BAI CHONGEN, a leading Chinese economist and government adviser, has outlined key strategies for revitalizing consumption in China amid current economic challenges. Bai, dean of Tsinghua University’s School of Economics and Management and vice-chairman of the All-China Federation of Industry and Commerce, shared his insights in an interview, emphasizing the differences between China's economic situation and Japan’s “lost decades,” and stressing the need for coordinated reforms.

Addressing comparisons between China’s slowdown—marked by a real estate crisis, stagnant consumer prices, and a fragile job market—and Japan’s prolonged economic stagnation, Bai stressed fundamental distinctions. Unlike Japan, which was a high-income, fully developed economy when it encountered difficulties, China remains a middle-income country with significant growth potential. Bai highlighted China’s large population, extensive talent pool, and strong industrial base as competitive advantages supporting innovation and market expansion. He noted the capacity of Chinese enterprises to commercialize new technologies more effectively than Japan has recently managed.

China’s financial system also differs, Bai said, particularly in how industrial financing is less vulnerable to asset price fluctuations. He pointed out Chinese consumers’ willingness to adopt new products, which creates a positive cycle encouraging innovation and economic vitality.

Bai cautioned against underestimating the damaging effects of deflation, noting that Japan’s late implementation of fiscal stimulus, monetary easing, and structural reforms under “Abenomics” limited the policy impact. He advocated for a timely, well-coordinated policy approach in China to prevent a similarly prolonged slowdown.

To avoid “Japanification,” Bai called for fiscal, monetary, and structural reforms to work in tandem. While monetary easing measures, such as mortgage rate cuts, have been enacted, their impact remains limited without sustained economic growth. He expressed concerns over short-term fiscal stimulus, which risks exacerbating existing structural issues like overcapacity or distorting the housing market. Bai argued that one-off consumption incentives fail to address deeper issues driving weak consumer demand.

Instead, Bai proposed an “investing in reform” paradigm focused on overhauling social services, particularly healthcare and pension systems. Such reforms require substantial upfront capital and fiscal coordination. For example, he highlighted the existing disparities in China’s dual-track social security system—between employee and resident schemes—and advocated designing a gradual unification blueprint backed by fiscal resources to support the transition.

To fund these reforms amid concerns over debt levels, Bai suggested enhanced fiscal and monetary cooperation. He recommended government bond issuance complemented by central bank bond purchases on the secondary market. This approach, he argued, would not spur inflation in the current demand-deficient environment but would mobilize idle resources and labor while strengthening the social safety net.

Ultimately, Bai emphasized that improving the social security framework would bolster consumer confidence by assuring future healthcare and retirement security. He described macroeconomic management as a necessary bridge facilitating structural reform, which is essential for unlocking China’s full consumption potential and sustaining long-term economic growth.