Opinion

Spending time for growth

By Chi Fulin (China Daily)
Updated: 2011-05-20 14:15

Country needs concrete policies to encourage people's spending and balance urban and rural public services

A country's consumption level serves as an important index to measure whether or not it has put in place a development strategy that prioritizes the growth of people's incomes and the improvement of their living conditions. It also remains a key factor in determining whether the country can realize social impartiality and sustainable development.

The reason for the lingering low-level consumption in proportion to the gross domestic product (GDP) in China in recent years is its prevailing economic growth model that is heavily dependent on investment and exports. The country has promised to develop a consumption-driven economy instead of an investment-driven one in the 12th Five-Year Plan (2011-2015), but this will depend on whether the country can successfully push forward a series of sweeping and deepened reforms in some key areas.

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China's economic development has encountered an outstanding problem in recent years, manifesting as the stark contradiction between the high-speed growth of the GDP and the declining consumption ratio. The underlying reason for this problem is the country's adoption of a government-led growth mode that puts top priority on economic development.

As a result, the country's production capacity has grown faster than residents' consumption capacity and the gap between the rich and the poor has kept widening. The continuing decline in people's consumption ratio, if not curbed, will aggravate the country's dependence on investment and export for economic growth. It will also amplify the country's current economic and social problems.

Provided that the policies and measures contained in its 12th Five-Year Plan are effectively implemented, China is likely to realize the transformation of its economic growth model, which means that the country's consumption ratio will increase from the current 48 percent to 55 percent in five years and the consumption ratio of residents from 35 percent to 45 percent. To facilitate this process, China should adjust relevant policies in a bid to form an environment favorable for consumption.

Statistics show that China's labor remuneration declined to 39.7 percent in 2007 from 51.2 percent in 1994 in proportion to the country's GDP. Such a situation, if not changed, will be a drag on national economic development.

At the same time, related measures should be taken to raise people's inclination to consume.

Due to historical reasons, the country's increased input into basic public services in recent years still fails to meet people's ever-growing demand in this area. This is one of the reasons for the protracted slack consumption among urban and rural residents.

Some effective measures should also be taken to upgrade the country's current consumption structure, a move that demands the country adjust its economic structure and speed up the development of some service industries. A series of food safety problems that have occurred in recent years have had directly undermined public confidence in the domestic food industry.

The occurrence of such food safety scandals can be attributed partly to the lack of self-discipline in domestic food producers, but more importantly, to the absence of an effective and omnipresent monitoring mechanism by relevant State departments.

To boost long-sluggish domestic consumption, the country should also reform income distribution. A more reasonable and scientific income distribution system will stimulate domestic consumption. Practical measures should also be taken to gradually promote the balanced distribution of public services between urban and rural areas, given that it would not only help raise people's inclination to consume but also defuse brewing social contradictions.

To facilitate this process, the country should explicitly demarcate boundaries of responsibilities between central and local governments in the construction of public services and continue to increase input. In addition, measures should be taken to incorporate migrant workers as urban residents and the government should come up with effective ways to achieve this during the 12th Five-Year Plan period.

The construction of the long-sluggish housing guarantee system in urban areas should also be expedited. The government has promised that government-subsidized houses will comprise about 20 percent of the nation's housing by the end of the five-year plan period for urban residents, and the target, if realized will help improve people's livelihoods, maintain social stability and drive domestic demand to expedite the transformation of the economic development.

The author is director of the Hainan-based China Institute for Reform and Development.