At present, major changes are taking place in the consumption structure of urban and rural residents on the mainland, which contains huge potential for economic growth. General Secretary Xi Jinping pointed out that "it is necessary to establish an effective system for expanding domestic demand and unleash the potential of domestic demand". The expansion of domestic demand focuses on unleashing the consumption potential of urban and rural residents. From the perspective of the trend of economic growth, the certainty of the economy depends to a large extent on the certainty of the upgrading of the consumption structure; The focus of high-quality development is to form a new consumption-led growth model as soon as possible. Whether from the perspective of economic growth potential or economic growth trend, it is necessary to adapt to the trend of upgrading the consumption structure of urban and rural residents, and continuously release the potential of consumption to stimulate economic growth. Sustainable economic growth in the next 5-10 years will need to rely more on the expansion of the consumer market brought about by the upgrading of the consumption structure of urban and rural residents.
Solve the structural contradiction between investment and consumption by comprehensively deepening reform
The mainland has entered a new era of consumption, and its main feature is that the consumption structure of more than 1.4 billion people has changed to service consumption. In the past 10 years, the average annual growth rate of service consumption expenditure of urban and rural residents was 7.91%. To adapt to the historic changes in the new era of consumption, it is necessary to solve some long-standing structural contradictions between investment and consumption by comprehensively deepening reforms.
The upgrading of consumption structure contains huge growth potential. The fact that service consumption has become the dominant consumption is the general trend of the mainland's economic growth and has become an important indicator for all parties to pay attention to the Chinese market. From the perspective of international experience, when the per capita GDP exceeds 10,000 US dollars, the demand for service consumption will increase significantly; When GDP per capita exceeds $15,000, service consumption will become the dominant consumption. Service consumption needs to speed up the opening up of the service market. From its accession to the World Trade Organization to 2020, the mainland has imported a total of US$4.7 trillion in services, with an average annual growth rate of 15.2 percent. Compared with the manufacturing industry, there is still considerable room for the opening up of the service market. In 2021, among the 22 service trade industries, the service trade restriction index of 12 industries in mainland China exceeded the average of the 50 countries' restriction index according to the Organisation for Economic Co-operation and Development (OECD), which directly affected the process of opening up the service market and the improvement of service standards and service quality. The two negative lists for cross-border trade in services issued by the Ministry of Commerce in March 2024 have an important role in promoting the opening up of the trade in services market, but there is still room for further compression compared with international high-standard economic and trade rules. Therefore, it is necessary to increase the opening up of the service market, effectively open up the internal and external circulation of the service sector, and then form an important driving force for high-quality development with the vitality of the opening of the service market to release the vitality of economic growth and the rapid development of service trade. The expansion of service consumption demand has led to the rapid growth of service imports, and the upgrading of the consumption structure of more than 1.4 billion people has become a key area for the world to share China's large market.
In the new stage of development, the relationship between consumption and investment has undergone profound changes. Properly handle the relationship between investment and consumption. In the stage of shortage economy, there is as much investment as there is growth, investment determines consumption, and investment determines growth; In the new era of consumption, the release of consumption potential plays a decisive role in investment. Investment that lacks a consumption base will continue to decline in its output efficiency. At present, the prominent contradiction in the relationship between investment and consumption is that the investment demand for service consumption has increased significantly, while the proportion of investment in the service industry has declined. In the total investment in fixed assets, the proportion of investment in the service industry was 68.7% in 2020, and the proportion will drop to 65.8% in 2023. Promote the adjustment of investment structure by upgrading the consumption structure. Consumption is the production of production, the ultimate destination of investment. From a practical point of view, the adjustment of investment structure lags behind the process of transformation and upgrading of consumption structure, which increases the contradiction of "demand and lack of supply" in service consumption. The upgrading of the consumption structure has put forward a realistic and urgent demand for the reform of the investment system and the optimization of the investment structure. Consumption creates space for new investment. While the growth rate of traditional investment is declining, there is still a large space for investment in service consumption such as education, medical care, elderly care, and community construction. The mainland is in a critical stage of economic and social transformation, and the adjustment of investment structure and policies is not about whether to increase investment, but to seek effective investment space. The formation of new sustainable growth led by consumption is not to reduce investment, but to adapt to the trend of upgrading the consumption structure and create greater new investment space.
Promoting the upgrading of consumption structure has become a major task for comprehensively deepening reform. We should take the initiative to adapt to the trend of upgrading the consumption structure of urban and rural residents in the mainland, and accelerate the comprehensive deepening of reform and policy adjustment. Adjust certain policies that are not conducive to structural transformation, especially the upgrading of consumption structure, and reduce some interference with macroeconomic policies; Comprehensively clean up the existing various policies related to purchase restrictions, loan restrictions, and price restrictions that are not conducive to the release of consumption, especially the release of service consumption; Integrate relevant measures to support consumption, and strive to solve problems such as the mismatch between supply and demand in real economic and social life. New consumer demand will form a new bright spot to drive economic growth, and the upgrading of consumption structure will bring huge market demand.
