Wen | Guan Huanfei

For some time, all sectors of society have been thinking about economic recovery in all aspects, including institutional, environmental, market, investment, production and consumption.

From the perspective of factors affecting economic growth, consumption has always been an indispensable aspect. From the source of the formation of consumption capacity, economic development is the fundamental source of consumption capacity. Without sustained economic growth, there will be no sustained formation of social consumption capacity and no sustained contribution of consumption to economic growth. Due to different expectations for the future, consumption patterns can be divided into active consumption and passive consumption. The former is active consumption mode, and the latter is passive consumption mode. When the latter consumption mode appears, it must be changed by exerting necessary external forces. The change of this consumption pattern can also be called the driven consumption pattern.

It should be recognized that because of the long-term impact of the epidemic and the disturbance of the changes in the external environment, the pace of China's economic growth has changed, and people's expectations for the future have also changed, which will inevitably lead to changes in people's consumption habits and even consumption patterns. Under the circumstances of declining external demand, insufficient impetus for economic growth, high youth unemployment rate and expected improvement, it is difficult to stimulate consumption by encouraging consumption or stimulating consumption alone. At this time, the consumption pattern of residents has shown the state of controlling expenditure and saving energy. In the second quarter of this year, China's resident consumption rate was 68.2%, but there is still a gap compared with the average level of 70.6% in the same period from 2017 to 2019. Nevertheless, due to the impact of the slowdown in investment and foreign trade exports, consumption became the driving force of China's economic growth in the second quarter of this year, driving 77.2% of economic growth.

Therefore, further improving the consumption level of the whole society is not only a necessary move to maintain economic growth, but also one of the fundamental goals of government governance. It should be noted that when it still takes some time and certain conditions to realize the transformation from passive consumption to active consumption, the special arrangements in terms of reducing the fixed rigid expenditure of residents must be made to increase the affordable consumption capacity of residents, thus increasing their consumption willingness. To be specific, we need to start from many aspects:

Xiao Yi, Chief Photographer of China Economic Weekly | Photo

1、 Reduce the rigid expenditure of residents on taxes. These include: 1. Reduce personal income tax expenses. The report of the 20th National Congress of the Communist Party of China clearly emphasized the principles of "increasing the proportion of labor remuneration in the initial distribution", "improving the policy system of distribution according to factors, exploring multiple channels to increase the factor income of low - and middle-income people, and increasing the property income of urban and rural residents through multiple channels". In the current situation that the development of enterprises is faced with more uncertainty, and there is little room for the improvement of employment, especially the income of private enterprises' employees, in the next few years, it is necessary to consider both the increase of labor income tax exemption and the reduction of income tax rate of more than a certain amount. It is necessary to increase the affordable consumption capacity of the working population through the reduction of the labor income tax burden of the whole society. 2. Reduce the level of commodity turnover tax. In China's tax structure, the turnover tax levied in the commodity circulation sector accounted for 57% (2020), higher than other major countries. The turnover tax is often transferred to consumers invisibly, and generally has a regressive nature, increasing the income gap. 3. Reduce the tax level of certain asset purchase and transaction, such as housing purchase tax, vehicle purchase tax, etc., and reduce the housing purchase tax expenditure is just an option to break the current real estate market depression. 4. Reduce the consumption tax on some products.

2、 The government should be willing to encourage residents to consume "blood". The government will directly issue consumption vouchers to residents to stimulate the consumption willingness and motivation of the whole society. Since 2021, Hong Kong has issued electronic consumption vouchers to residents every year. In 2022, Hong Kong has issued 10000 Hong Kong dollars to each eligible resident. This year, 6.4 million eligible residents aged 18 and above will be issued 5000 Hong Kong dollars to each; In addition, there are about 100000 settlers and students studying in Hong Kong who come to Hong Kong through different channels of entry. They share the same benefits and enjoy the same wealth. Each person can get an electronic consumption voucher of HK $2500. It is predicted that this will boost Hong Kong's economic growth by 0.6%. Some cities in the mainland have also implemented similar measures, which are of positive significance both in restoring residents' confidence in consumption and increasing their consumption capacity.

