Which industries will benefit from the increase in public consumption?
2024-08-13
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(The authors of this article are Chen Xing, Chief Macro Analyst of Caitong Securities; Ma Jun, Macro Analyst of Caitong Securities; and Chen Ying, Research Assistant)
Core Viewpoint
Compared with the reform deployment of the Third Plenary Session of the 18th CPC Central Committee, the Third Plenary Session of the 20th CPC Central Committee paid more attention to consumption, especially in the resolution, which mentioned that public consumption should be reasonably increased. So, what exactly is public consumption? What industry opportunities will the increase in public consumption bring?
What exactly is public consumption? There is no clear official definition of public consumption. In a narrow sense, public consumption refers to public expenditures of a consumable nature that are incurred by the government as the main body, including the government's own consumption and social consumption. Public consumption is mainly distributed in industries with strong social functions, such as public management, health, education, and scientific research. Since increasing public consumption requires drawing funds from taxes or capital markets, which affects private investment and consumption, the general public consumption multiplier is smaller than the resident consumption multiplier. However, in the short term, public consumption may also have a "crowding-in effect" on resident consumption, and the current domestic real estate market and stock market performance are temporarily weak. Under the damaged balance sheet, the consumption tendency of residents may be restricted or greatly restricted, and the policy effect of directly increasing resident consumption is more uncertain.
What is the level of public consumption in my country? my country's public consumption rate is at the upper-middle level of developing countries, but lower than that of developed countries. Public management and national defense and social security account for the main expenditure of global public consumption. The average expenditure of developed economies on health and social work accounts for 31.3% of total expenditure, which is about twice that of emerging economies. Public consumption plays the role of an internal stabilizer in global economic development. Specifically in my country, in terms of amount, with the continuous growth of the economy, public consumption expenditure has also continued to increase, but the overall growth rate fluctuates downward. In 2023, public consumption expenditure will total 20.8 trillion yuan, a year-on-year increase of 7.6%, nearly 3 percentage points higher than the GDP growth rate. In terms of proportion, after 1999, the proportion of public consumption expenditure in GDP exceeded that of rural residents. In 2023, public consumption expenditure accounted for about 30% of final consumption and 16.5% of GDP. Since 2000, the proportion of public consumption expenditure in GDP has been significantly negatively correlated with the GDP growth rate, indicating that my country's public consumption has certain counter-cyclical adjustment characteristics. In terms of geographical distribution, public consumption expenditure in the eastern region is more, and the average public consumption rate in the western region is the highest. From an industry perspective, except for public administration and social organizations, public consumption expenditure is mainly used for health and education.
Which industries will benefit from the increase in public consumption? The government may have three sources of funds to increase public consumption: first, the issuance of ultra-long-term special government bonds within the year; second, the change in the direction of expenditure in the fiscal and tax system reform; and third, other incremental policies. The economy will be boosted in three ways: first, increasing public consumption can directly increase GDP; second, the increase in public consumption will form a "crowding-in effect" of current consumption; third, the increase in investment in people's livelihood will reduce residents' uncertainty about the future and also promote the recovery of current consumption. my country's public consumption expenditure multiplier is about 2.1, which can leverage about 0.5%-1.7% of GDP growth. From the perspective of the impact on different industries, the service industry, which is mainly based on public management, social work and social security, may benefit the most, followed by industries such as water conservancy facilities, health, education and medicine, with a multiplier effect on the total output of the entire industry of about 2 times. In the equity market, pay attention to the education, general equipment, pharmaceutical business and traditional Chinese medicine industries.
Compared with the reform deployment of the Third Plenary Session of the 18th CPC Central Committee, the Third Plenary Session of the 20th CPC Central Committee paid more attention to consumption, especially in the resolution, which mentioned that public consumption should be reasonably increased. So, what exactly is public consumption? What industry opportunities will the increase in public consumption bring?
