Consumption set to gradually rise

Experts say better welfare system would lead to increased spending

SHANGHAI – China’s household consumption rate will rise gradually, and experts said the government should improve the welfare system to increase consumers’ willingness to spend.

According to the National Bureau of Statistics, first-half retail sales reached 8.58 trillion yuan ($1.33 trillion), up 16.8 percent from last year.

Figures from JP Morgan suggest that the consumption growth rate in the first quarter accounted for 60.2 percent of gross domestic product growth, up from 47.6 percent in the fourth quarter of 2009.

“It suggests China is moving to a consumption-oriented economy, which will allow policymakers to consider more consumption-stimulating policies and welfare reform to achieve a soft landing of the economy,” said Jing Ulrich, JPMorgan Chase & Co’s managing director and chairman of global markets for China. “The consumption-to-GDP ratio will increase in the future.”

China has long promoted an economic overhaul, seeking a balance between exports and an investment-oriented economy and a consumer-based economy that would allow it to reduce reliance on international markets.

The government spent 4 trillion yuan to boost domestic consumption in the past three years, as well as to increase investment in high-speed rail and other infrastructure construction.

The government also recently raised the personal income tax threshold to 3500 yuan from 2000 yuan to increase disposable incomes.

However, experts said the government should not be the only factor in the market working to increase consumption. Individuals should be the main factor in boosting domestic consumption.

Chen Wei, an expert from the Institute of Economics of the Shanghai Academy of Social Science, said the government should encourage individuals to spend more by improving welfare policies.

“The large population in China means there is huge potential for consumption. However, the relatively weak welfare system makes people afraid to spend. They are worried about having enough to maintain their standard of living in the event of a sudden change, such as illness,” said Chen.

Chen also suggested that the government should devote more attention to manufacturers that target the overseas market.

“For a certain period, the economy will remain rely on income from exports. The financial condition of manufacturing companies will directly affect workers’ welfare, and it should not be ignored,” said Chen.

Chen said a blanket policy that stops people from buying property might not be good for economic growth or improving the welfare system.

“Land income is one of the main streams of income for local governments, so a tighter policy might reduce government income and affect government expenditure plans for welfare,” said Chen.

“The government should continue to promote affordable housing, but for those willing to buy high-end property, it should be allowed.”

Source: China Daily

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