## Chinese Citizens Hesitant to Spend Amid Unstable Economic Climate
Erin Yao, a 30-year-old book editor based in Beijing, had planned to enroll in street dance classes and embark on travel adventures after China lifted its COVID-19 restrictions. However, instead of splurging on these activities, Yao has chosen to save a larger portion of her salary, a habit she developed during the pandemic when she stocked up on essential goods.
Her hesitancy to spend is a result of an economic growth model from the 1980s. Critics argue that this model leans too heavily on property, infrastructure, and industry investments while neglecting to empower consumers to earn and spend more.
## Economic Rebalancing Amid Faltering Growth
While the world’s second-largest economy is experiencing faltering growth, which has made rebalancing a pressing concern, transferring economic resources to households would require challenging decisions that could inflict further short-term pain.
Specifically, amplifying households’ share of the national income would result in a decline in other sectors’ shares, such as businesses – particularly China’s extensive industries – or the government sector. Juan Orts, a China economist at Fathom Consulting, warned, “Their fall will make a recession unavoidable.”
## Consumer Spending and Labor Market Woes
In theory, Yao could spend more if she secured a job offering a higher salary than her current 8,000 yuan ($1,097) monthly income, which is less than a fifth of what book editors earn in the United States, according to the employment website Glassdoor. However, China’s job market is weak, with youth unemployment hitting record highs above 21%.
The private sector, which creates 80% of new urban jobs, is still recovering from regulatory crackdowns on tech and other industries. Policymakers have promised to boost credit to firms, but businesses are ultimately constrained by weak domestic demand.
## Addressing Insecurities Through Social Safety Nets
Many economists have suggested that China should enhance its social safety net to rebalance the economy. In Beijing, where Yao resides, unemployment benefits range from three to 24 months and are worth up to 2,233 yuan a month, slightly less than her monthly rent.
Yao spends 300 yuan a month on her father’s medicines, the same as a dance class’s cost. “If the public medical insurance covered more expenses for the elderly, I would feel more secure,” Yao said. Her financial insecurity is also discouraging her from having children at a time when China’s population is aging and shrinking.
## Government Initiatives to Boost Consumption
Over the past month, various government departments have announced dozens of measures to boost consumption, including car and home appliances subsidies, extending restaurants’ opening hours, and promoting tourism and entertainment activities.
However, Yao and businesses seem unimpressed. Yao would prefer consumer vouchers, which some local governments in China have issued, but the amounts are too small to make a significant impact at the macro level.
Jens Eskelund, President of the European Chamber of Commerce in China, remarked, “We haven’t really seen anything in terms of really boosting demand.” He added, “that would be more important than supporting the supply side.”
## Tackling the Economic Challenge
Economists propose demand-side measures such as enhancing public services, increasing social benefits, giving workers more legal bargaining power, or distributing stocks of state-owned firms to citizens. However, the question remains: who pays?
An extra burden on businesses – through higher welfare contributions, for instance – is another hit to employment and growth. That leaves the government sector, which is dealing with a municipal debt crisis. Michael Pettis, senior fellow at Carnegie China, estimates that if Beijing forces local governments to transfer 1-1.5% of GDP to households, China could maintain current growth.
Original Story at www.reuters.com – 2023-08-25 05:18:00
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