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The reasons for China's low consumption should be thoroughly studied, says a signed article in Nanfang Daily. An excerpt follows:

Can Chinese residents save less and consume more? China's national savings rate exceeds 50 percent. Many economists and experts are suggesting methods to increase consumption and lower savings. But many of the measures cannot be effective. Some points need to be clarified.

Firstly, China's consumption is, in fact, increasing at a stable speed. The annual rate of increase was 12 percent in recent years. The reason consumption was low while investment was high as a percentages of the gross domestic product is because investment increased too fast.

Secondly, how can consumption increase faster? The low level of disposable income is the direct reason for Chinese people's low consumption level. It is often heard that the low consumption level of Chinese farmers has led to the overall low consumption level. How to increase rural labourers' incomes is thus an issue that deserves to be considered to increase consumption.

The incomplete social security system and low efficiency of the capital market also contribute to high savings and low consumption.

Another point that needs to be noted is that the income gap is large and growing. Low-income earners make up a rather huge proportion of the employed population. Common clerks and blue-collar workers make about 10,000 yuan (US$1,250) a year and rural farmers earn about 3,000 yuan (US$370) annually. Their propensity to consume is high and their savings rate is low, but their incomes account for a rather low proportion of the total economy.

Many things in investment are closely connected to consumption. More than 20 percent of current investment goes to housing. Real estate is actually a long-term durable good. Besides, nearly 30 percent of the investment goes to infrastructure construction, a majority of which belongs to public consumption.

China is still in the initial term of urbanization, and needs large investment in public goods. The provision of public goods is the basis for the increase of personal consumption in the future.

(China Daily September 19, 2006)