A DIRECT stimulus of 4 trillion yuan (US$580 billion) paid directly to Chinese households is an option to spur a recovery in consumer spending that has been slowed by weak wage growth during the pandemic, a central bank adviser said.

Relatively sluggish income growth means “short-term measures” are needed “such as putting four trillion in the hands of households,” said Cai Fang, a member of the People’s Bank of China’s monetary policy committee.

Resident income has “not increased very well in the last few years, so the recovery of consumption is not sufficient to support economic growth,” Cai said.

He also floated the use of China’s social security system to stimulate consumption as another option, though he did not give details.

China’s consumers are in focus after officials at a key political meeting earlier this month suggested they would avoid large stimulus through infrastructure investment or the property market.

That means household spending is likely to drive demand in the world’s second-largest economy and support its recovery this year.

Recent official data have shown a recovery in retail sales and services spending in the first two months of the year, though high-frequency data for March also indicated a weakening of some consumer purchases, such as car sales.

China’s top leaders, meanwhile, have so far rejected calls from Chinese academics and economists to finance direct payments to households, instead favoring subsidies to businesses to maintain employment and expand investment.

Cai said bank deposits amassed by Chinese households during the pandemic were concentrated among a relatively small group with high-incomes. That means such savings are unlikely to fuel “revenge consumption” this year, he added.

“That requires the government to put four trillion into the hands of low-income groups,” Cai said.

(SD-Agencies)