving economic growth. To fully realise the potential of consumption, China needs to boost consumer purchasing power, improve the conditions for consumption, and create new consumption channels.
As there is a direct correlation between consumption and income, the country must raise the incomes of both urban and rural residents through various channels. It is especially important to increase the spending power of the low- and middle-income groups, which have a high propensity to consume but were severely affected by Covid-19.
Steps should be taken to reasonably increase consumer credit so as to support spending on housing improvements, new energy vehicles, elderly care, and services related to education, health care, culture, and sports.
Currently, private investment expectations are low. China must fully harness the guiding role of government investment, which is a powerful tool for responding to cyclical fluctuations in the economy. Government investment should be ramped up in terms of laying strong foundations, generating long-term benefits, shoring up weak spots, and adjusting the economic structure.
The government plans to expedite the implementation of major projects under the 14th Five-Year Plan (2021-2025), strengthen infrastructure development in transportation, energy, water conservancy, agriculture, and information, and advance infrastructure connectivity between regions.
To see that policy-backed finance plays its role in countercyclical regulation, China plans to give more financial support to major projects in line with national development planning and industrial policy guidance, while ensuring a balance between social and economic returns. Xi said that the country needs to widen market access for private investment to encourage and attract the participation of more nongovernmental capital in major national projects and projects aimed at strengthening areas of weakness.
The role of exports in driving economic growth will be further leveraged. China should keep exports to developed countries stable and expand exports to emerging economies. The country will upgrade the processing trade to increase the value added of exports, expand trade in services, and develop digital trade.
Greater efforts will also be made to explore and develop important energy and mineral resources domestically and to discover more reserves and boost production. China plans to ensure power generation, transmission, loading, and storage are well-coordinated and ramp up her efforts to develop a new energy system.
China also plans to engage in forward planning for key areas and fully modernise the industrial system. This means consolidating the leading position of traditionally competitive industries while also carving out new competitive advantages. The country should seize the opportunities arising from changes to the structure and layout of global industry to open up new fields and succeed in new arenas.
China’s three-year action plan for state-owned enterprise (SOE) reform has been implemented with gratifying results. The country now plans to prepare for the formulation of a new action plan to deepen SOE reform, with a focus on strengthening core competitiveness and core functions in line with the evolving landscape.
The scale of China’s for-profit state assets is large. However, some SOEs deliver a low return on assets and lack innovative capabilities, which is not compatible with the requirements of making state-owned capital and enterprises stronger, better, and bigger and ensuring the state-owned sector provides strategic support for the economy.
Continuing with a category-based reform approach, China plans to help SOEs balance their economic and social responsibilities and improve the system for managing state-owned assets with a priority on state capital. It will give full play to the role of state-owned capital investment and operation companies, press ahead with the consolidation and restructuring of SOEs in a market-based way, and develop a number of innovative SOEs. The country will improve modern corporate SOE governance with distinctive Chinese features and see that SOEs truly operate in line with market-based mechanisms and develop themselves into world-class enterprises at a faster pace.
Stephen Ndegwa is the Executive Director of South-South Dialogues, a Nairobi-based communications development think tank.