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'Follow consumption-led growth'

By Qi Xiao and Lan Lan (China Daily)
Updated: 2010-04-12 09:12

BOAO, Hainan - China's continued economic growth hinges on domestic consumption as the major role played earlier by exports and investment will decline in future, a Chinese leader and experts said during the annual conference of the Boao Forum for Asia (BFA).

As the world's third-biggest economy, China must pursue a consumption-driven economic growth model, Xi Jinping, China's vice-president, said.

"We must develop the economy mainly by relying on the domestic market and attach great importance to domestic demand, especially consumption demand, in driving economic development," he said in a speech during the opening ceremony of the BFA last Friday. Fan Gang, the director of the National Economic Research Institute of the China Reform Foundation, pointed out that the "shyness" in consumption is in fact not about "spending". Rather, the crux lies in the relatively low income of the Chinese people.

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"It's not that people are reluctant to spend their money. It's just that they don't have any," he said at a sub-forum on the conservative attitudes shown by Asian nations toward consumption.

One way to achieve the goal is to reduce the average Chinese citizen's income tax.

"We should not only reduce tax on low-income earners, but those middle-income earners," as they are the primary force driving domestic consumption, he explained.

In addition, the low-level of social security made people feel reluctant to spend money. The government's investment in the social security system has achieved progress but remains low, Ma Xiaohe, vice-president of the Academy of Macroeconomic Research, National Development and Reform Commission, told China Daily.

Countries in Europe contribute about 50 percent and the US spends 30 percent of their fiscal income on social safety and social welfare expenditure, whereas it only accounts for less than 11 percent of China's fiscal income.

It is necessary to establish a mature mechanism to facilitate the growth of laborers' income and rebalance the distribution of income, Ma said. "China's economy is growing at about 10 percent each year, but people feel that they are not getting enough benefits in their daily life," said Chen Zhiwu, a professor of finance at the School of Management, Yale University.

The so-called phenomenon of "wealthy state, poor people", where the wealth is gradually concentrated in the hands of the state, has become increasingly relevant, Chen said.

Apart from economic considerations, Chinese people's unwillingness to spend could also be partly attributed to cultural influence, especially Confucianism, which emphasize saving and thriftiness, said the experts.

The consumption habits will gradually change as the younger generation born in 1980's and 1990's grow up. This generation has adopted some aspects of Western culture and become more willing to spend money to build a comfortable life, Fan said.