'Weak consumption' perceptions misread China's economic evolution

Editor's note: C. Saratchand, a special commentator on current affairs for CGTN, is a professor at the Department of Economics, Satyawati College, University of Delhi, in India. The article reflects the author's views and not necessarily those of CGTN.

As China's "Two Sessions" convened to deliberate on the nation's development roadmap, certain US-oriented mainstream media outlets have commented that the Chinese economy is experiencing "weak consumption" and "insufficient market confidence."

Why is this commentary persisting even when output, investment and consumption in China are growing in tandem?

A foundational macroeconomic proposition is that consumption is not an exogenous driver of growth, but is fundamentally determined by the level of output, the distribution of income and the share of income that is saved.

In the Chinese context, this is crucial. The measures outlined in the government work report presented on March 5 to sustainably boost consumption, stabilize employment and raise incomes are seeking to influence these underlying determinants of consumption. When output rises, driven by any component of demand, household incomes and therefore, consumption, will also rise.

Likewise, a shift in income towards wage earners, who typically consume a larger share of their income compared to non-wage earners, will increase aggregate consumption. The Chinese government's policy focus on employment and income stabilization seeks to enhance the wage share in output and therefore macroeconomic consumption. Thereby, the fruits of economic activity are distributed in a way that sustains the consumption base.

Moreover, the level of output itself is determined by macroeconomic demand. Therefore, when investment rises steadily in China, it directly creates demand for capital goods and construction, boosting output and employment. The resultant rise in incomes then circulates back to increase consumption and imports. The same logic applies to exports and government spending.

Consequently, the observed trends in China with rising expenditure on services, green products and smart technologies, alongside robust growth in culture, tourism and healthcare, are precisely the types of structural shifts one would expect in a maturing economy. They represent a recomposition of the elements of macroeconomic demand, which acts as an autonomous demand stimulus, driving output growth.

For example, strong consumer spending on domestic tourism directly increases output in the hospitality and transport sectors. This, in turn, boosts the incomes of workers in those sectors, who then spend on other goods and services, creating a multiplier effect throughout the economy. The decline in expenditure in one area is being counterbalanced by the rise in others, signifying a reallocation of macroeconomic demand.

China's relationship with the "Global North" offers a clear illustration of these macroeconomic mechanisms. If Global North countries were to remove their China-specific export controls on high-technology commodities, they would likely see a substantial increase in their exports to China. Such a move would have all-round beneficial consequences.

For the Global North, it would open up a massive market for their advanced manufacturing and technology sectors, boosting output and employment within their own economies. For China, these imports of high-tech goods would increase the supply of sophisticated capital and intermediate goods.

While this could technically increase the import leakage in the short-term accounting of macroeconomic demand, the more significant dynamic positive effect would be on China's productive capacity, investment (by both domestic and foreign firms), output and therefore consumption.

The canceling of such China-specific export controls by the Global North would not be a concession; it would be a mutually beneficial macroeconomic stimulus. However, if the Global North, and in particular the US government, insist on maintaining China-specific export controls, then that would result in Chinese industrial policy legitimately accelerating China's comprehensive ascent of the technological ladder pertaining to global production networks, with positive impacts on output, exports, imports and consumption. This has been the case in the recent past.

South-South cooperation through trade, investment, technology cooperation and financial autonomy will be further enhanced by China's technological advancement if the rest of the Global South adopts a more conducive policy framework.

Consumption in China is evolving in line with structural changes in output and income. The economy's growth is being propelled by robust and shifting sources of demand, from green investment to high-value services. The persistent innovation and dynamism of Chinese firms, coupled with long-term stability of expectations in China, are testaments to this underlying resilience. Under these circumstances, investment in China is growing at the same rate as output and there is no basis for insufficient market confidence.

Therefore, the US-oriented mainstream media's perceptions about "weakness" in Chinese consumption are off the mark. In fact, such perceptions are principally a vain attempt by the commentariat to obtain one-sided concessions in economic policy.

In the Chinese economy, there is currently an ongoing qualitative shift in the various components of macroeconomic demand, including consumption. These shifts are making Chinese economic development more sustainable.

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