MNI INTERVIEW:China Can Tap Low-Income Grp For Demand: Advisor

China can lift consumption immediately by tapping the purchasing power of its lower-income population with more affordable, customised products as demand-side reforms aimed at improving wages and enlarging the middle class will take years to make a difference, a State Counsellor told MNI.

Current measures to boost consumption are tilted toward the urban consumer while there is unmet demand from the 1 billion people who have relatively lower incomes and more time and some cash to spend, said Tang Min, a senior advisor to China's State Council.

Nearly 60% in this band have disposable income of about CNY1,000 per month on average with a much lower mortgage burden than in the first-tier cities. According to Tang, half of small-town residents live with their parents.

Companies should be encouraged to make lower-priced products to suit their needs, such as refrigerators that can save power, or even better, have a rat-proof board to protect the wires, instead of offering smart refrigerators and sophisticated cars, he said. The government should help by providing tax deductions and financing support, said Tang, adding that this would create more jobs and lift exports as the same demand may exist in other developing countries.

PURCHASING POWER

China's uneven recovery, in which household spending has lagged investment, has prompted a call for demand-side reforms focused on expanding the estimated 400-million strong middle-class and boosting purchasing power while reducing inequality, complementing the "dual circulation" strategy unveiled earlier to increase reliance on the domestic market.

The effort to lift wages will require deep reforms across systems, including taxation, social security benefits and education, and the process will be gradual, Tang said. Although the emphasis is on tech-driven innovation, greater attention to the needs and potential of lower-income people will help address the growing gap between the rich and poor, he added.

Beijing's long-term goal is to raise per capita GDP to the level of moderately developed countries by 2035. Tang believes that means doubling per capita GDP to USD22,000-23,000 and will take about 15 years, assuming annual growth of 4.8%.