The low contribution of consumption to economic growth has become a source of anxiety for Chinese economic officials. With a sharp decline in exports as a result of the international financial crisis, the Chinese Government hopes that consumption will become a new engine of economic growth. The aim of promoting domestic demand is very clear in the 4-trillion-yuan ($586-billion) economic stimulus package the government approved last fall.
How should we assess the present situation of consumption in China and its future course? At the Global Think Tank Summit held in Beijing on July 4, Ma Jiantang, Commissioner of the National Bureau of Statistics, Wang Guangqian, President of the Central University of Finance and Economics, and Yuan Yue, Chairman of the Board of Horizon Research Consultancy Group, shared their opinions.
High savings rate affects consumption
Ma Jiantang: During the process of China's economic development, the consumption rate decreased from 78.9 percent in 1952 to 48.6 percent in 2008, a decline of over 30 percentage points. In contrast, the savings rate went up, increasing from 36.3 percent in 1992 to 51.3 percent in 2008, up 15 percentage points.
Since China adopted the policy of reform and opening up, the income of urban and rural residents has been absolutely increasing. So why has the consumption rate declined and the savings rate increased? In other words, why are people choosing to save their money instead of spending it when their incomes are growing?
The first reason, common throughout East Asia, is the region's tradition of thrift. I have figures for the 2006 savings rate from several major countries, with that in China hitting 33.8 percent, Japan 27.1 percent, South Korea 30.4 percent and Thailand 30.8 percent, while that in Germany stood at 18.9 percent, Britain 14.6 percent and the United States 13.6 percent.
Second, why is the savings rate so high among Chinese people in particular? I think it is because they have cautious expectations for the future and want to save money against disease and old age. This stems from insufficient social security. In 2008, there were 165.87 million participants in China's basic urban endowment insurance system, accounting for 87.9 percent of the total 188.69 million employed people in urban areas. There were 24.16 million migrant workers participating in the basic endowment insurance system, accounting for 17.2 percent of the total 140.41 million migrant workers.
That the savings rate is too high while the consumption rate is too low has become a problem in China, therefore we have to continuously increase and stimulate consumption. How do we promote the growth of consumption? I think the most important point is to increase the income of low-income groups, whose consumption tendency is high. Second, we should accelerate the construction of an extensive social security system conforming to China's actual conditions. Third, we should balance incomes among residents, transferring the wealth of the rich to low-income groups. With these measures, I believe China's consumption rate will grow.
Create good conditions to stimulate consumption
Wang Guangqian: China is now striving for steady economic development, and expanding consumption is a factor in promoting this growth. The most important thing at present is to make good policies to guide consumption and create good conditions to stimulate consumption.
China is still in the intermediate stage of development, so we should formulate policies and measures to guide and stimulate consumption based on the actual demand of improving people's living standards and promoting social development and progress.
Economic growth and expanding domestic demand complement each other. Economic growth is the condition, not the purpose. We should never stimulate consumption for the aim of boosting economic growth, but only do that to encourage social development and the improvement of people's living standards. Expanding domestic demand should be the process of improving people's living standards. Otherwise, if we have to spend money to ensure economic growth, it will inevitably lead to extravagant consumption.
There are at least three conditions for expanding consumption. First, people must have handsome incomes and good expectations. Second, people must have a certain amount of accumulation. Third, the social security system must be sound. These conditions alone could greatly increase the consumption rate.