1. What is public consumption?
What is public consumption?There is no clear official definition of public consumption, but it is generally understood to begovernmentHeweiNonprofit organizations serving residents bear the cost, provided to the publicValue of consumer goods and services. Combining with the existing literature, it can be understood from two perspectives: broad and narrow.Public consumption in a broad senseIt includes consumption on culture and entertainment, medical care, maternal and child health care, public transportation, public services, and all other related public living facilities and welfare facilities. It also includes consumer investment in public investment, such as investment in improving urban and rural public facilities.Narrow public consumptionIt refers to public expenditure of a consumption nature incurred by the government as the main body, including the government's own consumption and social consumption. The public consumption discussed in this article is mainly in a narrow sense.
In which industries is public consumption generally used?Compared with household consumption,Public consumptionMainly distributed inSocial FunctionStrong areas, such as public management, health, education and scientific research. Residents' consumption is mainly distributed in "food, clothing, housing and transportation"Daily necessities and service industriesAmong them, the real estate industry accounts for nearly 15% of residents’ consumption, followed by agriculture, forestry, animal husbandry and fishery, food processing, etc.
In terms of economic impact, what is the difference between increasing public consumption and increasing household consumption? Why increase public consumption now?
The public consumption multiplier may be smaller than the household consumption multiplier.If we ignore taxes and their crowding-out effect on private investment, the multiplier of public consumption should be the same as that of household consumption.Increasing public consumption requires funds, which may come from taxes.This reduces residents’ disposable income;On the other hand, it may come from government debt income, which will squeeze the availability of credit funds for private sector investment and have a certain crowding-out effect on private investment. Therefore, considering these two points, the multiplier of public consumption is lower than that of household consumption.
However, increasing public consumption will also boost household consumption.Many studies have shown that public consumption expenditure has a certain crowding-in effect on residents' consumption. From the perspective of intertemporal consumption theory, residents will have a peak in spending at different stages of their lives, such as marriage, childbirth, education, medical care, housing, and retirement, showing a significant stage-by-stage nature. Since my country's consumer credit market is not well developed, people must make compulsory savings at each stage and try to save as much as possible on daily consumption expenses in order to cope with the corresponding spending peaks. Therefore, if public consumption expenditure increases,on the one hand, directly reducing some of the residents’ expenses on education, medical care, social security, housing, etc., thereby increasing current consumption.on the other hand, residents' precautionary savings demand for future expenditures will decrease, which will drive current consumption to increase accordingly. Therefore, from this perspective,Increasing public consumption may have a better short-term effect on boosting residents' consumption。
There is a great deal of uncertainty in residents’ consumption, so it is time to increase public consumption.At present, the domestic real estate market and stock market performance are both weak, and residents' consumption propensity is constrained or greatly restricted as the balance sheet expansion is hindered.SecondlyAfter 1 unit of funds is given to residents, the portion used for consumption is often less than 1, and its effect is not controllable. However, if the same unit of funds is directly consumed by the public, resources can be allocated more effectively, and the pulling effect on consumption will be greater.again, resident consumption depends more on the individual consumption willingness of residents, so it is difficult to grasp the direction of consumption. Public consumption can achieve the functions of adjusting structure and enhancing social welfare, and can also increase employment opportunities.at last, some residents may respond to the policy of increasing residents' consumption by borrowing, which may also increase debt risks.Relatively high risk。
2. What is the level of public consumption in our country?
my country's public consumption rate is at an upper-middle level among developing countries, but relatively low compared with developed countries.Compared with other countries, relative to developing countries, my country's public consumption rate has been higher than the median of developing countries in most of the time since 2000, with only slightly lower performance in 2009, 2010 and 2021; however, compared with developed countries, my country's expenditure level is still relatively low. Since 2000, the median proportion of public consumption expenditure of developed countries to GDP has been above 18%, while my country's highest level since the data was released is only 16.9%.
