Source: Securities Times
Authors: Jiang Dan, Guo Bohao, Qin Yanling, Zhang Da, He Jueyuan

On March 16, the General Office of the Central Committee and the General Office of the State Council issued the "Special Action Plan to Boost Consumption" (hereinafter referred to as the "Plan"), deploying a series of strong and wide-ranging measures focused on enhancing consumption capacity, releasing consumption willingness, optimizing the consumption environment, and addressing consumption bottlenecks, further improving the system and mechanism for promoting consumption, opening new space for the consumption market, and pressing the "accelerator" for the transformation of China's economic growth model towards a greater emphasis on consumption.

Residents' income increase "kicks in" a combination punch, solidifying the foundation for consumption.

Income is the foundation and premise for consumption. The "Plan" proposes implementing the "Urban and Rural Residents Income Increase Promotion Action," which will focus on promoting reasonable growth in wage income, broadening channels for property income, using multiple measures to promote farmers' income increase, and effectively addressing the issue of overdue accounts to enhance urban and rural residents' income.

Experts interviewed stated that these four aspects not only involve the main components of residents' income but also specifically address key groups and issues. Wage income and property income are the main sources of residents' income, while currently, rural residents' income still remains the "low point" of urban and rural residents' income in China, with significant room for improvement. In addition, if the problem of overdue accounts is effectively resolved, it will be beneficial for smoothing consumer circulation.

In 2024, the per capita disposable income of residents nationwide will be 0.0413 million yuan, nominally increasing by 5.3% compared to the previous year, and after deducting price factors, it will see a real growth of 5.1%, with the growth rate being roughly equivalent to that of gross domestic product (GDP). However, examining by income source reveals a certain degree of imbalance among the growth rates of various types of income, with the growth rate of net per capita property income being the lowest at only 2.2%, having fallen to the lowest level since statistics began.

The "Plan" proposes to broaden the channels for property income. Various measures will be taken to stabilize the stock market, strengthen the strategic power reserve and the construction of market stabilization mechanisms, accelerate the smoothing of obstacles for medium and long-term funds from commercial insurance, the National Social Security Fund, basic pension insurance funds, and corporate pension funds to enter the market, enhance the market cap management of central and state-owned enterprises that hold listed companies, and vigorously crack down on financial fraud in the capital markets and illegal shareholding reductions by shareholders of listed companies. Furthermore, it aims to enrich the variety of bond-related products suitable for individual investors.

Wang Jingwen, the director of the Macroeconomic Research Center of the China MINSHENG BANK Research Institute, told reporters from the Securities Times and Brokerage China that the performance of the capital markets is closely related to residents' property income. Since September 2024, related deployments such as "efforts to boost the capital market" and "stabilizing the stock and real estate markets" have reflected the central government's high emphasis on the capital market. The government work report has made a series of deployments to promote the development of the capital market, and the recently released "Plan" further implements these. It can be expected that after a series of mechanisms are gradually improved, the capital market will gain more robust healthy development momentum and is expected to drive improvements in property income and consumption capacity.

The "Plan" aims to promote reasonable growth in wage income and take multiple measures to increase farmers' income, focusing on 'expanding the middle and lowering the low.'

From the basic laws of economics, the marginal propensity to consume of the middle and low-income groups is often relatively high. Promoting income growth among the large number of middle and low-income groups, further expanding the scale of the middle-income group, has a huge impact on boosting consumption demand. On March 15, at an event held by the China Macroeconomic Forum, Liu Shijin, former deputy director of the State Council Development Research Center, suggested raising urban and rural residents' pensions from the current 220 yuan/person/month to around 400 yuan within one or two years, 600 yuan within three years, and aiming for around 1000 yuan in five years. He stated that estimates show that if 1 trillion yuan in funds is tilted toward this group, with a consumption propensity of 0.8 and a consumption multiplier effect of 1.5, it is expected to activate over a trillion yuan in consumption potential, providing power for nearly a 1 percentage point annual increase in GDP.

