Researchers have noted that China's limited consumption andoverheated investments are caused by ever increasing deposits. InChina the savings ratio is much higher than the investment rate. Byanalyzing this phenomenon more closely, it is easy to see thatexcessive savings are a result of the current income distributionsystem, which needs improvement. The government has noticed theproblem and decided to make a change.
Statistics from the World Bank indicate that in 2006 China'shousehold savings accounted for 15 percent of the GDP; governmentsavings (fiscal revenue) 7 percent. But corporate savings(including profits) went up to 28 percent, a big leap from 14percent in 2002. During recent years, with sluggish salary hikesand yet an improved taxation system, a better part of the nation'sincomes have been flowing to the governmental departments andenterprises instead of into the hands of ordinary citizens.
Decades of fast economic growth have brought benefits toordinary people. From 1989 to 2004, the salaries of ordinaryChinese increased 110 percent in real terms. But according toThe Report on China's Enterprises Competitiveness issuedby the Institute of Industrial Economics under the Chinese Academyof Social Sciences, the ratio of workers' wages to GDP fell by 12percentage points in the past few decades while the ratio ofcorporate net profits to GDP increased by 7.7 percentage points.The report's author, Jin Bei, said that during the early stages ofthe reform and opening-up scheme, a common concern in state-ownedenterprises was that wages would eat into profits. Now the worry isthat the profits would eat into wages. Jin also said that animbalance in income distribution exists in both private andstate-owned enterprises: wage increases always fail with economicgrowth in private ventures; state-owned enterprises, however, tendto employ a large number of temporary workers to cut productioncosts.
The central government has noticed the problems with the incomedistribution. During the 17th National Congress of the Communist Party ofChina held in October 2007, the authorities decided to createmore opportunities for the public to get property incomes. This isa positive move that the central government took to change thecurrent distribution system. But it is going to be a tough taskbecause society is lacking interchanging channels among householdsavings, government savings and corporate savings.
Limited expenditures on public affairs on the part of government,as the current situation is, make the public feel uncertain abouttheir lives and prod them to save more money. As for thestate-owned companies, they were allowed to retain their profitsduring past two decades, which the authorities viewed as aperformance incentive. With business improving, they saw theirprofits soaring. These profits, plus bank loans and funds raisedfrom stock markets, became a means for corporate investment andeventually pushed the economy to the verge of overheating time andtime again. But the government did not benefit as much as it shouldhave from its enterprises' substantial improvements.
As a result, the government has now decided to take its cut. InMay 2007, whispers spread from the State Council Executive Meetingthat the central government would collect dividends from all statefirms under its direct control. In December, the authorities issuedthe Management Methods of Collecting State Assets-generatedProfits of Central Enterprises. Based on regulations, theMinistry of Finance could collect anywhere from 50 to 80 billionyuan in 2007. Most of the money would be earmarked for socialwelfare projects as a way to balance wealth distribution.
(China.org.cn by Pang Li, January 4, 2008)
