In order to do a good job of “six stability” and “six guarantees”, this year the National People’s Congress and the National People’s Congress put forward the strategy of expanding domestic demand. An important part of expanding domestic demand is to increase consumption. Domestic consumption is the basic disk of China’s economy, accounting for 60% of the increase in gross domestic product (GDP). Only when consumption is stabilized can economic stability be guaranteed.
Consumption issues have become more prominent in recent years. The actual growth rate of consumption in 2019 was 6.36%, a decrease of 1.7 percentage points from 2018. Contribution rate of consumption to economic growth was 57.8%, down 8.1 percentage points from 65.9% in 2018. It is precisely due to the decline in consumption growth that has led to increased downward pressure on the economy in 2019.
The more troublesome issue is that the new coronary pneumonia epidemic has further hit our residents ’consumption. From January to April, the cumulative growth rate of total social retail products was negative 16.2%. The sales of online goods and services as a new driving force for consumption have only increased by 1.7% year-on-year, a decrease of 14.8 percentage points from the growth rate of 16.5% in 2019. In the first quarter, consumption dragged negative GDP growth by 4.36 percentage points, accounting for more than 60% of the negative GDP growth.
While the domestic epidemic situation is effectively controlled, will there be a “retaliatory rebound” in consumption automatically? the answer is negative. Revenge consumption means that residents ‘consumption patterns have changed, but whether in terms of total or microscopic, residents’ behavior will not turn to retaliatory consumption.
On the one hand, the impact of the epidemic on the economy will continue for a period of time, resulting in a rising unemployment risk. As of April, the cumulative number of new jobs in urban areas declined by 22.9% year-on-year, and the surveyed unemployment rate rose to 6%. Faced with huge uncertainty, consumers will be more cautious and their savings tend to rise. “House” has become a normal behavior, and the impulse to “buy it, buy it, buy it” will be suppressed.
On the other hand, from the perspective of micro-behavior patterns, the consumption pattern is at most the normal state before the epidemic, and no increase in compensatory consumption will occur. Residents will not intensify their efforts to eat five meals a day in the second half of the year because they did not eat out in the first half of the year, nor will they get a haircut every day in the second half of the year because they did not go out for haircuts in the first half. The consumption of durable goods such as home appliances is a delay in consumption in the first half of the year, not a retaliatory growth. People will not buy two TVs or five refrigerators because they did not purchase in the first half of the year. In general, what has been lost has been lost. In most consumer categories, consumers will not automatically increase their purchases in the second half of the year to make up for the lost consumption in the first half of the year.
In short, the general trend of declining consumption growth in 2019Superimposing the impact of the epidemic, the direction of efforts in the second half of the year is that consumption growth can reverse the rapid decline in 2019, rather than explosive growth. Therefore, the overall policy orientation towards consumption is “stable”.
In order to stabilize consumption, ministries and commissions and local governments have implemented a series of policies, such as issuing consumer vouchers and starting car purchase subsidies. These policies have worked well. However, in order to better stimulate consumption, in addition to focusing on the upgrading of consumer content, it is also important to stabilize the assets and liabilities of residents.
After the epidemic affects income, the high debt burden on residents ’balance sheets increases the hindrance to consumption. In recent years, the resident debt has continued to accumulate, resulting in the ratio of the household sector debt balance and disposable income rising, and the residents ’cash flow has become increasingly tight. Under the impact of the epidemic, the growth rate of residents ‘income this year has declined, which has led to increased pressure on debt repayments of pre-debt, which will squeeze residents’ disposable funds for consumption.
According to the People ’s Bank of China ’s Financial Stability Report 2019, at the end of 2018, China ’s household sector leverage ratio was 60.4%, lower than the average 72.1% in developed economies, but high It is 59.7% on average in the world and 39.9% on average in emerging market countries. At the same time, the increase in the leverage ratio of China’s household sector is higher than that of major countries in the world. In 2018, the leverage ratio of China’s household sector increased by 3.4 percentage points, while the leverage ratio of the household sector in the United States and Australia decreased by 1.5 and 0.7 percentage points respectively. The leverage ratio of the household sector in Japan and the United Kingdom also increased only slightly.
As the leverage ratio rises, residents ’repayment pressure gradually increases and the capital chain becomes tighter. According to calculations by the People’s Bank of China, disposable income of China’s household sector increased by 8.7% year-on-year in 2018, which was 7.5 percentage points lower than the growth rate of household sector debt during the same period. The ratio of household sector loan balance to disposable income was 99.9%, an increase of 6.5 percentage points year-on-year. In 2019, household sector loans continued to grow by 15.53% year-on-year, and by April 2020, they again rose by 13.88% year-on-year, far exceeding income growth.
Resident debt pressure is not evenly distributed. Once low-income families are in debt, the burden is even heavier. It is precisely some low- and middle-income industries that have been affected most by the epidemic. According to the 2019 average wage data of employees in urban non-private units by industry, the three industries of agriculture, forestry, animal husbandry and fishing, accommodation and catering, residential services and other service industries rank in the bottom three. Accommodation and catering and other service industries were the hardest hit areas this time, and recovery was very slow.Dramatic burden on the family balance sheet of employees.
Based on the previous analysis, stabilizing China ’s economy is basically about stabilizing consumption. In addition to government consumption, 70% of consumption comes from household consumption. Due to the rapid accumulation of debt in the past few years, under the circumstances of the epidemic resulting in a slowdown in income growth, the pressure on residents to pay interest has increased. Especially for low- and middle-income families, once they fall into debt, the burden is even heavier. Rigid debt expenditures have greatly restricted household consumption.
Macro policies also need to be more targeted to stabilize residents ’balance sheets. Fundamentally, further increase support for labor-intensive industries, improve the quantity and quality of employment, and stabilize residents’ income. At the same time, monetary policy can further consider cutting interest rates. The current interest rate level is basically the same as in 2009, but the economic growth rate is not the same, so the absolute burden of interest on household and corporate debt is still relatively large. Finally, in order to make up for the insufficiency of residents’ consumption, fiscal policy should be further strengthened in the field of government consumption. Increasing government consumption can increase total consumption on the one hand, and on the other hand, by protecting people’s livelihood, it can also partially ease the pressure on residents’ balance sheets.
(author Yu Ze is a professor at the School of Economics, Renmin University of China, and a major member of the China Macroeconomic Forum (CMF))