Relieve the rigid spending pressure of urban and rural residents, and unleash the residents' willingness to consume.

In the process of promoting consumption, reducing burdens and increasing income complement each other, and both jointly influence residents' consumption capacity and willingness. Experts interviewed believe that alleviating the rigid spending pressure of urban and rural residents helps to release their willingness to consume.

When deploying actions to support consumption capacity in the "Plan," attention is focused on ensuring the rights and interests of flexible workers, migrant workers, and those in new employment forms regarding childbirth, education, medical care, and retirement.

Lu Ming, a distinguished professor at the Antai College of Economics and Management of Shanghai Jiao Tong University, pointed out to reporters from the Securities Times and Brokerage China that areas attracting population inflow will generate enormous demands for public services such as education, medical care, and retirement. It is necessary to accelerate the urbanization of the migrant population and the equalization of public services. More resources should be invested in the areas of education, medical care, and retirement; this not only enhances the happiness of the public but also achieves sustainability in investments and drives economic growth.

To reduce the burden of family education, the 'Plan' proposes to expand the supply of educational resources for the net inflow of school-age populations in urban areas. Lu Ming believes that more equitable public services are needed for the education of children from migrant populations. In the gradual reform of the household registration system, for those who do not meet the points-based settlement standards, equal educational opportunities for their children should be prioritized.

In terms of enhancing medical and retirement security capabilities, the 'Plan' emphasizes the need to remove household registration restrictions for flexible employment workers participating in basic pension and medical insurance at their place of employment and to expand the pilot program for occupational injury protection. 'A national unified pension insurance system should be established.' Lu Ming stated that ensuring unobstructed transfer and continuation of pension insurance relationships is an urgent need to protect the rights and interests of the floating population and promote reasonable labor mobility. This not only helps alleviate concerns about cross-regional employment for the floating population but also enhances the operational efficiency of the pension insurance system and promotes the modernization of the social security system.

The 'Plan' also proposes to ensure basic living conditions for key groups, strengthen dynamic monitoring of low-income populations, and provide layered and classified rescue and support, promote the improvement of the basic living assistance system, enhance the level of special assistance, and strengthen development-oriented assistance such as employment in industries.

Minister of Civil Affairs Lu Zhiyuan recently stated that there will be a strengthening of regular rescue and support, ensuring the basic living conditions of low-income individuals and those in particularly difficult situations, establishing a method for recognizing low-income populations, and comprehensively conducting assessments for marginal families under minimum living standards and families with rigid expenditure difficulties, thereby improving the layered and classified social assistance system.

Improving service consumption quality to enhance the sense of gain for multiple parties.

This time, the 'Plan' proposes to implement actions for enhancing the quality of service consumption for the benefit of the people. Specific measures include optimizing the supply of services for the elderly and children, promoting consumption in living services, expanding culture, sports, and tourism consumption, promoting ice and snow consumption, and steadily advancing the opening up of the service industry.

The shift from commodity consumption to service consumption is an inevitable trend in the upgrading of consumption structure. Currently, service consumption is showing greater growth potential. Data from the Ministry of Commerce indicates that in 2024, the service retail sales in our country are expected to grow by 6.2% year-on-year, three percentage points faster than the growth rate of commodity retail sales during the same period.

In specific action deployment, the 'Plan' first emphasizes the need to optimize the supply of services for the elderly and children. 'Everyone is under a lot of work pressure and in a fast-paced lifestyle, and they hope to enjoy elder care and childcare services right at their doorstep,' mentioned Zheng Zhanjie, Director of the National Development and Reform Commission. To translate policy strength into public welfare warmth, urgent issues that the public is concerned about must be addressed promptly.

"Embedded retirement allows domestic service providers to expand their services through accompanying visits, care, and conversation, thereby unleashing demand in the silver-haired consumer market; currently, there is significant market demand for childcare services, and community childcare not only facilitates child pickup and drop-off but also enables mothers in the community to find employment right at their doorstep." Wang Chengfang, president of the Anhui Provincial Home Service Industry Promotion Association, stated in an interview with Securities Times · Brokerage China that the "plan" mentions "encouraging the development of community embedded childcare, employer-run childcare, and integrated childcare services" will bring tangible benefits to retirement and childcare, and companies will also experience policy support, increasing opportunities for cooperation with government departments and communities.

