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The Chinese central government aims to spur domestic consumption by increasing consumer purchasing power in the coming years in a bid to continue maintaining a steady development of the nation's economy.
A national economic conference, which ended on December 1 and was attended by China's top policy-makers, has designated consumption expansion, especially rural consumption, as China's long-term development strategy.
Over the past years, investment and foreign trade have been the main driving force behind China's fast economic growth, while consumption, one of the three main factors, made up only 53 percent of the nation's economy. Consumption relative to GDP is more than 20 percentage points lower than the world average.
"A cart hauled by two strong horses with a weak donkey in the middle," is how some economists describe China's current economic structure.
Compared with investment, consumption is a crucial factor which helps maintain stable economic growth and is also a sustainable driving force that benefits people, according to Zhuang Jian, a senior economist with the Asian Development Bank.
Economists acknowledged that consumption expansion is not as simple an issue as investment, because it simply means that the government should spend more money on the people.
The decision of China's top legislature on October 27 to lift the monthly personal income tax from the current 800 yuan (US$100) to 1,600 yuan (some US$200), is regarded as part of the effort.
Experts expect this policy, to be effective from January 1, 2006, can help push up residents' consumption by 0.5 percentage points.
Besides, the central government is considering increasing residents income, hiking the pension payment of the retired, and enhancing subsidies to farmers.
"In order to enhance the consumption level, more efforts should be made to increase the income of both urban and rural residents," said Fan Gang, director of the National Economic Research Institute of the China Reform Foundation.
China's rural consumption has been lagging far behind that of the urban areas and the income gap between urban and rural residents has been widening from 2:1 in the early 1980s to the current 3:1.
Data showed that the growth of the rural consumption market was5-8 percentage points lower than that in urban areas in the past decade.
The weak consumption in vast rural areas, whose population makes up 70 percent of China's total, has seriously hindered the country's overall consumption, experts said.
According to the national economic conference, the Chinese government will cancel all agricultural taxes beginning 2006 and build a new socialist countryside with substantial efforts to be focused on the construction of infrastructure facilities in rural areas, including roads, drinking water, electricity and telecommunications.
Meanwhile, more funds will be designated for rural education, culture and public health.
Zhuang Jian said, "These measures will help improve the rural areas' consumption environment and increase rural farmers' consumption power."
The latest statistics from the central bank, the People's Bank of China (PBC), showed that the total savings of Chinese residents has amounted to 13 trillion yuan. China's consumption level, however, was 59.5 percent on average in the past 10 years, around 20 percentage points lower than the world average.
Currently, high real estate, education and medical care costs in China are the main factors affecting and weakening the Chinese residents' consumption power
Wang Jian, secretary general of the Society of Macroeconomy of China, noted that if these problems, which are the biggest concerns of the people, cannot be resolved, the target of domestic consumption expansion will not be achieved.
"Only when there is a sound social security system, will people dare to spend," he said.
(Xinhua News Agency December 16, 2005)
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