It has become common sense to say that "expanding domestic consumption" is the best way China can take to stave off the impact of the global economic recession. Governments at various levels have all drafted plans to invest money in projects to stimulate consumption. The problem is, what kind of consumption will it be?
It seems many localities are eyeing the automobile market as the main target in their attempt to direct the consumption trend. Take the latest example. Shandong provincial price regulatory authorities recently announced measures to create a more friendly atmosphere for car owners, such as cutting vehicle purchase tax and other administrative fees, charging less on parking, reducing or canceling road tolls, lowering driving lesson fees, and so on.
Economic analysts also urged local governments to make the automobile industry the focus in their effort to stimulate production and consumption, for example, drafting more favorable policies to encourage production and owning of cars. In other words, more public money will be invested in that field.
The automobile industry is certainly an important pillar of the national economy. But it is not, and should not be, the focus of our current attempt to boost domestic markets. I say so for two reasons.
First, China's automobile market needs no stimulation for continual growth. It has never ceased growing since there began to be private car owners in considerable numbers about a decade ago. The current sluggishness in car markets in a number of cities is not a sudden slump in sales but rather a regular, seasonal fall that is seen every year. The latest statistics indicate that automobile production and sales grew 16.71 percent and 18.52 percent year-on-year respectively in the first half of the year. An expert with the China Automobile Industry Association said that although the growth may slow down in the second half, the annual growth rates could still be in two digits. Note that the growth was on the basis of an annual sale of 8.8 million vehicles last year.
Second, car ownership should not be encouraged deliberately. Given the large population and intensifying urbanization, air pollution and road congestion are already serious enough. Reducing energy consumption, especially fossil fuel, was included in the State strategy of "sustainable development" formulated a few years ago. How can we forget our pledge so soon? Car ownership can be left to natural growth. There is no need to take deliberate steps to boost it.
Actually there is something more important for us to promote in our current campaign to boost domestic consumption. That is consumption in rural areas.
Rural residents make up the majority of China's population. If their will, and ability, to buy is really activated, the market is incredibly large and rural consumption will become a permanently powerful engine to propel China's economic growth.
We know that Chinese farmers have become much better off, on average, than in previous years. Almost every rural family has one or two or even more members working in cities as migrant workers, who bring their earnings back to the countryside in hopes to improve their living standards. They hope to own domestic electric appliances, even personal computers. However, manufacturers of these appliances are traditionally urban-oriented. Their products do not adapt to rural conditions. Farmers need practical, easy-to-use and wear-resistant appliances with fewer fancy functions. They also need to buy quality farm tools and they hope to build new houses.
Investing money in manufacturing more rurally adaptable products and improving commercial networks in rural areas seem to be more practical in promoting domestic consumption. And we should also remember that there are still many rural regions that are still struggling to get rid of poverty. Putting public money in these regions to help eradicate poverty seems to be a more far-sighted way to nurture potential markets than consuming money in combustion engines.
(China Daily December 24, 2008)