China – policies to boost consumption
The second of two videos on consumption, an issue that is even more important given the economic damage that will be inflicted on China by the tariffs. It is impossible to imagine Beijing supporting western-style consumerism. But there is still a way for economic policy to boost consumer spending.
The showdown between the US and China is dramatic and worrying, but just copying Trump by effectively shutting out any import from the US won’t help China’s economy withstand the shock.
With China already facing deflation, CNY depreciation does have a role to play. However, currency weakness clearly brings costs as well as benefits, and the PBC isn’t about to give up control, let alone allow the sort of move that would completely offset the tariffs. USDCNY beyond 7.5 seems likely. Above 8 less so.
Given that, it is more important than ever for China to boost consumption at home. That might seem like a pipe dream. Conventional wisdom is that consumption has slumped since the covid lockdowns. Xi Jinping has publicly criticised “welfarism”. Until now, economic policy has focused on supporting companies and governments, not households.
But as I explain in the second of two videos on consumption, there is a way forward:
- Consumption hasn’t been as weak as if often imagined.
- The very high savings rate that fuels concerns about consumer weakness means there is ammunition for spending to strengthen.
- It is almost impossible to imagine Beijing promoting western-style consumerism, but there are strategies that could work in China, as local economists have proposed.