Public administration and national defense and social security account for the majority of global public consumption expenditures.fromIndustry distribution of public consumption expenditureFrom a global perspective, public administration and national defense and compulsory social security, education, health and social work account for 2.3% of public consumption expenditure in each country.Nearly 90%Among them, public administration and national defense and social security are the main directions of public consumption expenditure in both developed and emerging economies.Health and Social WorkThe average expenditure on this aspect accounted for 31.3%, about twice that of emerging economies.my country's public consumption expenditure is relatively dispersed, and public consumption in scientific research activities, public utilities and infrastructure also accounts for a considerable proportion.。
Public consumption is an inherent stabilizer of the economy.From a global perspective, when the economy is sluggish, the public consumption rate tends to rise, acting as a stabilizer and playing a counter-cyclical regulatory role; when the economy is overheated, the public consumption rate tends to fall. From historical experience, during the bursting of the Internet bubble in 2000, the financial crisis in 2008, and the COVID-19 pandemic in 2020, global economic growth was hit, and the corresponding average public consumption rate increased significantly.
my country's public consumption rate has been rising steadily, with countercyclical regulation being obvious.Specifically in my country, firstIn terms of scaleWith the continuous growth of the economy, public consumption expenditure has also continued to increase. In 2023, public consumption expenditure totaled 20.8 trillion yuan, a year-on-year increase of 7.6%, nearly 3 percentage points higher than the GDP growth rate.In terms of its proportion in the economyAfter 1999, the proportion of public consumption expenditure in GDP exceeded that of rural residents' consumption, and was second only to urban residents' consumption in the consumption structure. In 2023, public consumption expenditure accounted for about 30% of final consumption expenditure and 16.5% of GDP. Since 2000, the proportion of public consumption expenditure in GDP has been significantly negatively correlated with the GDP growth rate, indicating that public consumption has obvious countercyclical regulation.
Public consumption expenditure in the eastern region is higher. Secondly, from the perspective of regional characteristics, the absolute amount of public consumption expenditure in the eastern region is much higher than that in other regions, especially in Guangdong (1.6 trillion yuan), Jiangsu (1.5 trillion yuan), Zhejiang (1.1 trillion yuan), etc. These coastal provinces have developed economies, complete public service systems, and high public consumption expenditures. However, public consumption expenditures in the northeast and western regions are at a lower level. In 2022, the average public consumption expenditures in the northeast and western regions were about 0.34 and 0.35 trillion yuan, respectively, less than half of the average in the eastern region.
The growth rate fluctuated downward, with a significant decline in the Northeast region.Since 2000, the growth rate of public consumption expenditure in various regions has shown a fluctuating downward trend, among which the average growth rate in Northeast China has declined particularly significantly, and the growth rate has remained at the lowest level among the four regions in the past 10 years. Affected by the COVID-19 epidemic, the overall growth rate of public consumption in 2021 has temporarily rebounded.
The average public consumption rate in the western region is the highest., the public consumption rate in the western region is relatively high, with an average of 20.5% and 20.4% in 2017 and 2023 respectively. The top four provinces in terms of public consumption rate in 2023 are: Tibet (50%), Qinghai (29.7%), Xinjiang (27.6%) and Heilongjiang (25.4%). Most of these provinces are border areas or areas where ethnic minorities gather. According to national policies, transfer payment funds tend to tilt towards them. The public consumption in the central region accounts for a relatively small proportion of GDP. For example, in 2023, the public consumption rates in Jiangxi and Anhui were 9.7% and 10.7% respectively. The economic development level of these regions is not as good as that of the eastern region, but at the same time, the central government's financial support for these regions is less than that of border areas.
In addition to public administration and social organizations, public consumption expenditure is mainly used in the health and education industries., public administration and social organization expenditures account for more than 40% of total public consumption expenditures, mainly because the government's daily management and operation expenditures are mostly classified under this category. In addition, the industries with the highest proportion in 2020 were health (17%) and education (16%), followed by scientific research expenditures (6%), including research and experimental development and technology promotion and application services. Taking into account the impact of the COVID-19 pandemic in 2020 and the government's efforts to reduce costs and increase efficiency and develop new quality productivity in recent years, we believe that the proportion of health and public administration and social organization expenditures may decrease, while scientific research-related expenditures may increase.
