Zhang Xin, Associate Professor of Tongji SEM

April 2, 2020

Source: Wen Wei Po

China is the world’s largest single market and the world’s fastest growing market with huge potential. No matter it is viewed from long-term or short term, even with the major impact on exports, as long as the domestic consumer market is fully stimulated, with increasing release of the domestic market demand, consumption, reasonable public spending, physical store purchases, and continuous heat of online consumption, we can restore and develop through the internal circulation of the economy. Be confident about this.

Accelerating the release of domestic market demand requires the joint efforts of the government, enterprises, and residents to stimulate public consumption and personal consumption. The government’s role in promoting consumption is mainly reflected in two aspects. One is to formulate consumption policies to encourage and support personal consumption through policy guidance. The second is to implement an active fiscal policy, so as to expand public consumption, improve social security, and protect residents’ basic living consumption through fiscal expenditures. The difference is that the former one focuses on short-term demand stimulation. For example, some places have introduced the working week with 2.5 days off and flexible work system to promote the recovery and development of tourism; reducing interest rates and expanding consumer credit (interest-free loans and installments) to stimulate consumer demand. The latter can combine short-term stimulus and long-term development with attention to the protection of people’s livelihood. For example, more construction of old city, urban areas, smart city and 5G base station, big data centers, artificial intelligence, and infrastructure of industrial internet and other fields. These measures can not only rapidly expand investment demand, but also improve consumption facilities and conditions, the efficiency of transportation and information exchange, and business collaboration, laying a better material and technological foundation for future social and economic development. Another example is to increase the income of enterprises and individuals through tax cuts and financial subsidies, and guarantee basic living consumption by issuing cash or vouchers to low-income and unemployed population. However, the feasibility and effects of the fiscal policy can vary from subjects of implementation. For instance, issuing vouchers to residents can promote consumption, but the operational difficulty and cost are relatively high with less sustainability. Instead, lowering the tax rate on commodity consumption and business is conducive to mobilizing the enthusiasm and creativity of commercial entities, bringing continued prosperity to the market. As another example, continuing with subsidies for car purchases and increasing private car licenses are more effective in stimulating car consumption and simpler to operate. At the same time, as the level of economic development continues to increase, the proportion of personal consumption will gradually decrease, while the proportion of public consumption will gradually increase. Therefore, we should speed up the shift from emphasizing personal consumption to emphasizing public consumption. Moreover, whether it is to promote public consumption or household consumption, we must learn from past experience and lessons, combining short-term stimulus and long-term planning.

In addition to income, residents’ consumption is also affected by factors such as consumer psychology, consumer willingness, consumption scenarios, and convenience of consumption. From the supply side, we must promote physical stores to innovate business models, realizing the shift from physical business to cloud business, from self-recommending and self-selling to influencer marketing, from playing alone to using shared platforms, from indoor sales to outdoor sales.

The transition from physical business to cloud business is to shift from offline sales to a combination of online and offline sales. For example, stimulating consumption through online sales, TV sales, online discount promotions, weekly shopping festivals, etc.; attracting tourists by transmitting relevant information through museums, art galleries, amusement parks, and other live broadcasts; attracting diners to buy through live broadcasting the processing and cooking of the food. Some foreign trade enterprises also achieved good results by using live broadcasting to switch to domestic sale.

From self-selling to influencer and fans marketing, using non-sales persons and goods to boost consumption, including online selling by internet celebrities, and offline selling through large discount on a small amount of famous and best-selling products to attract customers in order to sell other products. Models of online and offline demonstrative selling by government officials, celebrities, and ordinary people can also be adopted.

The transformation from playing alone to using shared platforms requires the enterprises that produce and operate independently, especially SMEs and individual production operators, to actively integrate into the ecosystem of shared platform to provide consumers with products and services that are unique and convenient. The typical example of this model is the “shared employees” between e-commerce enterprises and catering companies, and the sale of vegetables and coffee by Sinopec.

All three modes require the government to strengthen logistics technology, facilities, and personnel, as well as the construction and subsidies of various platforms to solve the problems of unsmooth logistics, slow speed, insufficient manpower, and backward technology, unstandardized management, and vicious competition of platforms.

The change from indoor sales to outdoor sales is to improve and expand the places for consumption of goods and services, and standardize the development of the street vendor economy, roadside dining, outdoor entertainment, and night economy. These business forms can restore market popularity, increase employment, and stimulate consumption without the occurrence of massive and clustering consumer behavior. We must study how to liberalize and standardize these “informal economy” business forms based on the experience of the already restored “night economy”.

From the perspective of personal consumption development, the innovation and application of business models not only have a short-term effect on stimulating consumption, but also can explore how to form a long-term mechanism to promote consumption growth. For Shanghai, it is conducive to building the city as a center for comprehensive international consumption and tourism, making it a new carrier and new engine to lead consumption, promote industrial structure upgrade, and stimulate economic growth.