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Sherry Wang

The Chinese government needs to increase its spending on social safety nets, including pensions and rural healthcare, and further relax urban household registration restrictions to give households greater confidence to spend rather than save, according to the International Monetary Fund’s (IMF) Asia-Pacific chief.
In an interview with the South China Morning Post, Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, said the export- and investment-led model that powered China’s decades of economic reform “had run its course” amid several challenges, including limited social safety nets and an ongoing property slump.
China needed to rebalance its economy towards more consumption-led growth, he said, but that shift would require Beijing to do more than it had done before.
Srinivasan said Beijing’s policy announcements had so far delivered more promises than action, adding that it was important for China to meet its objective of significantly raising private consumption set out in Beijing’s latest five-year plan.
More fiscal spending was needed, he said, particularly on healthcare, pensions and reform of hukou – China’s household registration system, which determined residents’ access to public services such as healthcare and education, as well as job opportunities and eligibility to buy homes, based on location.
“China has to significantly boost fiscal spending towards improving social safety nets. This would lower households’ precautionary savings and boost consumption.”
The comments echoed arguments made in a new IMF book, Toward a New Economic Growth Model for China, which Srinivasan co-edited. The book identified stronger social safety nets as a key part of the country’s shift away from an investment- and export-led model, towards one centred on household consumption, services and productivity gains.
An IMF analysis found that higher social and healthcare spending significantly lowered saving among rural households by reducing their need to build precautionary reserves against future shocks, according to the book.
An IMF calculation found that doubling social spending in more rural areas would result in an additional fiscal cost of 1.0 per cent of China’s gross domestic product (GDP) over five years, but increase consumption by 1.8 per cent of GDP and reduce the saving rate by 1.1 percentage points.

“Social spending that targets rural households should be a priority, given the fiscal constraints facing local governments,” the book said.
Further reform of China’s hukou system could also help. Many migrant workers with rural hukou who live in cities do not have the same access to benefits as residents with local hukou, which can encourage them to maintain higher savings.
The IMF has called for further relaxation of hukou restrictions in larger cities and more equitable access to social benefits regardless of registration status.
As the prolonged property downturn weakens household confidence, the need to strengthen the social safety net has become more pressing in China.
“The biggest obstacle is the loss of confidence,” Srinivasan said.
Housing was the biggest asset for many Chinese households, but the property crisis has eroded that source of wealth, he said.
China therefore needed a “comprehensive resolution” to the property sector, including completing pre-sold homes, addressing unviable developers and providing support to affected households, he said.
The IMF estimated that central government fiscal support, equivalent to about 5 per cent of GDP over three years, could help rehabilitate the housing sector.
A stronger shift towards domestic demand would also help address China’s widening trade imbalances, Srinivasan said. Weak domestic demand and low inflation have helped make Chinese exports more competitive, contributing to a larger current-account surplus.
“Reviving domestic demand is important, both for the good of China and for the world,” he said.


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The global organisation found that savings of rural households decrease when social and healthcare spending is higher


The global organisation found that savings of rural households decrease when social and healthcare spending is higher.


To increase China’s consumption, boost the nation’s social safety net, IMF director says

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The global organisation found that savings of rural households decrease when social and healthcare spending is higher

The global organisation found that savings of rural households decrease when social and healthcare spending is higher