China adviser says reviving consumption is key to growth

BEIJING, June 1 (Reuters) – Chinese policymakers are looking to achieve economic growth this year through consumption and high-tech investment instead of rushing to finance wasteful infrastructure projects, an influential Chinese economist at a top state think-tank said.

Cai Fang, vice president of Chinese Academy of Social Sciences (CASS), told Reuters in an interview that the government had learnt its lessons from the massive stimulus it implemented in 2008 to counter the global financial crisis, which led to a surge in debt.

“In the past, we let projects go forward even if they didn’t meet the investment requirement because we felt we had to stimulate hard,” he said.

For the first time since 2002, China scrapped an annual growth target this year, reflecting a more cautious easing stance, amid uncertainties brought on by the novel coronavirus crisis as well as mounting tension with the United States.

While the government would support infrastructure spending, priority would be given to investments in so-called new infrastructure sectors that the government is counting on for the next wave of scientific breakthrough, such as 5G, as well as to consumption, which has become the driving force of gross domestic product growth.

Cai said a second wave of coronavirus infections was possible, and control measures may be in place for the long haul.

But he was also optimistic that China’s economy had hit bottom after the virus brought most business activity to a halt in the first quarter, when the economy contracted by 6.8%.

Premier Li Keqiang gave reassurances in a closely watched speech to parliament on Thursday that China had room to stimulate the economy.

But there has been heated debate among economists over whether the central bank should monetize the fiscal deficit through quantitative easing.

Cai called such a move “unnecessary”, arguing that monetary conditions have been loose enough, and fiscal policy should step up.

“When everyone is at home, what is the use of loose money? Who wants these loans? They may also become non-performing loans if lent out. Now, as some migrant workers still have not returned to work, fiscal policy should be more forceful in protecting people’s livelihood,” Cai said.

“And when employment improves, demand recovers and companies start to invest again, monetary policy will need to play a bigger role,” he said. ($1 = 7.1332 Chinese yuan renminbi) (Reporting by Yawen Chen and Ryan Woo; Editing by Robert Birsel)

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