00:00China has unveiled a new five-year plan to boost domestic spending.
00:04Beijing aims to raise household incomes by strengthening social welfare
00:08while expanding consumption through the service sector and wider adoption of AI.
00:13The government aims to increase total retail sales of goods and services
00:17from about US$7 trillion in 2025 to around US$9 trillion by 2030,
00:24which is expected to add roughly US$1.4 trillion in annual spending.
00:29An increase comparable to the size of the Netherlands economy.
00:33While the plan places a strong emphasis on expanding services consumption,
00:37its priority sectors include the silver economy, parenting products,
00:41healthcare, culture and tourism and the snow economy.
00:45In the first five months of the year, services continued to drive overall consumption in China.
00:51Services retail sales grew over 5%,
00:53outpacing goods retail sales, which increased nearly 1.5%.
00:58While the plan also boosts AI consumption in the spotlight,
01:02it encourages spending on smartphones, computers, robots and 3D printers
01:06while supporting the rollout of self-driving technologies.
01:10And to encourage spending by foreign tourists,
01:13China says it will expand direct flights to more destinations in Europe,
01:17the United States and the Belt and Road partner countries.
01:21It also plans to extend its visa-free policy to more countries.
01:24Let's get more on the subject.
01:27Mark Ostwald is the Chief Economist and Global Strategist at ADM Investor Services International.
01:33Mark, we have you on the show again.
01:35So we know that increasing domestic spending has always been on the priority.
01:39Actually, it could go back to 2020 even.
01:41So why now?
01:43There is a specific, dedicated five-year plan just to that.
01:48I think for good reason.
01:50When we get the GDP numbers later in the week, we've got the trade data tomorrow.
01:55What we'll see is an economy where external demand is extraordinarily strong and admirably strong,
02:03but domestic demand is not particularly effective.
02:07Retail sales are forecast at minus 0.1 for June, after minus 0.8 in May.
02:13Very disappointing.
02:15So there is a need to drive better private consumption, and very understandably so.
02:23And there is also a need, as was outlined in the initial details of the initial five-year plan,
02:30to boost domestic demand in general,
02:34and to also improve the social safety net with increased social transfers.
02:40When one compares China to the EU, which is perhaps not a fair comparison,
02:45but they are, you know, it's of interest.
02:49You know, social transfers in China amount to 13,13%,
02:53and they amount to 33,0% in the EU.
02:58Well, Mark, over the past year, the government has ruled out various measures
03:01to stimulate domestic spending, including the trading policies we have seen.
03:05So what other changes are we really expecting?
03:09I think the important thing is the improvements related to childbirth and child care
03:16are very important, as are health care and care for the elderly,
03:21as well as reducing some of the red tape around leisure activities and cultural activities.
03:27You know, there is a lot of potential there.
03:30It's a very large population.
03:33And if the opportunities exist, as we've seen particularly in a lot of Western countries,
03:41you know, for more entertainment type and cultural things,
03:47you know, people will go and spend that sort of money,
03:49whereas they perhaps might not be rushing to buy a house.
03:53They probably will be rushing, continuing to buy to rush cars, buy cars.
03:59But, you know, increased leisure activities definitely drive better services in economy.
04:08That's been true the world over.
04:10And what is slightly different this time, Mark,
04:12is Chinese authorities are also hoping inbound tourism and AI could also boost domestic spending.
04:18So how much do you think those can contribute to its domestic spending and its economy?
04:25I think in terms of the AI economy, China has huge potential.
04:30It's already addressing a lot of the issues which perhaps some of the Western developers
04:34are only gradually catching up with, i.e. the high cost of AI is something which is actually a big
04:43hurdle.
04:43And China is moving very rapidly in that direction to make sure that it is affordable.
04:50And therefore, the attractions and the ability for AI to transform a lot of things is definitely there.
05:00I think the other aspect is this aspect of social transfers.
05:05With a greater social safety net within China, people won't feel when the economy,
05:12you know, perhaps jobs which are in a transition phase,
05:16the type of jobs which are being in demand now are very different to 5, 10, 15 years ago,
05:22wherever you look in the world.
05:26But you need more of a social safety net on that so that people feel encouraged to join the high
05:34-tech economy
05:35and that there are opportunities there.
05:38Thank you very much, Mark, for your insight.
05:39Thank you very much.
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