(Yicai) April 23 -- China should make boosting internal demand its top priority as the country prepares its response to the US government’s new Reciprocal Tariffs, the impact of which will likely become apparent after the second quarter, according to a new report from Chinese think tank the China Finance 40 Forum.

Spurring domestic consumption is the best policy at the moment as it is a key part of boosting internal demand, Guo Kai, executive dean of the CF40 Research Institute, and Huang Yiping, dean of the National School of Development at Peking University, said at the launch of the report on April 21.

The report made a number of other suggestions for bolstering the economy such as stabilizing the stock and foreign exchange markets, keeping the door open for negotiations but not giving in to the US' “extreme pressure” and “unreasonable demands,” offering support as necessary to affected businesses and creating a better environment for companies that are trying to shift from exports to domestic markets.

Plans to boost domestic demand should set clear priorities and be based on the current economic situation, the report said. The report gave five suggestions for boosting consumer spending in order of priority.

First of all, the most important and effective measures are counter-cyclical policies that can boost GDP growth and quickly raise income and consumption levels. Lowering interest rates and increasing public investment are key parts of this.

Second, in the short-term, policies facing less resistance should be rolled out soon, such as encouraging childbirth, building up metropolitan areas and helping with the settlement of migrant workers. These can quickly boost spending among certain groups.

Third, in terms of long-term policies, these should focus on shifting the industrial structure more toward services, increasing social welfare and social security expenditure and giving people better returns from their investments.

And finally, reforms related to secondary distribution should come last, since they involve the distribution of benefits and this can garner a lot of public attention, so they should be launched at an appropriate time, the report said.

Targeted Support

For areas that are heavily dependent on US exports, targeted public investment can help drive domestic demand, create jobs and boost profits, it added.

The financial markets are where confidence and expectations are most concentrated and so it is important to keep them stable, the report said.

It is necessary to take into consideration how the depreciation of the Chinese yuan affects exports and investor sentiment, so keeping the exchange rate stable as much as possible is the best option for now, Huang said.

The government needs to help businesses and employees get through these tough times, the report said. That includes tax and rent relief for companies, and cash handouts for the unemployed and their families.

Now that it will be difficult for Chinese exporters to sell to the US, government authorities should help them find new sales channels in other countries and within China to create more business opportunities, the report said.

If China handles this challenge well and manages to boost domestic demand, it will not only improve people’s livelihoods, but could also turn obstacles into opportunities, said Zhang Bin, senior research at CF40 and deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

Editor: Kim Taylor