MNI EXCLUSIVE: China 2021 Retail Sales Seen Robust: Advisors

China's retail sales may grow above pre-pandemic levels next year with government measures adding to the positive impact from the recovery and the low base in 2020, but any sustained improvement in demand is years away as it requires deep reforms to lift wages, policy advisors told MNI.

At an annual economic planning meeting last month, policymakers pledged to roll back some administrative restrictions on consumer purchases to boost demand, which has lagged the recovery. Longer term, Beijing recently proposed "demand-side reform," a strategy that advisors think will aim to reduce income inequality by improving workforce quality and changing social policies.

As an immediate step to encourage spending, car purchase limits may be further relaxed, said Liu Xiangdong, deputy director of Economic Research at China Center for International Economic Exchanges. The government will also address related infrastructure issues by building more parking lots, especially in the big cities, enabling digital toll payments on more highways, and repairing rural roads, according to Liu. He expects online sales and spending on communication equipment to stay high, while catering revenue turns positive amid a wider rebound in services.

Both Liu and Yu Miaojie, deputy dean at the National School of Development at Peking University, think retail sales could easily grow above the pre-covid 8% level next year considering the low base and the economic recovery. Consumption could contribute 60% to GDP growth next year as compared with 57% in 2019, said Yu.

CAR SALES

Su Jian, director of the National Center for Economic Research at Peking University, expects retail sales growth of as much as 15-17% next year, with car sales providing a boost. Despite rising over 11% each month since July, there is room for further growth in car sales as accumulated figures are still falling, he said.

He believes countercyclical measures such as vouchers for use in supermarkets, restaurants and other places will have minimal impact if randomly distributed and should be targeted at the low-income group.

For a sustained increase in household incomes and spending, policymakers should consider improving the social security net and changes to the population policy, such as allowing three children in a family as against two now, Su said. He expects the government to start deeper reforms by further improving unemployment benefits, including medical coverage, next year.

Liu believes raising the quality of human capital is key to increasing workers' wages, adding that more skilled workers will enlarge the middle-income group in coming years. If policies are changed so that migrant workers can enjoy the full range of social security benefits irrespective of their residency, their increased spending will make a substantial difference, he said.

Both Su and Liu expect only marginal and targeted adjustments in individual taxes in the short term, as any deeper reform leading to a sizeable cut will hit fiscal revenues.