Consumption key to economy

A POLICY supporting stimulation of consumer spending is vital for speeding up economic growth in 1999, said Economic Daily.

Affected by the prolonged Asian economic crisis, demand in international markets will remain sluggish. However, since the seriously-battered economies of South Korea and several Southeast Asian countries have shown signs of recovery, China will face more obstacles in its attempts to expand exports because the industrial structures of these countries and China are similar.

Domestic investment, supported by hefty government spending, was used to ensure economic growth last year. However, investment and spending are expected to be reduced this year because of limited fiscal power and an expected poor performance on the part of some State-owned enterprises.

Stagnant world markets and slowed investment growth, sluggish consumption and residential spending _ which account for 80 per cent of total consumption _ will in large part decide the country's economic performance this year.

Without a resurgence of consumer markets, simply increasing investment will not create sufficient domestic demand and boost the economy dramatically.

Increasing consumption is important because it could contribute to relieving unemployment in the country, said the newspaper.

About 6.1 million laid-off workers of State firms remained jobless in 1998. Reform measures, such as reorganizing government offices, separating the military and judiciary from commercial undertakings, and the setting of production limits for the textile and coal industries, could result in a higher unemployment rate this year.

In the long run, China has the capacity to maintain growth in consumption because of a low per-capita gross domestic product _ at only US$700, a low per- household possession rate of durable commodities and scant service consumption.

But, in 1999, there was little growth momentum in individual consumption, the newspaper said.

The lagging growth of urban residents' incomes as well as farmer's earnings have inhibited consumer spending. A widening income gap is another reason.

The newspaper explained: individual bank deposits amount to about 5,000 billion yuan (US$602 billion), according to the State Statistics Bureau. However, 83.2 per cent of the deposits are held in the hands of 2.5 per cent of population. More than 97 per cent of the people have meagre average savings of only 1,080.5 yuan (US$130).

Those who earn more are less likely to spend than those who are less wealthy, hence, a widening income gap drags overall consumption down despite the growth in average incomes.

In addition, people are more cautious in spending with expectations of more expenses in the future. Reforms of housing, medical insurance and educational systems have all forced people to tighten their purse strings.

There are many obstacles dampening consumption. For example, a low rate of apartment occupation has curbed the consumption of decoration materials; overcharging for electricity and poor transmission networks have influenced the buying of household electrical appliances in rural areas; and crowded roads and insufficient parking lots have fettered motor vehicle purchases in big cities.

Consumer consumption is further dampened by unfair charges from government departments, which have negated growth. However, said the article, if handled properly, macroeco-nomic policy could still play an important role in stimulating spending.

The newspaper proposed increasing residents' incomes to stimulate spending, cutting hidden incomes and raising the proportion of wages in income. Tax collection could be used as a means to better balance incomes at different levels of society.

Sales networks and infrastruc-tural facilities need to be improved to create a sound environment for consumption. Wanton fee collection must be stopped.

More lenient terms of credit are imperative for encouraging spending, according to the newspaper.

(China Daily)

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