The Chinese government has launched new campaigns to boost domestic consumption and private fixed-asset-investments after foreign direct investments (FDIs) and exports showed a weakening trend.
The Ministry of Commerce and 12 other government departments on Tuesday unveiled an 11-point plan that aims to encourage people to buy household consumer goods, electric appliances and furniture and to refurbish their homes.
The State Council and the Chinese Communist Party (CCP)’s Central Committee also on Wednesday jointly issued new guidelines that call for supporting private companies in share listings, bond sales and overseas expansion. They instruct government departments to treat private companies in the same way as state-owned enterprises (SOEs).
Chinese officials warned that the West’s “de-risking” plan’s threats to the China economy are growing.
Last year, the US accelerated its “friend-shoring” and “near-shoring” plans. It treats India and Vietnam as its “friend-shoring” destinations and Mexico as its top “near-shoring” place. It also called on its allies to follow suit.
Falling orders
In the first half, China recorded a 3.97% year-on-year drop in total exports, the General Administration of Customs said on July 13. The fall was mainly caused by a slowing demand from western countries.
China’s FDIs fell 5.6% year-on-year in the first five months of this year, according to the Ministry of Commerce.
As many factories are either downsizing or leaving China, the youth unemployment rate recorded a high at 21.3% in June from 20.8% in May. Many workers also suffered from pay cuts and unstable income, said media reports.
The year-on-year growth of retail sales of consumer goods fell to 3.1% in June from 12.7% in May, partly because of a weak demand in the real estate markets.
“Due to the influence of multiple factors, the retail sales of home appliances, furniture, home decoration and other household products remained weak,” Shen Qiuping, vice minister of commerce, said in a media briefing about domestic consumption on Tuesday. He said retail sales of electric appliances and household products grew only 1% and 3.8%, respectively, in the first half from a year ago while sales of construction materials fell 6.7%.
He said the government’s 11-point plan is aimed at encouraging people to renovate their homes – for example, by allowing people to withdraw pensions in advance to upgrade their or their parents’ living facilities. He said that, from the supply side, the government will encourage manufacturers to launch innovative household products for the markets.
Xu Xingfeng, director general of the Department of Consumption Promotion of the Ministry of Commerce, said provincial and municipal governments will hold exhibitions and sales promotion activities.
He said the nation will groom five international consumption cities – Shanghai, Beijing, Guangzhou, Tianjin and Chongqing – and build 2,057 shopping centrer that can be reached by people within a five to 10 minute walk from home across 80 cities.
He said the government will also set up recycling centres to handle old home appliances.
Last month, many cities announced their plan to deliver consumption vouchers to the public. Each person can get vouchers worth from 100 to 500 yuan to buy home appliances.
‘Three-horse carriage’
Consumption, fixed-asset investments and exports combined are dubbed the “three-horse carriage,” the main driver of the Chinese economy. When consumption and exports are weak, the Chinese government can order state-owned-enterprises (SOEs) to boost investments but cannot do much to motivate the private ones.
Fixed-asset investments grew 3.8% in the first half from a year earlier, thanks to an 8.1% growth in the investments by SOEs, the National Bureau of Statistics (NBS) said Monday. For the same period, private fixed-asset investments fell 0.2% as investment from Hong Kong, Macau and Taiwan companies dropped 3.4%.
According to the guidelines released by the CCP Central Committee and the State Council, China will help remove barriers in market access and fully implement policies and mechanisms for fair competition.
The country said it will protect intellectual property rights, the property rights of private firms, and the legitimate rights and interests of entrepreneurs as part of the legal guarantee for the growth of the private economy. More policy support will be provided to facilitate financing for companies and meet labor demand.
“Some countries have forcibly promoted ‘decoupling’ and so-called ‘de-risking,’ artificially setting up obstacles to hinder normal economic and trade exchanges,” Li Xingqian, director general of the Department of Foreign Trade of the Ministry of Commerce, said in a media briefing on Wednesday.
“Companies told us that certain countries politicized trade issues, resulting in the forced outflow of orders and production capacity, which harmed the economic interests of both suppliers and buyers,” Li said.
However, he added that China is still full of confidence that it can overcome these difficulties and challenges.
“The supply chain of China’s foreign trade industry chain has strong resilience,” he said. “China’s foreign trade enterprises have been honed and grown up in the international market competition and have inherent innovation capabilities.”
Li said on June 8 that after the pandemic, the resumption of production in neighboring countries had resulted in an outflow of China’s foreign trade orders but the trend is controllable while its impact has been limited.
He said it’s normal for some companies to choose to move their manufacturing facilities outside China as the country continues to upgrade its industrial sectors. He said the shift can be attributed to the international industrial division of labor.
Other officials also offer optimism mixed with caution.
“Given that the first-half GDP growth reached 5.5% and the base in the fourth quarter of last year was low, it should not be a problem for China to meet its 5% GDP growth this year,” Xu Gao, chief economist of Bank of China International (China) Co Ltd, writes in an article published by Guancha.cn on Wednesday. “But it does not mean that the economic situation is satisfactory.”
“To stabilise demand, we can only rely on boosting domestic consumption as we have no control of the external demand, especially when the future prospects remain not optimistic,” Xu says.
He says China’s fixed-asset investment was slowed by the poor property markets while the government should do more to stimulate homebuyers’ demands.
Read: China’s June exports hit by weak Western demand
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