Business | Economy
Beijing's plan tries to make shoppers spend
China's multibillion-dollar plan to revive sputtering economic growth depends on getting thrifty consumers like Wang, a 22-year-old security guard at a Beijing office building, to get out and spend.
- AP
- Published: 23:21 November 14, 2008
Beijing: China's multibillion-dollar plan to revive sputtering economic growth depends on getting thrifty consumers like Wang, a 22-year-old security guard at a Beijing office building, to get out and spend.
And his dilemma illustrates the challenge Beijing faces with a poor majority who have missed out on China's economic boom and families who save aggressively because the government gives little help to the sick, jobless and retired.
"It's not that I don't want to spend. I just can't afford to," said Wang, who would give only his surname. Wang, who saves 30 to 40 per cent of his income, said he didn't hesitate to donate after China's devastating May earthquake.
"But if I spend more this month, then how about next month?"
Real goal
The package unveiled on Sunday promises to inject money into the economy with extra spending over the next two years on airports, highways and other construction, tax cuts and aid to the poor. But it says the real goal is to channel money into shoppers' pockets and encourage them to spend, reducing China's reliance on exports and insulating it from the global downturn.
It is a goal that Beijing has pursued repeatedly over the past decade, with limited success. Analysts say consumer spending is more effective at producing economic activity than any government action. But efforts to raise consumption in China have struggled because many families still have little to spend and most save 20 per cent or more of their incomes to pay for health care and retirement.
The key will be easing the public's worries by creating a safety net of health insurance, pensions and unemployment benefits, especially in the poor countryside, said Frank F.X. Gong, chief Asia economist for JP Morgan Chase & Co.
"The quick fix is infrastructure spending, building up railway lines and other things," Gong said. "But then the key thing is to stimulate consumption by building up the necessary social infrastructure. I would say that's the more important job to do." The package's 10-point list of initiatives includes spending more on aid to farmers and the poor. But it gives no details or financial figures.
"They do realise the problem, but I think we need to see the detailed action plan, each step, what they will be doing and how much money they will put into it," Gong said.
This weekend, President Hu Jintao meets world leaders in Washington to discuss a response to the global financial crisis.
He is expected to come under pressure to contribute to a bailout fund but Chinese officials say the most important thing Beijing can do is to keep its own economy sound.
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