(Bloomberg) — The Chinese Communist Party’s new pledge to fix the “demand side” of the economy has prompted expectations the leadership will implement more egalitarian policies to stimulate consumer spending.
The Party’s top leaders used the phrase “demand-side reform” for the first time this month, in a departure from its past focus on “supply-side” changes which involve upgrading industry and cutting capacity in bloated sectors.
Although China is the only major economy set to grow this year due to its effective control of the pandemic, the new slogan signals that the ruling party is worried about the uneven recovery in which household spending has lagged behind investment in real estate and infrastructure. Beijing has not detailed what the phrase means, but officials have dropped hints and economists have been quick to offer suggestions.
Income Redistribution
The term “demand side” is used to refer to investment, consumer spending and any trade surplus. Beijing turned to investment to replace exports as a driver of economic growth during the 2008 financial crisis when overseas orders slowed, and has since struggled to “rebalance” demand toward consumer spending.
Economists blame that imbalance on several factors, including pay inequality that means income accrues to richer households who are less likely to spend, and the relatively high share of gross domestic product paid as profits to capital owners rather than as wages to workers.
Top officials including President Xi Jinping and Vice Premier Liu He and have drawn attention to those issues this year. In a speech published in August, Xi spoke about the low share of wages in GDP and “outstanding problems in income distribution” and cited French economist Thomas Piketty’s “Capital in the 21st Century,” as showing the harmful effects of inequality. Liu has called for improving mechanisms to increase wages.
What Bloomberg Economics Says…
“In the short term, the aim will likely be to boost domestic demand with public consumption and investment. Longer-term policies will be aimed at spurring a structural shift in household consumption toward higher value-added products and services.”
— David Qu, economist
For the full report, click here
After an annual economic planning meeting this month, the party promised to “optimize the income structure and expand the middle-income group.” Shanghai’s city government included a “fair” income distribution in its next five-year plan, including “regulating excessively high-incomes.”
This will require more government intervention through taxes, some government-affiliated economists say. “When a country has a higher level of income, the government will intensify income redistribution efforts with taxation and transfer payments,” according to a speech in August by Cai Fang, vice president at the Chinese Academy of Social Sciences, an influential government think-tank.
Specific measures could include raising income taxes on the wealthiest, providing income-tax credits to lower earners, imposing taxes on wealth such as property, and levying capital gains charges on financial transactions, most of which are exempt from tax.
“I think the income tax is already pretty progressive. The key is the capital gains tax,” said Gan Li, director of the Survey and Research Center for China Household Finance at China’s Southwestern University of Finance and Economics.
Social Welfare
Beijing has vowed to reduce the large gaps in quality and coverage of public services such as healthcare and education between different regions. Shifting government spending to such services could encourage households to save less of their incomes and spend more on goods and services.
“China’s social security expenditure is about 10% of GDP, which is much lower than 19% in Europe. In the future, it will be the trend to invest more in the social security system, and the structure of fiscal expenditure will be adjusted,” analysts at securities brokerage Guotai Junnan wrote in a report on demand-side reform.
The reform of the resident registration system may also increase access to social welfare. In April, the government said that all cities with populations smaller than 3 million should abolish rules which limited access to government services only to people officially registered to live in the city. Similar changes could cut out-of-pocket social service costs for millions.
Obstacles
With Beijing this year saying it would rely on a “dual circulation” strategy in which economic growth will become increasingly dependent on domestic demand, rather than exports, economists expect the government to maintain high-levels of investment spending, while shifting away from transport infrastructure and housing toward technology and environmental projects.
However, any shift in emphasis is likely to be gradual.
Beijing has struggled to move forward with a property tax it has planned for more than a decade due to resistance from the wealthy and fears about declining asset prices. And the recent Communist Party meeting stated that supply-side reforms would continue to be the “main line” of policy.
“China’s policy makers have been talking about increasing consumption and demand-led growth for decades,” said Terry Sicular, a China-focused economist at Western University in Canada. “But all the talk about it hasn’t made it happen.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
