China tries to boost consumer spending with small business plan

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China is slowly rolling out measures to support small businesses. Here, a market in Beijing on April 14, 2022.

Noel Celis /AFP via Getty Images

China continues to roll out measures to support small businesses, hoping to boost consumer spending in an economy plagued by pandemic restrictions and its wilting export engine.

They are the latest in a series of proposed or already implemented stimulus policies that Beijing hopes to dampen headwinds that analysts say will push China’s GDP growth in 2022 well below its target of 5.5%.

On Monday, central authorities ordered local governments to step up a series of measures to help small businesses, according to a public notice from the Ministry of Industry and Information Technology and the cabinet-level State Council. . Municipal and provincial authorities should set up special funds that will be used to support cheaper loans and provide subsidies for business expenses such as rent, utilities and other operating costs, according to the notice.

Local governments have also been asked to provide levels of support based on how a given business has been affected by the pandemic, which has been exacerbated by the country’s draconian zero-Covid policy. Shanghai has been closed for more than a month and the restrictions now extend to parts of Beijing. These measures have weighed heavily on businesses across the country due to shipping stoppages, road transport delays and restrictions on the movement of workers, not to mention business closures.

The latest aid also allows some businesses to reopen if they had previously been closed, and if they are in areas free of Covid-19 outbreaks or use a closed-loop system, in which employees live at their place of work. work or undergo routine testing.

The measures announced on Monday are among the first to require immediate implementation, after nearly a month in which policymakers issued only draft notices or policy proposals related to businesses to boost consumption.

Last week, the State Council said major state-owned banks would increase lending to small businesses by at least 1.6 trillion yuan ($240 billion), according to its official website. Banks have also been told to relax requirements such as credit scores for borrowers.

But in previous weeks, high-level economic meetings have resulted in a slew of consumer stimulus proposals, though little to no implementation deadlines have been contained.

It’s unclear to what extent these stimulus measures will boost consumption, a part of the economy China was trying to move towards even before the pandemic. This has become extremely necessary recently, as China’s long-standing engine of growth, exports, has begun to weaken. Last month, shipments recorded single-digit growth, hitting a two-year low, according to the National Bureau of Statistics.

In March, the latest month for which data is available, retail sales fell 3.5% year-on-year, the first contraction since August 2020, largely due to severe lockdowns, stagnant wages, unemployment among young spenders and savings in an uncertain climate. All experts agreed that the weakening likely continued into April.

“Normally, I certainly wouldn’t be called a ‘saver’,” said Beijing-based Alan Li, 29, who works at an Apple store in the city. “But if the virus spreads, I may not work for who knows how long? he said, shrugging his shoulders.

Mark Tanner, managing director of marketing research firm China Skinny, said: “Consumer sentiment is bad all over China. Many are obviously aware of what is happening in Shanghai, which creates uncertainty.

“Consumers are also well aware of Omicron’s transmission rates and the potential for significant lockouts. Few dodged it.


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noted that 72% of the 225 cities it operates had outbreaks of Omicron in the last quarter. This is on top of rising unemployment and the not-so-rosy housing market which has historically had a significant impact on consumer confidence,” he said. Barrons from Shanghai.

Yet China’s main focus is on supply-side measures, such as infrastructure stimulus and corporate tax cuts, that don’t fix the economic imbalance, said Michael Pettis, a finance professor at Peking University.

“The problem is that a real solution would involve a significant weakening of China’s export sector, which depends on low wages relative to productivity for its success, and would undermine the country’s investment model before the benefits of higher consumption shows up. This is probably why rebalancing is always a strategy for the future and never a strategy for the present,” he said. Barrons.

“Cash and voucher disbursements are a plausible short-term solution, but even in the best-case scenario they are far too small to matter, typically amounting to a fraction of a percentage point of GDP of that months,” he said.

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