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Yu Miaojie: Job Losses May Thwart China Consumption Drive


BEIJING (MNI) - Chinese government efforts to boost consumption following the coronavirus epidemic may stumble on workers' loss of jobs and purchasing power during this year's severe disruption, government advisors told MNI, adding that infrastructure spending will be the major tool for rebooting the economy.

While registered urban unemployment jumped to 6.2% in February from 5-5.3% in 2019, the figure takes no account of unemployed migrant workers and total joblessness is likely to be higher, noted Su Jian, director of the National Center for Economic Research at Peking University. Growth in retail sales could decline by 2-3 percentage points in 2020 versus 2019's 8% expansion, he said. 

"It is hard to calculate actual job losses, as the virus kept many people home," said Su.

Lingering fears of catching coronavirus might also restrain consumers from visiting retail sites and other populated areas, he said, adding that spending might not rebound until the
third quarter.

"Investment will remain a key driver for stabilising growth," Su said.

While Yu Miaojie, deputy dean of the National School of Development at Peking University, was slightly more optimistic, suggesting a retail bounce could come by the end of the second quarter, he noted that there was still a chance the virus could make a comeback and slow the recovery.

Provincial schemes aimed at buoying consumption include the distribution of spending coupons to lower income groups. Some even offer discounts for eating out and entertainment, despite the continuing requirement for social distancing.

Such coupons may help, Yu said, but they are unlikely to be sufficient to drive a wider retail recovery. He argued for the expansion of measures enacted in some parts of the country to encourage purchases of big-ticket items.

"There is a big market for mid- and low-range vehicles as well as traditional home appliances like refrigerators and washing machines in the rural areas," said Yu, "In big and medium-sized cities, residents need to replace old cars and appliances, and equip smart appliances."

Liu Xiahui, head of the economic growth office at the Institute of Economics of the ChineseAcademy of Social Sciences, suggested that measures to boost consumption should also support upgrades, such as via purchases of electric cars. Auto sales represent around a tenth of total retail trade.

With the authorities also prioritising investment in transportation, communications, power and urban infrastructure, the central government's fiscal deficit is set to rise above last year's cap of 2.8% of gross domestic product. Longer-term development projects will receive priority, Liu said.

"The current consensus on the deficit-to-GDP ratio this year is 3.5%," said Yu, "but if a more proactive fiscal is adopted, it could be higher." Su sees a chance the deficit will break 4% this year.

Broader measures of China's fiscal deficit, including debt issued by local governments, are significantly higher, other advisors have noted.

From: MNI, March 30 , 2020