China to Boost Consumption by Improving Logistics
As a key part of its effort to stimulate consumer spending China will introduce “concrete measures” to improve logistics efficiency and cut costs, said former assistant minister of commerce Huang Hai. The measures will be announced at the national circulation conference in late June or early July.
The focus on improving the movement of goods is part of the central government’s efforts to counter the impact of the European debt crisis.
“More than 20 ministries and departments, led by the Ministry of Commerce, are ready for the two-day conference, a strategically important conference for the government this year,” said Huang.
The conference will address supply chain issues of logistics and transportation. By getting goods to market quicker and cheaper, the government hopes to encourage more consumer spending.
The conference had initially been set for May, but was delayed to give Premier Wen Jiabao more time to come up with substantial policies to unvei, said Huang, who helped create a draft of a document detailing ways to improve efficiency, cut logistics costs and stimulate consumer spending. He said it is currently awaiting government approval.
The draft was prepared in May by a team led by the Ministry of Finance and was based on results of a research done by 20 government departments and ministries before Spring Festival.
Logistics are hampered by “difficulties in financing and limited networks and infrastructure,” according to Zhao Ping, a consumption specialist from the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
“Relevant policies will probably center on expanding fiscal expenditure and reducing taxes and fees in different logistical sectors,” she said.
“They could include easier access to financing, preferential policies for small and medium-sized enterprises, expanding logistical networks, reducing fees and providing subsidies for expanding storage capacity.”
Logistical costs reached 17.8% of GDP in 2010 due to rapid rises in the cost of transport, storage and management, according to the National Bureau of Statistics. The average among developed nations is 10% of GDP.
The high logistics costs have dampened consumer confidence, and reducing costs passed on to the consumer will increase consumption, Zhao said.
“This is an efficient way to stimulate domestic consumption,” she said.
New programs launched by the government to promote consumer spending include a 26.5 billion yuan ($4.2 billion) subsidy on the purchases of energy-saving household appliances and 6 billion yuan ($930 mil.) to boost sales of energy-efficient vehicles.
China is offering subsidies up to 400 yuan ($60) per unit to buyers of energy-saving water heaters, refrigerators and washing machines.
More of the new measures will be announced at the upcoming conference, Huang said.
“It’s not a problem of whether to stimulate domestic consumption or not, but a problem of how to do it and in which sectors,” he said.
The purchases of furniture and affordable homes are next on the list, he said.
China is pushing to build 36 million units of affordable housing by 2015.
The government also recently lowered interest rates by 25 basis points
These new measures will cause the economy to accelerate during the 3rd quarter, many economists have predicted.
Stimulating domestic consumption is a more direct way to boost the economy than a stimulus plan, said Huang.
Wen’s recent pledge to implement fiscal policy to stimulate growth had prompted predictions by economists of stimulus spending.