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China’s struggling retail sector is making less of a contribution to growth, policy advisors told MNI, calling for authorities to intensify measures including subsidies aimed at supporting employment and schemes to issue coupons for consumers to buy cars and appliances..

After an incipient recovery in retail sales, which rose a better-than-expected 6.7% y/y in the first two months of the year boosted by the Spring Festival holiday, was interrupted by Covid outbreaks in cities including Shenzhen and Shanghai, consumption may now contribute about 50-60% to GDP growth this year, compared with 65.4% in 2021, said a researcher at a thinktank who asked not to be named. Retail sales may grow by about 5-7% in 2022, below the pre-pandemic norm of around 8%, he said.

While CNY2.5 trillion in tax cuts and rebates were announced at the annual Two Sessions meetings in March as part of a drive for China to grow by around 5.5% this year, these would be of little help to companies in serious trouble, said another economist requiring anonymity, calling for more issuance of consumption vouchers. The number of smaller companies listed on the New Third Board equity trading venue dropped to about 6,900 at the end of 2021 from 11,630 at end-2017, he said.


Shenzhen arranged for CNY500 million in vouchers at the end of March after its seven-day lockdown, while Beijing provided CNY300 million, to be spent on green products like smart home appliances.

More coordination of fiscal and monetary policy will be necessary to boost growth, said Zhu He, deputy director of the Research Department of China Finance 40 Forum, a policy advisory body. Other advisors have told MNI the People’s Bank of China is likely to ease broad monetary conditions as well as take targeted measures to boost lending to key sectors of the economy. (See MNI: PBOC Seen Targeting Loan Demand As Covid, War, Sap Growth)

While spending on clothing and food returned to pre-pandemic levels last year, durable goods and services lagged, with spending on education, and entertainment still 9.8 percentage points below normal levels, Zhu said. Restrictions under China’s strict zero-Covid policy may explain 20-25% of the current gap in consumption demand, but a bigger worry is insufficient disposable income, he said.

“The government should actively respond to corporate and resident losses due to epidemic prevention, otherwise it will largely dampen their expectations amid such uncertainty,” said Zhu, calling for targeted consumer coupons and income subsidies for low- and middle-income groups.

Authorities should provide employment subsidies for companies and strengthen social security network, the anonymous researcher said. Surveyed unemployment rebounded to a one-year high 5.5% in February, the ceiling of the official target.


Boosting property acquisitions will be key for consumption, driving additional purchases as people decorate and fit up their new homes, the researcher said. Such purchases account for 8-10% of retail sales, he said. Over sixty cities have relaxed housing policies so far this year to try reverse the market downturn.

Local authorities forced into prolonged lockdowns may themselves need more transfer payments from central government, as they face taxation shortfalls at the same time as spending more than budgeted on anti-pandemic measures, the researcher said. The government could provide additional funding, guarantee more local government bond issuance or swap debt to lower interest costs, the researcher said.

The State Council executive meeting on Wednesday urged comprehensive measures to boost consumption, urging local governments to step up efforts to support catering, retail and tourism, promote spending on medical and health care, and increase quotas for car purchases.


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