Beijing’s consumer ‘action plan’ is doomed to fail

China’s cash-strapped local governments and a ‘lack of details’ ramp up the pressure on President Xi

China’s latest special “action plan” to kickstart the country’s anaemic economy looks doomed to fail. Like previous moves by the ruling Communist Party to juice up consumer spending, the devil is in the details. Or the lack of it.

Social benefits for childcare, more stringent labor rights and increased pension payments were rolled out. “Promoting reasonable wage growth” was another pillar of Beijing’s blueprint to boost consumption hit by a property crisis that has destroyed household wealth. 

But skepticism remains. “Who will pay for the increased pensions when local governments already struggle to pay the salaries of civil servants,” Mary Gallagher, of the Keough School of Global Affairs at the University of Notre Dame, asked in a commentary.

“More fundamentally, will the central government finally reform the central-local fiscal relationship so that the local governments tasked with [the] implementation of the plan have the resources to do so,” she wrote in the World Politics Review

“As an action plan, the document is disappointing because while it contains laudable goals – such as better enforcement of labor rights and increased payouts for the basic pension system – it does not specify how these can be achieved,” Gallagher pointed out.

The Party needs [them] to help China out of its economic rut.

The Economist

Behind the scenes:

Delve deeper: Local governments in China are also sinking into a financial quagmire. They have “racked up as much as $11 trillion” in off-the-books debt, triggered by the boom-to-bust real estate sector. There are also other issues at play.

Big picture: Relentless purges on officials in Xi’s never-ending anti-corruption campaign have taken their toll on local governments across the world’s second-largest economy. 

Between the lines: “Many officials now choose to act only in a superficial manner lest they invite scrutiny from Communist Party investigations,” The Economist reported last month.

Bottom line: “The Party, though, urgently needs [them] to regain their enthusiasm and help China out of its economic rut,” it said.

China Factor comment: For Xi, it is crucial to get the country spending again as a looming tariff war with the United States and the European Union will slow China’s export juggernaut. But time, as they say, is running out.