Abstract: In this paper, the authors discussed two issues: first, why consumption growth has declined significantly since the outbreak of the covid-19 pandemic, and to what extent the decline can be attributed to the impact of the pandemic; and second, what policy measures we should focus on to boost consumption in the short term. At present, the main constraint on China's consumption growth lies in demand, not in supply. Growth rate of consumption fell sharply after the outbreak of the pandemic, and its recovery after the pandemic was relatively weak.
The sharp weakening of consumption growth can hardly be attributed to the old structural reasons that had existed before the pandemic. Much of the decline in the growth rate of household disposable income came from the decline in the growth rate of financial assets of the whole society, or from the decline in the growth rate of broad credit. The level of spending on a given level of credit, while also falling, has fallen at a lower rather than a higher rate than before the pandemic.
Both lower policy interest rates and increased public sector borrowing and higher levels of public sector spending have been effective in raising both the growth rates of broad credit and the proportion of spending on a given level of financial assets, raising disposable income and consumption of the household sector in the short run.