3、 Increase the profit scale of state-owned enterprises transferred to social security funds. By doing so, we will improve the coverage of social security for medical treatment, unemployment, and old-age care, and encourage residents to convert part of the expenditure originally used for social security into specific consumption expenditure. An important reason why people dare not spend is that they are limited by the future expenditure on pension, medical care and unemployment. In view of the essential characteristics of the people of state-owned enterprises and the market position of state-owned enterprises, we can consider establishing a normal mechanism for state-owned enterprises to transfer profits to social security funds as soon as possible, so as to relieve the public's worries about the future to a certain extent, Release part of the payment preparation originally planned for the future, and can timely convert it into real consumption capacity, so as to drive the increase of production and service supply with the increase of actual consumption.   

4、 To consolidate and optimize the ecology of sustainable economic development, we will solidify some temporary measures to suspend the collection of taxes and fees for small and medium-sized enterprises. After the outbreak of the epidemic, governments at all levels have issued many policies and measures to support the development of enterprises. Some of these policies and measures are based on temporary considerations, while others can be completely fixed as a long-term system. For example, the graded reduction of the employment security fund for the disabled, the tax relief for self-employed retired soldiers engaged in self-employed businesses, the "six taxes and two fees" relief policy for small and micro enterprises, the self use of national and provincial science and technology business incubators, university science and technology parks, and the filing maker space, as well as the property and land provided for the use of incubators free of charge or through leasing, etc, The exemption of property tax and urban land use tax, and the exemption of value-added tax on the income from providing incubation services to incubators can be implemented for a longer time. By reducing the tax burden of relevant enterprises and personnel, we can create possible cost space for increasing their income, thus promoting the increase of social consumption capacity.

5、 Reduce the cost of debt for residents. According to the report released by the National Finance and Development Laboratory on July 23, the proportion of household debt in gross domestic product (GDP) rose to 63.5% in the second quarter of this year, up from 61.9% at the end of last year. This figure is approaching the 65% financial risk line warned by the International Monetary Fund. The main form of Chinese households' debt is mortgage loans, followed by consumer goods loans, credit card debt, private loans and commercial operation loans. By the end of June this year, the total amount of these loans had reached 38.6 trillion yuan (about 5.38 trillion US dollars). At an annual interest rate of 5%, the interest expense generated by debt of this scale is undoubtedly huge. Since this year, the central bank has lowered the deposit interest rate twice, but the loan interest rate has not been reduced at the same time. Therefore, in order to increase the consumption ability of families in other aspects, financial institutions should jump out of the trap of their own interests, timely reduce interest rate earnings, reduce the cost of family debt, To optimize the consumption capacity structure of the household sector.

6、 It is urgent to implement the work plans of the CPC Central Committee and the State Council for achieving steady economic growth and high-quality development in the second half of this year. On July 19, the Opinions of the CPC Central Committee and the State Council on Promoting the Development and Growth of Private Economy was released. Later, in order to fully implement the opinions, promote the solution of prominent problems in the development of private economy, stimulate the vitality of private economy, and boost the confidence of private economy, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Science and Technology, the People's Bank of China, the State Administration of Taxation, the State Administration of Market Supervision The State Administration of Financial Supervision jointly issued the Notice of the National Development and Reform Commission and other departments on the implementation of recent measures to promote the development of private economy; The General Office of the State Council forwarded the National Development and Reform Commission's Measures on the Recovery and Expansion of Consumption... Now it is imperative to translate these opinions, policies and measures into practical specific methods and rules as soon as possible at an urgent pace, so as to boost confidence, restore and increase the driving force of economic growth, stabilize the market, and promote the coordinated development of production and consumption.

In the medium and long term, it is necessary to start with the system, market, financial input, redistribution and other aspects to establish a system and mechanism to ensure the continuous improvement of residents' consumption ability, so as to continuously increase the contribution of consumption to economic growth. For example: 1. Establish a mechanism that the growth of residents' income is higher than the growth of GDP; 2. Establish systems and mechanisms to reduce inefficient and ineffective financial investment and transform such investment into social consumption capacity; 3. Commit to reducing the damage to the balance sheet of enterprises and households caused by policy mistakes, and fundamentally increase residents' confidence in the future; 4. Establish multi-dimensional systems and market systems to ensure the preservation and appreciation of social wealth. Whether the existing wealth can be maintained and increased is the key aspect to support the sustainable consumption. Therefore, it is necessary to start with the social system and market construction, and build a multi-dimensional system to maintain and promote the maintenance and increase of wealth.

(This article was published in the 15th issue of China Economic Weekly in 2023)

The cover of the 15th issue of China Economic Weekly in 2023