The first half saw an uptrend in consumption, but activity has not fully recovered to pre-pandemic levels. Investment growth cannot be achieved overnight, as domestic demand expansion relies on buying appetite, supported by disposable income vitality. Currently, salaries, operating income and property income are the major sources of moneymaking for Chinese people. To promote consumption by quickly lifting household incomes, it is necessary to raise disposable incomes on multiple fronts.
Salary accounts for the largest portion of household incomes, and the private sector economy provides more than 80 percent of urban jobs. Yet, under the impact of the pandemic, the capability of private enterprises to create employment has been weakened. Structural unemployment continues to be a headache, and the growth of disposable incomes has been slowing down.
To raise salary-based incomes, the most important thing is to boost and improve employment. China should further reduce tax and fees and strengthen financial subsidy support for micro, small, medium-sized enterprises, individually-owned businesses, enterprises that stabilize employment and expand employment, and skill training institutions.
The social security system should also be improved and more support given to self-employment. Credit support for enterprises in industries that create relatively more employment than others should be enhanced and innovations and entrepreneurship among young people through low-interest or interest-free loans should be encouraged.
The growth of property incomes is relatively modest. Overall per capita property incomes in China account for less than 10 percent of per capita disposable incomes, while the corresponding figure for rural residents alone is less than 3 percent. To stimulate property income growth, China should accelerate the feasibility of rural housing transactions. If rural residential property trading and mortgages are allowed to flourish, property incomes of rural residents will be spurred.
The average cost of rural housing is about one-fourth or one-third of the price of urban housing. Estimated on a relatively fair price basis and accounting for a slow circulation speed, trillions of yuan could be generated every year from the circulation of rural housing, thereby greatly increasing the property incomes of farmers and migrants settling down in cities. This would raise the disposable income levels of residents and expand their spending power. There are pilot programs underway in Zhejiang province and elsewhere, and we hope useful experience will be accumulated soon to promote such activity in additional regions.
Another way to raise people's property incomes is promoting the healthy development of the capital market. During the three-year pandemic period, China's capital market was relatively sluggish, leading to undervalued shares.
According to China Securities Depository and Clearing Co Ltd, as of June 2023, the number of investors investing in the stock market is about 220 million, while the total size of nonrestricted market capitalization (the stock value that can be quickly realized) is about 95.2 trillion yuan ($13.05 trillion).This means a 5-percent growth in the stock market will generate 5 trillion yuan of wealth growth for the 220 million shareholders, delivering a relatively obvious property income growth to rapidly boost the spending power of consumers.
To raise salary-based household incomes, China should also make more use of idle funds sitting in bank deposit accounts. By the end of 2022, outstanding yuan deposits stood at 258.5 trillion yuan, among which those from government agencies and public organizations stood at 32.98 trillion yuan, accounting for 12.8 percent of the total. Before 2009, the rate seldom exceeded 5 percent.
Deposits of government agencies and public organizations usually come from public budgets, and it is unreasonable to leave a large amount of them idle. One of the key reasons behind such a phenomenon may be that there are too many restrictions on the use of such funds.
With reforms in relevant regulations and procedural improvements, the use of the funds will become more convenient and rational, and will probably create trillions of yuan in income for people involved in the next three to five years.
It is a common practice in developed countries to increase household incomes by issuing consumer coupons and giving out money directly. Given China's high savings rate, issuing consumer coupons may be a better option to stimulate buying appetite in China, and the central government would do well to directly issue consumption coupons to low-income families.
Meanwhile, China could also tap into the increases in operating income among owners of micro, small and medium-sized businesses and self-owned enterprises. That said, the country should further optimize and extend preferential tax and fee policies and ease pressure on related market entities.
The country could also provide more financial subsidies to reduce tax burdens on enterprises, and further reduce and exempt value-added taxes and income taxes for SMEs, while entitling them to defer or reduce social insurance premium payments.
Measures such as early tax rebates, increasing deduction ratios for research and development expenses, and lowering costs of electricity, rent and logistics are also advisable.
The writer is chief economist of Zhixin Investment.
The views don't necessarily reflect those of China Daily.