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Call to spend more on basics
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08:22, December 08, 2008

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· 2008 Central Economic Work Conference
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Experts have urged the government to spend more money out of its $586-billion economic stimulus package on health, housing, social insurance and education sectors to increase domestic demand.

The issue may be discussed at the Central Economic Conference, which begins today in Beijing, Dong Xian'an, a macroeconomic analyst with China Southwest Securities said yesterday.

China should lower the proportion of its trade volume to below 40 percent from its current 65 percent by 2020, and ultimately reduce it to about 25 percent so that domestic demand would play a bigger role in bolstering the economy, Zhao Tao, deputy secretary-general of the CPC Central Committee's policy research office, said in an article in the Outlook Weekly magazine.

China unveiled its massive stimulus plan on Nov 9 to check the downward trend of the economy. Currently, a bulk of the $586-billion package is being focused on infrastructural development.

"It would be good (for China) to spend more on education, health, and social protection," said David Dollar, World Bank country chief for China. "These expenditures would stimulate the economy besides making Chinese families feel more secure."

As the country pulls out all stops to keep its economy on the fast track, policymakers have vowed to stimulate domestic demand to fill the gap caused by a weakening international market.

Many Chinese would rather save than spend all their incomes thanks to the country's "incomplete social security net and high medical, educational and housing costs", analysts said.

The proportion of the Chinese people's wage income to the country's GDP has dropped by about 10 percent from the late 1980s, and the gap could lead to a potential loss of purchasing power worth 2.5 trillion yuan ($365 billion), said Tang Min, vice-secretary-general of the China Development Research Foundation.

The government should, therefore, slash taxes to increase people's income, which will enable them to spend more, Zhao said.

China should not slow down reforms in the social welfare sectors because of the global economic crisis, said Dollar.

"Putting more money into the social safety net is especially important now because the stimulus package will not be able to directly help the country's export industries.

"So, many workers will lose their jobs, and it is important that they have financial support during the transitional period till they find new jobs."

The increase in spending on health, low-priced housing for the poor, social security and education drives economic growth, said Wang Xiaolu, economist and deputy director of the National Economic Research Institute.

"Such expenditures would improve people's expectations for the future and allow them to spend more."

Spending more on education, in particular, can "ensure that the Chinese labor force has the advanced skills for a more knowledge-based economy", Dollar said.

Source: China Daily

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