China promises measures to boost consumption as economic growth dips

Analysts say higher outlays on social programs are required to free up household incomes for consumer spending.

April 17, 2013   by The Canadian Press

BEIJING – China’s government has promised steps to boost domestic consumption as a driver of the economy after growth dipped in the latest quarter.

A Cabinet statement also promised to guard against risks from rising local government debt, a factor that is causing growing concern about China’s finances.

The statement promised changes in medical, pension and other policies but gave no other details. Analysts say higher outlays on social programs are required to free up household incomes for consumer spending if the ruling Communist Party is to achieve its goal of nurturing self-sustaining growth based on domestic consumption instead of trade and investment.

“The focus of the next phase” of economic management will include “actively expanding effective domestic demand,” the statement said.

It said the meeting led by Premier Li Keqiang, who took office in March as China’s top economic official, concluded that first quarter growth was at a “reasonable level.”

Growth suffered an unexpected decline to 7.7% in the first three months of the year from the previous quarter’s 7.9%.

That prompted some private sector economists to cut their growth forecasts for the full year but to still robust levels just under 8%. The World Bank reduced its growth outlook this week from 8.4% to 8.3%.

Analysts have warned China’s recovery is being propped up by bank lending and government-led investment, while consumer spending is growing more slowly than authorities want.

Growth in retail sales edged up in March to 12.6% from the 12.3% rate of the first two months of the year.

The global crisis and a slowdown in growth last year prompted Beijing to boost lending and government investment in public works, temporarily setting back its effort to rebalance the economy toward consumer spending.

The statement also promised to “guard against risks from local government debt” but gave no details what Beijing will do.

The rapid rise in government debt, driven in part by heavy spending mandated by Beijing as part of China’s multibillion-dollar stimulus in response to the 2008 crisis, has prompted concern about possible defaults and strain on the financial system.

Ratings agency Fitch cut its rating on China’s long-term local currency sovereign debt last week, citing potential financial risks due to rising debt.

Fitch said China’s total credit, including informal lending among private entrepreneurs, may have risen to the equivalent of 198% of gross domestic product in 2012 from 125% in 2008.

©The Canadian Press

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