Chen Ping, deputy general manager of Jinan Sunshine Big Sister Service Co., Ltd., told Securities Times · Brokerage China that the main contradiction currently facing the home service industry remains the insufficient quantity and quality of service supply. He believes that the "plan" emphasizes "increasing the training efforts for domestic service providers," particularly establishing a training mechanism aimed at employment, which can effectively alleviate this contradiction; at the same time, it is also necessary to improve the occupational protection for domestic service personnel and enhance their social status.

The ongoing popularity of cultural tourism and ice-snow consumption has also been included in this "plan" deployment. Lu Ming stated that people's pursuit of spiritual civilization is more reflected in the service industry, and the recent surge in cultural consumption such as concerts and music festivals serves as evidence; at the same time, due to the immediacy of service consumption, there is no issue of cross-period substitution, which thus holds a more sustainable and stable driving effect.

In addition, the "plan" emphasizes the development of inbound consumption and the steady promotion of expanded openness in the service industry. Specifically, the "plan" proposes for the first time to "promote the import of high-quality lifestyle services such as medical health and cultural entertainment" and "promote the incorporation of services such as camping, homestays, Property Service, and 'Internet + Medical' into the directory encouraging foreign investment industries."

Pan Yuanyuan, a deputy researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, told Securities Times · Brokerage China that steadily expanding openness in the service industry is beneficial to meeting differentiated demands at all levels domestically.

"Before the directory encouraging foreign investment industries is released, there is usually a very detailed prior verification process; it requires foreign investors to have investment needs and that domestic regulatory departments, industry enterprises, and other parties recognize market feasibility before specific items can be included in the directory." Pan Yuanyuan stated that after consumption items are incorporated into the directory encouraging foreign investment industries, it not only provides directional guidance for foreign investments but also means that investment access and inter-departmental coordination will become more convenient. She believes more details and encouragement criteria need to be aligned in the future, such as 'Internet + Medical' involving patient data, as further clarification on issues such as Data Storage and data movement is needed.

Better meet housing consumption demands and extend the auto consumption chain.

Mass consumption is the largest part of consumption, with the strongest industrial driving capacity, serving as the main engine for driving consumption growth. The "plan" proposes to carry out the "mass consumption update and upgrade action," which includes increasing support for replacing old consumption goods with new ones, better meeting housing consumption demands, and extending the auto consumption chain.

It is worth noting that to better meet housing consumption demands, the plan also clearly states the housing provident fund support policy, including timely reduction of housing provident fund loan interest rates and expansion of the usage scope of the housing provident fund.

Wu Jing, director of the Real Estate Research Center at Tsinghua University, stated in an interview with Securities Times that this is the first time specific measures to support housing consumption have been elaborated in consumption-boosting documents released by the State Council, highlighting the coordinated and mutually reinforcing relationship between fully unleashing housing consumption and boosting overall resident consumption, representing an extension and breakthrough in the thinking of consumption stimulation.

Wu Jing also stated that special emphasis is placed on leveraging the role of the housing provident fund, involving the entire chain of contribution, withdrawal, and loans, which is a first in recent policies related to the real estate market, fully reflecting the important role of the housing provident fund system in enhancing the housing payment capacity of contributors, fully releasing rigid and improving housing demands, thereby promoting the stabilization of the real estate market.

Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, further stated to Securities Times · Brokerage China that intensifying the renovation of urban villages and dilapidated housing mainly aims to release rental and purchasing demands from young people and new citizens, as well as the housing demands of older citizens, which constitute the main part of structural demands in large cities in China. Special bonds for acquiring existing housing are mainly used for guaranteed housing, relocation housing, talent housing, and student dormitories, which can quickly address the new housing demands in cities. Tax policies and provident fund policies primarily aim to lower the thresholds and costs of housing consumption, which is beneficial for promoting the release of rigid and improving housing demands.

