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Liu Yi: Four Ways to Encourage Consumer Spending

Date: 2021-05-17
Before delving into the incentives for spending, it is important that the concept of consumer spending is clearly defined. A closer look at the three consumer spending indicators China currently uses shows what more can be done to stimulate spending. For example, retail sales of consumer goods only covers catering under its services category, while culture, healthcare, education, art, insurance, financial brokerage, and real estate business and virtual goods are all left out; per capita spending figures are not accurate enough as they are calculated by sampling; and short term economic developments are not accounted for when the data used to calculate final consumption expenditures are only released annually.

In a vibrant Chinese economy and society where the services sector is booming, industrial mix changing, and digital economy expanding, new opportunities for growth prop up all the time. A lot can be done to encourage consumer spending.

First, increase the scope and frequency of statistics collection and account for the retail sales of services. National pilot programs should be launched as soon as possible to account for spending on virtual products and services in the retail sales of consumer goods.

Second, enhance coordination. The statistics departments should work in closer partnership with the authorities of taxation, commerce, transport and logistics, and with the business community and research institutes to better reflect the real situation.

Third, reform the taxation sharing system to elevate the status of consumer spending. Subnational governments have long been more interested in fixed asset investments because production and investments tend to bring better tax returns than consumer spending. New business models and forms of spending have raised new questions about spending, such as how to define where a spending occurs. Answers to them not only concern the economic accounting of a jurisdiction, but also the standards previously used to delimitate the geography of taxation. Reforming the tax sharing system will be good for consumer spending to play a more prominent role in growth and thereby encouraging growth model shifts.

Fourth, grow the digital economy. Internet data and infrastructure and the use and protection of data propel consumer spending and economic growth and protects information security. Fiscal spending on the digital economy and favorable taxation policies for innovation should be enhanced so that innovation can bring about more spending.