Economy on road to strong recovery

Movie goers wait to enter a cinema in Shenyang, northeast China's Liaoning province on Jan 24, 2023. [Photo/Xinhua]

The first Spring Festival when people could travel freely across the country since the COVID-19 outbreak has released people’s pent-up consumption to a large extent. For instance, 308 million domestic trips were made during the just concluded seven-day Spring Festival holiday, up 23.1 percent year-on-year, according to the Ministry of Culture and Tourism. This means the travel sector has recovered to 88.6 percent of the 2019 level.

In 2022, because of the frequent but sporadic outbreaks of the novel coronavirus variants and their sub-variants, China’s economy was under the triple pressure of contracting demand, disruptions in supply, and weakening of expectations — not to mention the complicated and challenging external economic environment.

But to improve the situation, the central and local governments have stepped up efforts to implement a prudent monetary policy, while implementing a package of policies to stabilize the national economy, by helping increase domestic demand and strengthening the real economy. Also, with easing restrictions on the COVID-19 epidemic, household demand and market expectations have risen.

As of now, the authorities’ focus is on increasing household consumption and strengthening China’s socialist market economy on way to building a great modern socialist country in in all respects.

First, China has extended the bailout period for enterprises by announcing tax reductions, helping boost consumption and improving people’s livelihoods. In January, the Ministry of Finance and the State Administration of Taxation reduced taxes in general, including waiving value-added tax (VAT), for small-scale taxpayers, and adopted appropriate policies to meet the needs of the market players.

In 2022, the tax authorities refunded 2.4 trillion yuan of VAT to the taxpayers, which is 3.7 times more than all the tax refunds for the whole year of 2021. Plus, the newly raised tax and administrative fee cuts reached 884 billion yuan, with tax and fee reductions totaling 733.1 billion yuan.

China has also provided the consumer market with policy support. For example, in the second half of 2022, purchase tax was halved on passenger cars that cost 300,000 or less and have displacement levels below 2.0 liters. Moreover, the exemption of purchase tax on new energy vehicles will continue until the end of this year.

The tax-reduction and fee-waiver policy will directly benefit consumers, as it will reduce the price of cars and other products, and expedite the recovery of enterprises. The policy has not only boosted market confidence, but also accelerated the high-quality development of the automobile industry.

Second, the huge development potential of the market and pent-up demand have been released to a certain extent. Comparing the national consumer price index (CPI) and industrial producer price index (PPI) for 2022, we can see the overall price level continues to be stable, and household consumption is expected to gradually increase.

That some residents tend to save for a rainy day such as a pandemic does not necessarily mean people are afraid of or hesitant to maintain normal consumption levels in 2023. In fact, the release of pent-up household consumption could form the base for a strong economic recovery.

In order to re-energize the consumer market and boost demand, many local governments have issued different types of consumer coupons which, for example, can be used in restaurants, home appliance and departmental stores, or to buy a car.

While the Zhengzhou local government in Henan province distributed consumer vouchers worth 15 million yuan for home appliances in January, the Shenyang local government in Liaoning province has issued 100 million yuan worth of Spring Festival vouchers.

Many other local governments, too, have distributed general consumption and takeaway coupons of small amounts through online platforms such as Alipay, Douyin and Meituan. As a result, the Chinese people’s tendency to “save, not spend” has somewhat changed, and there could be a substantial increase in consumption in a short time, with the consumers becoming bolder as economy picks up.

Also, the Central Economic Work Conference has listed expanding domestic demand as a key task in 2023, and made increasing demand, improving people’s livelihoods both in rural and urban areas, and promoting green development, for instance by boosting the sale of electric vehicles, its priorities for the year 2023.

But there is also a need to encourage parties to consolidate and upgrade traditional consumption in areas such as automobiles, home appliances, home furnishing and catering, because it in turn will promote the healthy and orderly development of new models of consumption, and integration of online and offline services.

In order to strengthen urban consumption platforms, the authorities should organize activities to promote consumption and thus the economic recovery.

It is also important to rely on fiscal and financial means to boost investment and give full play to the role of investment in business. And greater efforts should be made to stabilize and optimize the scale and structure of foreign trade to promote the high-quality development of the domestic economy.

The author is deputy director of the Department of Strategic Philosophy, the Party School of the Communist Party of China Central Committee.