"Housing consumption plays a leading and driving role in overall social consumption, stimulating consumption such as upgrading consumer goods, household appliances, furniture, and decoration. In the special actions to boost consumption, housing consumption is the most important link," Li Yujia told reporters.

In addition to housing consumption, the plan also proposes extending the automotive consumption chain. This includes carrying out pilot reforms in automotive circulation consumption, cultivating and expanding the subjects of second-hand car operations, and enhancing information sharing in the automotive sector. In this regard, Cui Dongshu, secretary-general of the Passenger Vehicle Market Information Joint Conference, stated in an interview with Securities Times · Brokerage China that this policy activates new momentum for automotive consumption from three aspects: expanding market capacity, breaking down transaction barriers, and constructing a digital regulatory system. It not only revitalizes existing automotive assets but also creates incremental service demands, and is expected to promote the automotive industry from "manufacturing and sales" to "ecological services," stimulating the expansion and improvement of the trillion-level automotive consumption market.

Fiscal and financial efforts are in full swing, with more incremental policies to be introduced.

Building a more favorable policy system to promote consumption cannot be separated from the coordinated efforts of various macro policies. The plan proposes a series of fiscal and financial support policies while requiring "strengthening the synergy and linkage of consumption promotion policies." From the perspective of policy deployment, more incremental consumption promotion policies are on the way.

This year, a more proactive fiscal policy will allocate more financial resources to boost consumption and improve people's livelihoods. In terms of fiscal subsidies, the scale of ultra-long-term special government bonds supporting the replacement of old consumer goods has expanded from 150 billion yuan last year to 300 billion yuan, continuing to increase direct subsidies for consumers.

On the other hand, the plan clearly states that central budgetary investments will be increased to support the construction of public service projects in areas such as education, medical care, skills training, and retirement. "In an environment of insufficient demand, increasing public investment is certainly 'a win-win situation'." Zhang Bin, deputy director of the Institute of World Economy and Politics at the Chinese Academy of Social Sciences, said in an interview with Securities Times · Brokerage China that there is still significant investment space in China's public service sector. Increasing public investment will boost the income and profits of the non-government sector while creating more job opportunities.

According to the plan, China will also implement two new loan interest subsidy policies, providing fiscal interest subsidies for eligible personal consumption loans and service sector loans in the consumption field. In Zhang Bin's view, these two policies have a leveraging effect to boost consumption from both the supply and demand sides. The former boosts demand for end products, while the latter will enhance the supply capacity of public services.

In recent years, China's financial system has actively supported the expansion of consumption. Currently, the balance of consumption loans excluding personal housing loans has exceeded 20 trillion yuan, and loan interest rates have also significantly decreased, with some banks down to below 3%. Regarding the plan to encourage financial institutions to increase personal consumption loan distribution, Tian Lihui, director of the Financial Development Research Institute at Nankai University, told Securities Times · Brokerage China that in product design, a layered credit system could be established. For example, a pilot 'entry consumption loan' could be introduced for foreign tourists. In process innovation, the virtualization of credit cards could be explored, allowing payments to be completed directly through a digital wallet linked to the consumption scenario.

It is noteworthy that the People's Bank of China has clarified that it will study the establishment of new structural monetary policy tools, focusing on promoting consumption and other areas. "Consideration could be given to creating a special refinancing for consumption credit, providing funding support for commercial banks and consumer finance companies that issue consumer credit, covering 80% of the loan principal. Additionally, fiscal policy should provide interest subsidy support for consumer loans," said Dong Ximiao, chief researcher at Zhongan. He further stated that in enhancing the capacity for issuing consumer credit, it is also necessary to broaden the diversified financing and capital replenishment channels for financial institutions such as commercial banks, consumer finance companies, and auto finance companies, and support high-quality consumer finance companies in going public.

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