Fang Honglin and Wang Pengfei: Expanding Domestic Demand Through the Mutual Reinforcement of Consumption and Investment
The 2024 Central Economic Work Conference [1] pointed out that "our country's economic foundation is stable, with many advantages, strong resilience, and great potential; the supporting conditions and fundamental trend of long-term improvement remain unchanged." It listed "vigorously boosting consumption, improving investment returns, and expanding domestic demand in an all-round way" as the top priority among the nine key tasks to be addressed in 2025. Consumption, investment, and exports are the "three-way carriage" [2] driving economic growth; among these, consumption and investment constitute internal demand, while exports constitute external demand. In the first three quarters of 2024, the economy grew by 4.8%, with final consumption expenditure, total capital formation, and net exports of goods and services contributing 2.4%, 1.26%, and 1.14% to GDP, respectively. It can be seen that internal demand is the fundamental driving force of China's economic development. From the perspective of the relationship between consumption and investment, potential consumption and effective investment have never been isolated; rather, they complement and support each other. On the demand side, industrial upgrades on the supply side brought about by consumption upgrades generate new investment demand; on the supply side, effective investment can not only satisfy demand for high-quality consumption but also further lead and create new consumer demand. When consumption expands or investment grows, they drive the further expansion of one another through mutual interaction, forming a virtuous cycle of mutual promotion. To address current issues such as insufficient domestic demand, it is necessary to proceed by vigorously boosting consumption, improving investment returns, and forming a synergy where potential consumption and effective investment promote each other, thereby accelerating the formation of a powerful force to expand internal demand.
Vigorously boost consumption and establish long-term mechanisms conducive to expanding household consumption
The ratio of final consumption expenditure to GDP in developed countries is generally around 80%. In 2023, the ratio of China’s household final consumption to GDP was 56%, leaving broad room for future improvement. Vigorously boosting consumption requires the establishment of long-term mechanisms conducive to expanding household consumption.
Promote income growth and burden reduction for middle- and low-income groups to enhance household consumption capacity. On one hand, further refine the reform of the factor distribution system [3] to increase households' wage-based and property-based income; on the other hand, deepen the reform of the individual income tax system, further expanding the scope and intensity of tax deduction items. Furthermore, continuously enhance the portfolio effect of consumption voucher policies to further stimulate the vitality of the consumer market.
Take multiple measures to tap into consumption potential and focus on upgrading the level of household consumption. From the perspective of consumption structure, the relatively low proportion of Chinese household final consumption expenditure to GDP is mainly manifested in insufficient service consumption. To this end, we should innovate diversified consumption scenarios, strive to expand service consumption, and continuously deepen reforms in fields such as education, elderly care, medical treatment, and health to further improve the quality of service consumption. Vigorously develop the "first-launch economy" [4], the "ice and snow economy," and the "silver economy" [5], and promote the development of cultural tourism to provide residents with richer consumption scenarios and upgrade the level of consumption.
Continuously optimize the consumption environment to further enhance the willingness to consume. A good consumption environment can boost consumer confidence and the willingness to consume. To this end, we should continuously promote the formulation and revision of national and industry standards in the field of livelihood consumption, especially in key service sectors such as accommodation, catering, and domestic services, to continuously improve the quality of consumption. Guide enterprises to operate with integrity and compliance, give play to the important role of government supervision in regulating market order, strengthen departmental coordination, and crack down hard on irregularities such as false publicity, price fraud, and "overlord clauses" [6] to create a consumption environment that puts the public at ease. Establish a rapid dispute resolution mechanism to respond to consumers' reasonable demands in a timely and effective manner.
Continuously deepen special consumption actions and intensify the implementation of "Two New" policies. Since July 2024, 300,000 million yuan of ultra-long-term special treasury bonds have been used to increase support for large-scale equipment renewals and the trade-in of consumer goods ("Two New"), effectively accelerating the release of consumption potential. By making good use of central fiscal funds and ultra-long-term special treasury bond support, various regions have coordinately promoted "energy-upgrading" for automobiles, "intelligence-upgrading" for home appliances, "renovation" for home kitchens and bathrooms, and trade-ins for electric bicycles, achieving positive results in promoting consumption. Data from the Ministry of Commerce shows that as of December 9, 2024, the national total of automobile trade-ins has surpassed 5 million units.
