Why China's consumer spending rate keeps dropping
(Xinhua)
Updated: 2004-06-24 16:36

Although the Chinese government has enunciated the policy of expanding domestic demand, most of its people are still unwilling to spend much money on consumption, and the country's consumer spending rate has dropped to the lowest point since the beginning of reform and opening-up 25 years ago.

In 2003, China's consumer spending rate was only 55.4 percent, the lowest since 1978 and 2.6 percentage points lower than 2002, according to statistics from the National Statistics Bureau.

In 1978, the rate stood at 62.1 percent, and during the sixth (1981-1985), seventh (1986-1990), eighth (1991-1995) and ninth (1996-2000) five-year-plan period, the rate was respectively 66.1 percent, 63.4 percent, 58.7 percent and 59.4 percent, official figures show.

"The low consuming rate can be boiled down to the slow increase of farmers' incomes," said Professor Xu Guangjian with the People's University of China.

China's vast rural areas lack efficient social security systems and get much less educational and medical investment than urban places from the government, which weakens farmers' consuming capabilities, he said.

Some 20 years ago, the retailing volume of rural people's consumer goods accounted for over 60 percent of total retailing volume, but last year the proportion was only 47.8 percent.

Facts show Chinese residents prefer bank saving to spending money. By the end of 2003, Chinese residents' deposit reached 10.36 trillion yuan (US$1.25 trillion).

China has not set up a complete social security system, making the ordinary people lack confidence about their future life, Xu said.

Ordinary people's slow salary increase is another factor. China now has 94 million farmers-turned-workers, most of whom are poorly paid and enjoy little welfare treatment, said Xu.

The low consumer spending rate has made the country nervous about its overheating investment. During the first quarter this year, China's fixed asset investment soared 43 percent year on year, according to statistics from the National Statistics Bureau.

The government has made all-out efforts to curb the surging investment, and a number of steel, aluminum and cement projects have been stopped. Experts believe that the increasing gap between the oversupply and shrinking consumption might cause severe economic crises.

Xu said the government needs to invest more in rural educational, medical and pension systems, and build a complete social security system covering all residents as soon as possible.

The government needs to pay more attention to the protection of underprivileged farmers-turned-workers' interests, since this group of people constitute a huge potential market for consumption, he said, also calling on financial institutions to loosen restraints for consumer loans.

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