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THE PRICE OF CONSUMER CONFIDENCE
Only social safety nets can boost China's domestic consumption in the long term

China Economic Review, December 22, 2009

Beijing's official announcement that China's 2010 growth target is 8% is not a surprise. The figure has become a benchmark for the government in recent years, even during times when the economy has performed far better.

Nor is it a surprise that China will pursue more of the same policies in its quest for positive growth next year. Beijing has admitted since July that it plans to curb excess production capacity by expanding industrial production by about 11% next year, compared to 12% in 2009, while reducing its reliance on exports.

It is the target of boosting consumer spending, another well-communicated aim for next year, where Beijing may come up against problems in 2010, a fact that was all but admitted by Industry and Information Technology Minister Li Yizhong when announcing the GDP figure on Monday.

Li said that Beijing would have to find new ways to get Chinese consumers to spend rather than save their money, especially as tax breaks on cars and subsidies for household appliances cannot last forever. The government knows that it is a mentality - one that still places Chinese people as the biggest savers in the world - that must be changed if domestic consumption is to rise, thereby reducing the nation's reliance on investment- and export-led growth.

This is a big challenge for the government next year. While curbing excess production capacity is a move that is well within Beijing's grasp, getting Chinese consumers to open their wallets is not. Short of marching people from their homes and into the malls, the government cannot persuade consumers to buy, and, as Li said, subsidies can only go so far.

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