We should deepen reform in an all-round way to solve the structural contradiction between growth and distribution
Judging from the actual situation, whether or not we can stimulate consumption and form good consumption expectations depends to a great extent on an important breakthrough in the restructuring of the national income distribution structure and on an important breakthrough in the reform of income distribution. To promote the upgrading of the consumption structure, especially to unleash the potential of service consumption, it is necessary to solve the outstanding contradictions of the irrational pattern of national income distribution by comprehensively deepening reform. Optimizing the pattern of national income distribution and adjusting the structure of national income distribution have become major tasks for comprehensively deepening reform.
Increase the proportion of workers' compensation. In the pattern of national income distribution in mainland China, the proportion of laborers' remuneration in GDP has been low for a long time, which objectively restricts the release of consumption potential, especially the release of service consumption potential with high income elasticity. At present, the remuneration of mainland workers accounts for about 50% of the total disposable income of the country. By adjusting the structure of primary distribution, we will strive to increase it to more than 55% by 2030, and increase the ratio of per capita disposable income to per capita GDP to about 50%.
We should intensify policies to actively expand employment. The growth of residents' employment income is facing great challenges. To stabilize consumption, it is important to stabilize enterprises and employment. Under the situation of increasing employment pressure and the real estate market and capital market are still facing adjustment pressure, the growth of residents' income is under great pressure. Improve the employment service system and improve the quality of employment. Consumption and income are both functions of employment, and it is necessary to focus on the development of the service industry and continue to implement the employment-first strategy and active employment policy. Without the development of the service sector, it will be difficult to absorb the growing employment population. International experience shows that the employment-driving efficiency of the tertiary industry is about 20% higher than that of the secondary industry. To this end, it is necessary to attach great importance to the important role of the service industry in absorbing and activating employment; Pay attention to the dominant position of small and medium-sized enterprises in expanding employment; Improve relevant social policies and systems for flexible workers, safeguard the protection of workers' basic rights and interests, and enhance workers' sustainable employability.
Give full play to the role of the government in upgrading the consumption structure. Public consumption is not only an important condition for optimizing the pattern of national income distribution, but also an important guarantee for residents' peace of mind. On the whole, public consumption has a strong practical demand, a large room for growth, and a greater driving effect on residents' service consumption. To this end, it is necessary to increase fiscal spending on people's livelihood and gradually increase the proportion of fiscal expenditure in education, social security, employment, medical care, and public health.
Comprehensively deepen reform to solve the structural contradiction between urban and rural areas
Industrialization creates supply, and urbanization creates demand. At present, the mainland has generally entered the late stage of industrialization, but the level of urbanization still lags behind the level of industrialization, and thus forms a prominent constraint to the upgrading of consumption structure.
The structural contradiction that the urbanization process lags behind the industrialization process is prominent. The urbanization rate of the registered population is seriously low. At present, the urbanization rate of the mainland's permanent population is slightly higher than the world average of 56.2%, but lower than the 81.9% and 68.2% of high-income and middle-upper-income economies. The conspicuous problem lies in the fact that the urbanization rate of the mainland's registered population is seriously low. In 2021, the urbanization rate of the permanent population was 64.7%, but the urbanization rate of the registered population was only 46.7%, which was 18 percentage points lower than the urbanization rate of the permanent population, and nearly 300 million migrant workers failed to effectively integrate into the city. Unleash the consumption potential of migrant workers. The fundamental strategy to release the service consumption demand of the new generation, especially the "post-90s" migrant workers, is to promote the integration of migrant workers into the city, let the willing migrant workers settle in the city, and promote the non-permanent residents to enjoy basic urban public services on an equal footing. In particular, we will ensure basic public services such as housing, education, and medical care for migrant workers in cities, and focus on increasing vocational skills training and re-education, so as to promote the simultaneous increase of migrant workers' labor remuneration.
We will further promote the reform of the household registration system and comprehensively improve the quality of citizenization. The reform of the hukou system in mainland China lags behind the trend of population flow, and problems such as the imperfect human-land linkage mechanism and the unequal quality of basic public services still exist. Studies have shown that the marginal consumption propensity of residents after urbanization is 14.6% higher than that before urbanization. If we deepen the reform of the household registration system, establish and improve the system of providing basic public services in the place of habitual residence, promote the full integration of the rural migrant population into the city, improve the quality of citizenization, and promote the equal enjoyment of basic urban public services by the permanent resident population who have not yet settled down, the per capita consumption level of the new urban population can be greatly increased.
Strengthen the construction of the rural public service system. Affected by the supply, environment and facilities of service consumption, the potential of rural service consumption has not been effectively released. It is necessary to truly implement the back-up function and guarantee function of social security, and promote the equalization of basic public services in urban and rural areas; On the premise of not increasing the burden on residents, the compensation standard of the new rural cooperative medical insurance will be raised, and the subsidy standard for rural old-age insurance and rural elderly will be raised.
[The author is president of the China (Hainan) Institute for Reform and Development]