How Can Beijing Expect to Raise Domestic Consumption in Flat Economy?

November 6, 2020 Updated: November 17, 2020

Commentary

Part of the CCP’s 14th Five-Year Plan aims to expand domestic demand. However, the definition of domestic demand is different than it was before the 13th Five-Year Plan, as the desired effect now is to expand domestic consumption.

According to a report published by state-run media Xinhua on July 16, 2018, consumption continued to play a more prominent role in driving growth, with total consumption making up 78.5 percent of the economic expansion from January to June 2018. It’s obvious that it was the CCP’s propaganda mouthpiece that contributed to the rise of GDP. Suddenly, consumption replaced exports and investment as the number one driving force of economic growth.

China’s GDP growth rate in the first half of 2018 was 6.8 percent, Xinhua reported. At the same time, the growth rate of fixed-asset investment hit a record low of 6 percent, the contribution rate of capital formation to growth fell to 31.4 percent, and net exports’ contribution rate to economic growth was minus 9.9 percent. It means that in the first half of 2018, the contribution rate of final consumption to GDP growth reached 78.5 percent, but the main reason was not the acceleration of consumption but instead the continuous decline of investment and capital formation, and the deterioration of exports.

The total consumption expenditure consists of total household consumption and total government consumption. In 2017, the total consumption spending accounted for 53.6 percent of GDP. However, in terms of household consumption alone, it was a mere 39.1 percent of GDP, which is not only much lower than that of the United States (69.5 percent), but also lower than the sluggish consumption growth of Japan (56.3 percent) and South Korea (47.8 percent), and even lower than India’s (59.1 percent).

Chinese economist Justin Lin Yifu stated at a seminar in Shanghai on Oct. 16 that China’s exports accounted for 17.4 percent of China’s total economy in 2019, and China’s domestic consumption went from 82 percent to nearly 90 percent. Lin Yifu attributed falling exports to an increase in domestic consumption. This claim once again sets an example of how economists such as Lin manipulate concepts to package what the Chinese Communist Party (CCP) wants to see done.

Household consumption in the United States has always accounted for nearly 70 percent of GDP. The latest data shows that in the third quarter of 2020, when the COVID-19 pandemic was still surging in the United States, government expenditure accounted for 18.1 percent of GDP and household consumption for 68 percent. The United States is a major consumer country.

If we look at statistics of China’s domestic consumption (excluding government spending) from 1999 to 2018, the annual percentage to GDP steadily declined to 38.9 percent from 46 percent.

In 1999, the CCP began a far-reaching campaign to suppress the Falun Gong spiritual practice. It can be seen that beginning in that year, political, economic, and social aspects began to decline significantly. Except for some slight fluctuations, domestic consumption also has spiraled downward since 2000.

In 2015, China’s per capita consumption was $2,337, which is 36 percent of per capita GDP—based on the World Bank’s 2010 constant price in U.S. dollars, according to the Hong Kong Brokerage Report by GF Securities.

Epoch Times Photo
Workers wearing masks walk outside their dormitory in an electronics manufacturing factory in Shanghai on Feb. 12, 2020. (Aly Song/Reuters)

In 74 countries with a population of more than 10 million, there’s a very strong positive correlation between per capita GDP and per capita consumption, the report states. However, if China’s per capita GDP in 2015 is substituted into the empirical formula, China’s per capita consumption in 2015 should have been $3,765, and the corresponding consumption GDP should have accounted for 58 percent—22 percent higher than the actual amount.

One factor behind this discrepancy is per capita disposable income. A report by the Suning Institute of Finance pointed out that according to the classification method and statistical data in the China Statistical Yearbook, the low- and middle-income earners who account for 80 percent of the country’s population had a per capita disposable income of 17,836 yuan (about $2,681.76) in 2016, and the per capita disposable income of the high-income group had reached 59,259 yuan (about $8,963.15) in the same year.

The increasing disparity in income has created completely different purchasing power and consumption patterns.

The CCP reported that the retail sales of consumer goods in China in 2019 were close to $6 trillion and were approaching $6.2 trillion in the United States. But the reality is that only 20 percent of the population (the high-income group) had the ability to spend.

China’s insufficient social security system has increased people’s need for emergency savings and has also affected the growth of consumption, according to a financial analysis published on the Chinese news portal Sina. That explains the poor consumption rate of 80 percent of Chinese people in the mainland.

According to statistics from the World Bank, in 2017, health care, as a percentage of GDP, was 5.15 percent in China; compared to 17.06 percent in the United States, 10.94 percent in Japan, and 7.60 in South Korea.

Elderly care, education, and medical care for the common people should be important public welfare undertakings. However, the Chinese communist regime has a different definition, as stated in a July 2018 Xinhua article, “Elder care, education, and medical care are expected to become a ‘troika’ to stimulate domestic demand.”

The CCP loves to compete with the United States. Judging by its GDP per capita, the American people greatly enjoy the benefits of U.S. economic growth. The CCP has already had 13 five-year economic plans. But the vast majority of Chinese people receive a pitiful share of China’s economic growth and instead continue to endure “the two highs and one low”—high inflation, high housing costs, and low income—and carry “three mountains”—elderly care, education, and medical care.

Now, according to the 14th Five-Year Plan, the “three mountains” on the back of the common people have to serve as “horses and carts” to drive domestic consumption. It’s just another round of exploitation of the majority of Chinese people.

Chen Simin is a freelance writer who often analyzes China’s current affairs. She has contributed to The Epoch Times since 2011.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.