Reuters quoted (May 4) economists Nicholas Lardy and Tianlie Huang of the Peterson Institute for International Economics as observing that China’s domestic institutions, notably its weak social safety net, are not up to the task of supporting private consumption, which is critically important for its economic recovery from the COVID-19 pandemic. They noted that household disposable income in China declined in the first quarter of 2020 for the first time ever by 3.9 percent in real terms and the loss of wages and economic uncertainty related to the COVID-19 pandemic combined led to a 12.5 percent fall in real private consumption expenditure. The overall decline in consumption accounted for almost two-thirds of the unprecedented decline in quarterly GDP. Stating that consumption (two-thirds of which is private household consumption) has been the dominant source of China’s growth in recent years, their paper said recovery will depend largely on the expansion of  private household consumption. The paper pointed out too that one of the weakest elements of China’s social safety net is its unemployment insurance system -- whose coverage is limited, benefits are modest, and only a tiny share of the unemployed receive benefits. It said official Chinese data show an average unemployment rate of 5.8 percent in the first quarter, implying there were more than 25 million unemployed workers in China. But less than one-tenth this number, only 2.3 million workers, drew unemployment benefits. But unemployed workers are undercounted so the actual share of the unemployed receiving benefits is surely lower. One estimate is that there were 70 million to 80 million unemployed at the end of March, about three times the official number, mainly because of an undercount of unemployed individual workers in small unincorporated family businesses and migrant workers. In conclusion it said "without strengthened cash transfers to the unemployed, China’s recovery will be weak".

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