WB: Increasing social spending can boost incomes and consumption in China
World Bank, 12-29-2018
Increasing spending in health, education, and social protection can boost incomes and consumption in China to stimulate the economy, says World Bank.
According to the new "China Economic Update", a World Bank's regular assessment of China’s economy, while growth is moderating, China’s economy is projected to 6.5 percent in 2018.
"Consumption will remain the main driver of growth, while higher investor uncertainty and slower credit growth are expected to weigh on investment," said John Litwack, World Bank Lead Economist for China.
He noted that a deceleration in global demand growth and higher US import tariffs will negatively affect net export and authorities have the policy space necessary to support the economy in the current environment of high uncertainty.
The Update notes that the current account recorded a small deficit in the first three quarters of 2018, primarily driven by stronger imports. Financial markets have weakened. Despite looser monetary policy, growth in lending to the non-financial sector continued to moderate, owing to a combination of regulatory tightening, higher uncertainty, and lower demand for credit.
In response to slowing growth and a challenging external environment, the Chinese government introduced tax incentives for households and firms, additional support for small businesses, and higher local government capital spending.
Historically, China relied on public investment to support growth, but in recent years public investment has brought lower growth returns and a growing debt burden, says the Update.
To stimulate the economy, China has room to shift government spending toward health, education, and social protection.
"Such measures would create jobs, deliver higher-quality public services, and provide better support to vulnerable families. In the short term, these measures would encourage households to save less and spend more. In the long run, they would boost worker productivity and China’s growth potential and help the country achieve a more equal society," said Elitza Mileva, World Bank Senior Economist and main author of the Update.
World Bank, 12-29-2018
Increasing spending in health, education, and social protection can boost incomes and consumption in China to stimulate the economy, says World Bank.
According to the new "China Economic Update", a World Bank's regular assessment of China’s economy, while growth is moderating, China’s economy is projected to 6.5 percent in 2018.
"Consumption will remain the main driver of growth, while higher investor uncertainty and slower credit growth are expected to weigh on investment," said John Litwack, World Bank Lead Economist for China.
He noted that a deceleration in global demand growth and higher US import tariffs will negatively affect net export and authorities have the policy space necessary to support the economy in the current environment of high uncertainty.
The Update notes that the current account recorded a small deficit in the first three quarters of 2018, primarily driven by stronger imports. Financial markets have weakened. Despite looser monetary policy, growth in lending to the non-financial sector continued to moderate, owing to a combination of regulatory tightening, higher uncertainty, and lower demand for credit.
In response to slowing growth and a challenging external environment, the Chinese government introduced tax incentives for households and firms, additional support for small businesses, and higher local government capital spending.
Historically, China relied on public investment to support growth, but in recent years public investment has brought lower growth returns and a growing debt burden, says the Update.
To stimulate the economy, China has room to shift government spending toward health, education, and social protection.
"Such measures would create jobs, deliver higher-quality public services, and provide better support to vulnerable families. In the short term, these measures would encourage households to save less and spend more. In the long run, they would boost worker productivity and China’s growth potential and help the country achieve a more equal society," said Elitza Mileva, World Bank Senior Economist and main author of the Update.
