MNI INTERVIEW: Jobs Priority For China-State Council Advisor

China's priority will be to support employment to bolster consumption, but government investment will remain a mainstay of the economy even as it shifts to a new, more domestically-focussed growth strategy better suited to a post-pandemic world and persistent trade tensions with the U.S., a senior advisor to China's State Council told MNI.

"The most important reason for current sluggish consumption levels is income, particularly the income of the middle- and low-income group, which has been falling during the Covid-19 outbreak," Tang Min, an economist in Premier Li Keqiang's cabinet, said in an interview. "The priority now is guaranteeing employment."

The "Dual Circulation" economic strategy announced by President Xi Jinping at July's Politburo meeting heralds a renewed focus on the domestic economy, even as China maintains its presence in world markets. While Chinese leaders have been conscious of the need to rebalance the economy from excessive reliance on exports for many years, recent world events and deteriorating relations with the U.S. have made the need more pressing, Tang said.

"The global economic structure that we were familiar with is likely to change after the pandemic," he said, adding "A certain movement towards deglobalisation could also intensify."

But, even as households gradually account for a higher proportion of national output, the contribution of investment will continue to be significant, he insisted.

INVESTMENT IN 5G

"Both investment and consumption are important, but in the current situation, it is unrealistic to only rely on consumption to restart the economy…we are in a crisis when private investment and consumption are soft. We need investment, particularly government investment," he said, although he added that investment should focus on new areas such as 5G networks and avoid adding to oversupply of traditional infrastructure.

A more challenging international environment also highlights the need for China to improve its own production capacity for essential supplies such as grains, he added.

"The international market is also important, even though we stress domestic demand, so China will continue its opening up… but as a big country, we should focus on the domestic market first," he said.

Exports will decline as a proportion of GDP as domestic demand grows in importance, said Tang. While foreign investment is welcome and financial markets will open up further, authorities will continue to manage capital controls to avoid speculative cross-border flows in categories such as equities, he said.

Tang predicted consumption will pick up this year and exports also improve as world governments funnel cash to households to help them survive the downturn. He pointed to a rebound in the Baltic Dry Index as a sign that global shipping demand is rising.