Understanding causes of insufficient consumer demand

15:06, April 13, 2010      

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Several renowned economists from China and Australia discussed the pressure facing China's future development as well as macroeconomic policies China should adopt during a forum on April 12. They believe that there are six major reasons behind the insufficient consumer demand in China.

The forum was sponsored by the Chinese Academy of Social Sciences (CASS), during which, the CASS launched a book from its "China Economic Frontier" series titled "China under the International Financial Crisis."

Sufficient labor supply curbs rises in wages

Wang Xiaolu and Fan Gang, from the China Reform Foundation's National Economic Research Institute, pointed out that about 150 million Chinese migrant rural workers currently work in urban areas, and several million migrant rural workers enter the urban labor pool every year. Despite the high-speed economic growth and increasingly higher per-capita GDP, the sufficient supply in the labor market has restrained the rise in wages, causing the continued decline of the percentage of labor income in terms of total income. This has in turn widened the income gap, curbed mass consumption growth and eventually resulted in the consumption growth rate lagging behind the GDP growth rate.

Income gap leads to high savings

According to statistics on urban household incomes from the National Bureau of Statistics, the rate of consumption for 10 percent of the poorest urban households was as high as 96 percent, while the figure for 10 percent of the richest urban households was only 63 percent. The widened income gap indicates that the income growth rate for high-income residents has been higher than that for low-income residents, resulting in the rise in average urban household savings rates and the fall in the rate of consumption.

Related systems need to be perfected

Following reform in China, the labor market has replaced government intervention as the method of determining wage levels, but legislative, social security, public welfare and other systems have not been fully developed. Labor income is solely determined by supply and demand in the labor market and there is not a sufficient social security system to supplement it.

Therefore, there is no guarantee that the labor income and consumption level can grow at the same pace as economic growth. Despite the significant development of the social security system over recent years, it still needs to be further improved.

Enterprise savings raise the overall savings rate

The rapid rise in enterprise savings is the main reason behind the rise in the overall savings rate. Currently, China lacks a rational resource tax system and a state-owned enterprise (SOE) dividend allocation system that would enable enterprises in the oil, natural gas, coal and other resource industries and SOEs to allocate their profits. This has caused the continued rise in the amount of undistributed profits that have become the major source of enterprise savings.

Lack of incentive measures to enhance public services

Local government bodies at various levels have been passionate about expanding the GDP and accelerating economic growth, but there is a lack incentive measures to perfect public services and achieve full employment. These government entities have overly encouraged the investment in large, capital-intensive projects and the development of large and medium-sized enterprises, while paying less attention to the development of small, labor-intensive enterprises. This has changed the allocation of productive factors and has led to the continued rise in both enterprise scale and industrial capital intensity. It has also reduced job opportunities accordingly, widened the income gap and accelerated the decrease in the rate of consumption.

Loopholes in the public fund-management system

There are loopholes in the public fund and resources-management system because the system is unsound and lacks transparency. Particularly, the lack of oversight on the collection and use of extra-budgetary funds has caused the misuse, leakage and embezzlement of public funds. This has severely worsened the income allocation structure.

By People's Daily Online


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