China unveils plan to boost consumption as Trump tariffs bite

Hong Kong (CNN) — China has announced a wide-ranging “special action plan” to promote domestic spending, in an effort to counter the economic impact of tariffs imposed by US President Donald Trump.

The initiative, announced Sunday by the official Xinhua news agency, is ambitious but short on specifics. It covered everything from boosting people’s incomes to establishing a childcare subsidy system, and expanding a “cash-for-clunkers” program to trade in old goods like cars and electronics.

The plan builds on Premier Li Qiang’s promise during a major political meeting earlier this month to ensure that the “giant ship of China’s economy” will “sail steadily toward the future.”

He had set an ambitious growth target of “around 5%” for this year. That would be possible only by boosting spending, to ensure China doesn’t need to rely on exports to power its vast but slowing economy.

At a news conference on Monday to answer questions about the plan, Li Chunlin, deputy director of the National Development and Reform Commission, the top planning agency, acknowledged that consumer confidence remained weak.

“There is still a lot of work to be done to boost consumption, expand domestic demand and better meet the people’s needs for a better life,” he said.

Besides suffering from low consumer confidence, China faces economic problems such as an uncertain employment outlook and a prolonged property sector downturn. Internationally, it’s also being squeezed as the United States turns the heat up on a trade war against China.

Trump doubled tariffs on all Chinese imports to 20% as of this month. In response, China has announced a fresh round of retaliatory tariffs, covering US agriculture imports, which took effect last week.

On Monday, official figures from the National Bureau of Statistics (NBS) showed that retail sales, a measure of consumption, rose 4.0% in the January to February period. It was slightly faster than the 3.7% rise reported in December and met the expectations of a group of economists polled by Reuters.

“China’s economy had a decent start to the year, likely driven by fiscal stimulus,” Zichun Huang, an economist at Capital Economics, wrote in a Monday research note. “We expect the recovery to continue over the coming months, but given the wider headwinds weighing on China’s economy, we don’t expect any near-term improvement to be sustained for long.”

The country has been dealing with the persistent problem of deflation, which gives people little incentive to spend because they’re expecting prices to drop more in the future. This tends to drag down consumption, which is an important component of economic growth.

Last week, NBS said China’s Consumer Price Index (CPI), a benchmark for measuring inflation, fell by 0.7% in February from the previous year. It was the index’s lowest level in more than a year.

As for industrial production, which measures the output of industries such as manufacturing and mining, NBS said on Monday it expanded by 5.9% in the first two months of the year, slightly ahead of Reuters estimates of a 5.3% rise. The NBS announces data for the combined January and February months to account for impact of the Lunar New Year holiday, which can begin in either month.

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