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AFFORDABLE SHELTER: The first group of residents receive their keys to their new homes in an affordable apartment project in Wuhan, Hubei Province, on December 8, 2009. The government is taking further measures to assist low-income groups in order to spur consumption (XINHUA) |
Increasing domestic consumption has become a hot topic filtering through various economic circles in China. In the aftermath of the global financial crisis, the call has gone out to emphasize consumption and downplay saving among people in the international community. Xia Bin, Director General of the Research Institute of Finance of the Development Research Center of the State Council, made 10 suggestions in the Economic Information Daily to achieve this goal. Edited excerpts follow:
When analyzing the low consumption predicament, people tend to point fingers at the high household savings rate as the culprit. But who or what has pushed our overall savings rate from 36 percent in 1996 to 51 percent in 2007? An explanation is needed before any new measures are implemented to address the consumption problem.
The household savings rate was not always a problem. In the 11 years from 1996 to 2007, the household savings rate grew by a small margin from 19 percent to 22 percent—a mild 3 percentage points. However, the savings rate of the government and various companies soared from 17 percent in 1996 to 29 percent in 2007—a staggering 12 percentage points.
The problem is clear—government and corporate savings pushed the savings rate to its current level.
The government, therefore, should take comprehensive measures to boost consumption by finding a way to increase household consumption, while reducing the corporate savings rate, as well as its own.
Without a doubt, one of the first courses of action the government must take is to improve the social security system and broaden social security coverage to alleviate citizens' concerns about medical treatments, education and old-age benefits. The central and local governments' revenue should be more heavily invested in projects concerning the people's welfare. In the past, the government tended to focus its attention on infrastructure construction, pouring large sums of money into such projects. But nowadays, with adjustments being made to the capital market, this money can be raised through the financial market by issuing shares or bonds. The saved revenue can be used to improve rural old-age benefits, healthcare reform, housing subsidies, and subsidies for rural residents.
Second, the government should readjust the distribution system for citizens' income by increasing salaries for the low-income group and narrowing the income gap by providing better security packages for the poor.
Third, the personal income tax threshold must be raised to boost the consumption of the middle-income group.
Fourth, current consumption stimulus measures should be carried on while new schemes are introduced. Local governments can distribute consumption coupons, subsidize farmers who buy home appliances, and make reductions to the auto purchase tax.
Fifth, further investment is needed for infrastructure projects related to people's livelihoods and consumption. For instance, connect metropolises, small and medium-sized cities, and the broad rural markets with modern marketing, distribution and online sales channels; perfect the second-hand product market, as well as the auto and durable goods markets; and revamp outdated power grids and roads in rural areas.
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