A migrant worker at a construction site, against a backdrop of skyscrapers in Beijing’s CBD. Photo: Weibo

Covid-19 has driven home the fact that as the world market is crippled by the health crisis, Beijing has to count on self-sufficiency and call on its own people to spend their way out of trouble.

President Xi Jinping has coined the term “internal circulation” to sum up his new drive to fire up domestic consumption, including the painful destocking for many manufacturers when export-oriented products must be sold at home. 

Some cadres appear to have been lulled into believing that pent-up demand is being unleashed amid a nationwide shopping binge, when cashed-up holiday crowds return to throng boutique stores and commercial precincts the moment they can get out and about again. 

An imminent post-Covid consumption boom soon became the consensus of Xi and other top leaders until the premier made a shocking revelation about how many Chinese had been living on a meager income.  

Li Keqiang gave a sobering reminder, at a press conference following the conclusion of this year’s parliamentary session in May, that roughly 600 million Chinese – half the population – were eking out a living with a monthly income of 1,000 yuan (US$150) or less in 2019.

“One cannot even pay his rent with the money if he lives in a big city, let alone spend to improve his life or buy these export products to help manufacturers,” the premier said at the event that was broadcast live nationwide. 

The need for China to shift growth from exports to consumption has become more urgent than ever, but the No. 2 Chinese leader asked: What if there were hundreds of millions of wage-earners who had been furloughed or had their income cut and had no money to spend?

Shoppers line up inside an upmarket mall in Guangzhou, a sight also seen in other major cities. Some observers say China is riding a post-Covid consumption boom. Photo: Weibo
Chinese Premier Li Keqiang said 600 million people in China were making 1,000 yuan a month last year. Photo: Xinhua

The official website of the Chinese State Council, headed by the premier, then ran an op-ed that month noting that the bid to spur internal consumption to shore up the economy would not hold out much hope if the majority of the working class expected no steady rise in their income or even thought they must stint themselves to prepare for more rainy days ahead.

The piece is seen as Li’s tacit swipe at Xi’s “internal circulation” drive when most people are struggling to make ends meet or are living off welfare.

Officials figures from the National Statistics Bureau showed China’s per capita income was about 30,733 yuan ($US4,490) in 2019, or 2,561 yuan ($US374) per month. Excluding urbanites, Chinese farmers make a meager 16,000 yuan ($US2,338) per year, or 1,333 yuan ($US195) per month.

Its sheer economic size notwithstanding, China fares poorly globally on a per capita basis. According to the World Bank data of 2019, China’s per capita gross national income of US$10,410 also trailed almost half of global economies and was ranked 61st, in the middle-income group and behind Brazil, Venezuela and Russia.

To put that figure in perspective, Hong Kong’s GNI per capita last year was US$50,840 and the figures for Japan and Taiwan were US$41,690 and US$26,514 respectively.  

It is worth noting that, however, residents in better-off provinces like Zhejiang, Guangdong and Jiangsu make way more money than their peers in the poverty-stricken reaches of Sichuan, Guizhou, Xinjiang and Tibet. The per capita income of Zhejiang, the nation’s richest province, was close to 50,000 yuan ($US7,300) last year, more than twice what residents made in Tibet. 

Fan Gang, a senior research fellow at the State Council’s Development Research Center and one of the premier’s key advisors, noted in a column in the Economic Daily last month that, unless Beijing could get to grips with the stumbling blocks such as high taxes and pension contributions to bring about substantial pay rises for the majority of its working class, the nation would be unlikely to rise from its status of low-to-medium income countries defined by the World Bank to a higher categorization. 

Fan also identified areas that needed breakthroughs, including urbanization, land ownership reforms and a property tax regime, as well as clamping down on realty speculation to arrest rocketing home prices in top and major second-tier cities. 

Premier Li Keqiang talks to villagers in Guizhou, one of China’s poorest provinces. Photo: Xinhua

There have also been renewed calls for more stringent regulation of realty and banking sectors, when aggregate home price growth in major urban centers over the past decade and heavy mortgage and interest payment have deprived first-time homebuyers of money to spare. 

The average price of a home in downtown Beijing is around 90,000 yuan ($US13,160) per square meter in the first half this year, compared with the capital city’s annual per capita income of 67,756 yuan in 2019. 

Premier Li also broached further reforming China’s salaries tax at a State Council plenary meeting last week. 

China has drastically increased the monthly minimum taxable income from the previous level of 1,500 yuan to 5,000 yuan in 2019. The State Taxation Administration said all taxpayers across the county paid 500 billion yuan less income tax last year.

Still, Li was quoted by the China News Service as saying that the lowest taxation bar should be raised to 6,500 yuan and expenses like mortgages, tuition and supporting dependent parents should be made tax-deductible. 

But Finance Minister Liu Kun said earlier this week that further tax reforms must be adjusted in light of the dwindling fiscal revenues for many provinces. Some of them had to draw on their fiscal reserves to meet expenditures. 

The Central Government booked a fiscal deficit of 1.89 trillion yuan in the first half as the economy wobbled amid the pandemic, while more transfers of funds to regions and sectors hit hard by the coronavirus also depleted Beijing’s coffers. 

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