3. Which industries will benefit from the increase in public consumption?
Where does the money come from to increase public consumption?Reasonably increase public consumption,First of all, we need to solve the problem of funding sources.We believe that under the current circumstances, there are three possible sources of funds. First, the 1 trillion yuan of ultra-long-term special government bonds that have been issued this year, of which about 300 billion yuan has been decided to be used for equipment renewal and consumer goods replacement, while the remaining 700 billion yuan has not yet been clearly used, part of which may be used for public consumption.Second, the domestic fiscal and taxation system is gradually undergoing reformIn addition to expanding tax sources, local existing funding expenditures may be used more to promote development, protect people's livelihood, and promote improvements in the consumption environment.Third,At the Politburo meeting at the end of July, it was proposed to reserve and launch a number of incremental policy measures in a timely manner. In the future, a new batch of incremental funds may come into play.
Three ways to boost the economy.Secondly, after solving the problem of funding sources, consider the impact of increasing public consumption on the economy. In addition to its own direct impact, it can also be achieved throughCrowding-in effect, reducing uncertainty and other mechanismsStimulate the economy. First, since public consumption is a component of GDP, increasing public consumption can directly increase GDP. Second, since the government's increased public consumption is generally used in the field of people's livelihood development, or replaces residents' consumption in these areas, the income can be used for expenditures in other areas, forming a consumption of residents.“Crowding-in effect”Third, the increase in investment in people's livelihood will reduce residents' uncertainty about the future, and precautionary savings for future inter-period consumption will also decline, which will also promote the recovery of current consumption.
The public consumption multiplier is 2.1, driving GDP growth by about 0.5%-1.7%.From theOverall economyFrom the perspective of the impact of the COVID-19 pandemic, according to the calculations of existing literature, my country's public consumption expenditure multiplier is higher than that of developed economies, which may be due to the better government performance under the public ownership-dominated economic system. Next, in order to quantify the impact on the overall economy, we can make a brief estimate of the scale of future increases in public consumption. Taking into account the impact of the COVID-19 pandemic on consumption, we found that the potential increase in public consumption could reach 300-1020 billion yuan, about 0.2%-0.8% of the total GDP in 2023, based on the growth trend of the final consumption rate and the public consumption rate before the pandemic and the gap between the current actual values. If all can be implemented, it can leverage about 0.5%-1.7% of GDP growth.
The service sector, mainly public administration, social work and social security, is likely to benefit the most.From the perspective of the impact on different industries, considering the pull effect of the upstream and downstream industrial chains, how big is the output scale leverage brought by increasing public consumption? Based on the assumption of the lower limit of 300 billion yuan calculated above, we found that if the initial capital allocation of each industry is carried out according to the current situation,Increasing public consumption will have the greatest impact on the total output of the public management industry., accounting for about 1.7% of the total output of the industry, while the social work and social security industries ranked second and third, driving the total output scale by about 1.5%.Water facilities, health, education and medicineThe following industries also boosted total output by 1.3%, 1.1% and 0.9% respectively. In terms of the total boost to various industries, an increase of 300 billion yuan in consumption can boost total output by more than 600 billion yuan, with a multiplier effect of about 2 times.
Focus on education, general equipment, pharmaceutical commerce and traditional Chinese medicine industries.Which industries in the equity market have benefited more in history? From the perspective of sub-industries, we selected three periods in history when the proportion of public consumption increased significantly, namely 2010-2011, 2014-2015, and 2022-2023, and calculated the return ranking of each industry during the period. We found that the performance of the education and general equipment industries were both in the top 50% of the industry, and the performance of the pharmaceutical business, traditional Chinese medicine and other industries was also relatively impressive.
Risk warning: 1) Economic recovery is not as good as expected. The judgment of economic operation in this article is based on public data, and it is impossible to predict future changes. 2) Historical experience is invalid. The historical economic environment and conditions based on this article cannot be exactly the same as the current ones. 3) There are deviations in the calculation. The calculation in this article sets many assumptions, and there may be certain calculation errors.
(This article only represents the author's personal views)
