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China's leaders signaled this week that fiscal support for the
rest of the year will "focus on consumption", aiming to boost
incomes and social welfare, following plans to use funds from
government bonds to finance trade-ins on consumer goods.
"We need to increase the intensity of macroeconomic policies,
especially to implement the already arranged fiscal expenditures
as soon as possible," Huang Yiping, a policy adviser to the
People's Bank of China (PBOC), said in an article published by
Peking University's National School of Development on its Wechat
account.
Huang, an influential Chinese economist who heads the school,
suggested that if central bank and finance ministry policies are
too conservative in an effort to try to maintain policy
stability, they could end up undermining economic stability.
"If policies are conservative, once they affect economic
stability, there will be no more policy stability," he said.
China should quicken fiscal spending and policymakers should
shift their stance from prioritizing investment over
consumption, said Huang, calling for steps to allow more migrant
workers to settle in cities and give cash handouts to residents.
The world's second-largest economy grew at a slower than
expected 4.7% in the second quarter and faces deflationary
pressures, with retail sales and imports significantly
underperforming industrial output and exports.
The government has set an economic growth target of around 5%
for 2024.
The government should set a "rigid" annual consumer inflation
target of 2%-3% and elevate the goal of achieving moderate
inflation to be on a par with the economic growth objective,
Huang said.
"If we really fall into the "low inflation trap", the
consequences will be very serious," he said.
China has long set an inflation target of about 3%, but actual
price rises have significantly missed the target in recent
years.
Economists says that persistently low inflation can drag on
economic activity and make it more difficult for policymakers to
promote growth.
(Reporting by Kevin Yao; Editing by Neil Fullick)
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