Improve investment efficiency and establish an endogenous growth mechanism for effective investment
Improving investment returns is the clear direction for the investment field set by this Central Economic Work Conference. This means that reducing ineffective and low-efficiency investment, and establishing an endogenous growth mechanism for effective investment, will be the focus of future work in the investment field.
Optimize investment structure and focus on expanding effective investment. On one hand, gradually phase out investment projects in areas with overcapacity and redundant construction, and reduce the proportion of investment in these fields; on the other hand, focus on key core technologies, digital infrastructure, and strategic emerging industries to further increase investment. In optimizing the investment structure, special attention should be paid to regional differences, with investment priorities tailored to the industrial advantages and developmental foundations of the eastern, central, and western regions.
Provide greater support for "Two Major" projects and further broaden investment and financing channels. Increase the issuance of ultra-long-term special treasury bonds for projects concerning the implementation of major national strategies and the construction of security capabilities in key areas ("Two Major"). Leverage the role of government guidance funds in major projects to further attract various financial institutions and social capital to participate in major project construction, strengthen coordination between fiscal and financial policies, and establish a new mechanism for cooperation between government and social capital in investment and financing. Further strengthen policy incentives to stimulate the vitality of private investment. Strengthen the implementation of policy measures that promote the development of private capital investment and financing to increase the enthusiasm of private capital.
Optimize the investment environment and maintain an order of fair market competition. Simplify the investment approval process, improve project approval efficiency, and effectively govern various irregularities in investment promotion and capital attraction. Use one-stop, full-chain service standards to solve problems encountered by enterprises during the investment process, reduce institutional transaction costs for enterprises, and create an investment market environment of fair competition.
Precise docking of supply and demand to achieve a virtuous mutual promotion of consumption and investment
Consumption plays a foundational role in driving economic growth, while effective investment plays a key role within it. Effective investment can satisfy higher-level consumption, and high-quality consumption is also an important force driving effective investment. We should accelerate the formation of a situation where potential consumption and effective investment promote each other.
In the first three quarters of 2024, regarding fixed-asset investment, investment in high-tech industries increased by 10.0% year-on-year, with investment in high-tech manufacturing and high-tech services increasing by 9.4% and 11.4%, respectively. Regarding household consumption, consumption of basic necessities remained stable, while consumption of upgraded goods continued to improve, with retail sales of communication equipment and sports/entertainment goods increasing by 11.9% and 9.7%, respectively. This indicates that the mutual promotion of potential consumption and effective investment is currently taking shape. To accelerate the virtuous cycle, it is necessary to establish a real-time dynamic adjustment mechanism for the precise docking of supply and demand.
On the demand side, give full play to the foundational role of consumption. Currently, the trend of consumption upgrading is obvious, with digital, service, and green consumption constantly emerging, exerting a positive impact on the scale and structure of investment. From the terminal perspective of consumption, changes in consumer demand incentivize investment entities to adjust production structures and change investment directions; the rapid changes in investment market trends are precisely to adapt to new consumer demands.
On the supply side, further play the key role of effective investment. On one hand, effective investment can promote the improvement of quality and expansion of volume in household consumption. As the quality of life improves, only by timely adjusting the supply structure of service products can the requirements of higher-level service consumption be met. On the other hand, effective investment can lead and drive new service consumption. When investment brings higher-quality service products and a better consumption environment, it can effectively stimulate consumption potential and lead new consumer demands.
Coordinate the dynamic equilibrium of supply and demand to form a mutual promotion mechanism. Focus on resolving contradictions between supply and demand, clear the bottlenecks in the circulation of consumption and investment, drive effective investment growth with potential consumer demand, and lead high-quality consumption with effective investment. This will continuously satisfy the people's aspiration for a better life and ultimately form a virtuous mutual promotion mechanism between consumption and investment.
(Authors: Fang Honglin and Wang Pengfei are, respectively, a researcher at the Heilongjiang Provincial Academy of Social Sciences and an associate professor at Luoyang Normal University)
Source: Guangming Daily (January 10, 2025, Page 11)