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China's path to resuming domestic consumption

By Iram Khan (People's Daily Online)    15:45, June 01, 2020

The major driver of Chinese economy, apart from exports, is domestic consumption. In the fallout of the COVID-19 epidemic, it suffered a significant decline as social activity remained low and health concerns remained high on the public's priorities. Now efforts are at hand not only to restore consumption to the pre-lockdown level but also to step up its expansion.

National Development and Reform Commission (NDRC), the premier macroeconomic management agency, has outlined some areas to focus on during the recovery process. Although an upside trend is already evident – with March's 15.8 percent drop in year-on-year retail sales of consumer goods reducing to 7.5 percent in April – the planned prioritization of some industries' rejuvenation will add the much-needed impetus.

The sector that adds to the overall growth of the economy is automobile manufacturing. With its extensive industrial chain, it provides a lifeline to the ecosystem of small, medium and large enterprises that range from metal smelting, machinery, design, Artificial Intelligence and sales, to name a few.

The low cost of car making in China attracts companies from Europe, the U.S. and all other parts of the world. Production facilities in the country have improved over time and now it is possible to deliver the most high-end features in automobiles while offering a price advantage. Car ownership is, therefore, getting increasingly affordable.

Automobile consumption in China follows the surging spending power of the middle class as well as the ever-intensifying demand for luxury cars. This appetite has allowed the industry to flourish and contribute to the national economy.

During the recent May Day holiday, a COVID-19 induced pattern was observed among travelers: most were preferring self-driving instead of buses, trains and airlines. Till the time a vaccine does not come out, this presents a good omen for the auto market as it will augment the turnaround.

Self-driving to tourist spots is the start of domestic tourism's revival. We can expect an uptick, despite a slow return of traveler confidence in mass transit, since NDRC mentions tourism as one of the areas where it plans to undertake more initiatives in boosting service consumption.

Restaurants, theme parks and resorts are opening up in the mainland while taking necessary precautions. The gradual comeback of the service sector is a promising sign and the government's endeavors to double down will offer entertainment avenues to the public besides generating commercial activity.

For buying tickets and making bookings, people are opting for electronic means as it allows for social distancing and avoiding long queues. Technology has, thus, been the true savior of consumption during the outbreak.

It has also turned the government's focus on digital and information consumption, a segment that proved its resilience in the epidemic. Throughout the lockdowns, it enabled people to continue working, studying and getting medical advice, all from the comfort of their homes.

Without the option to go outdoors, they headed to online information outlets whose popularity rose to new heights. Consequently, the consumption of news and entertainment content on these platforms became a steady source of income for those running them.

In addition to that, the highly mature e-commerce landscape of China allowed consumption to continue amid the restrictions on movement. Any brick and mortar store that did not have an online presence realized its importance during this period.

One blessing in disguise that COVID-19 brought was the blurring of the line between digital and real economies, as benefits of each are spilling over to the other and adding to their modernization.

For the advancement of both, the government is pushing the construction of "new infrastructure." Unlike roads and bridges, it mainly involves the development of 5G communication, industrial internet, blockchain technology and smart transportation, among others. The new infrastructure will integrate all industries to make manufacturing more cost-effective. This will increase affordability and raise consumption to levels never seen before.

The new infrastructure makes consumption independent of geography. China's rural regions are practically unsaturated markets where heavy purchasing is yet to take off. With technological upgrades, these areas will see an innovative era of industrial and agricultural productivity. Meanwhile, the accompanied affluence will increase the buying power of villagers and bring with it a greater dynamism in consumption.

The epidemic might have made a mark on the economy but support measures from the government have been laid out to ensure supplies. Widespread adoption of technology, efficient factories and a thriving service sector make it only a matter of months that we start seeing a full-fledged rebound of the Chinese consumer.

Iram Khan is a Pakistan-based commentator on international and commercial affairs. Email: [email protected]

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Hongyu, Bianji)

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