Long road for consumption to go

Updated: 2013-07-05 07:21

By Lan Lan (China Daily)

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In addition, the redistribution system is tilting in favor of high-income groups, which also constrains the nation's purchasing power.

One-fifth of China's richest people save about 50 percent of their annual income because their demand for cars and houses have been largely satisfied.

Low-income groups have higher demand but lack purchasing power because they have gained little in redistribution.

China has the world's highest household savings rate, due to a weak social safety network, which keeps savings rates high and consumption low.

Boosting consumption will eventually be up to the reform of China's distribution system. Barriers to consumption should be cleared, he said.

"China has moved from a high-growth era to slowing growth, and the economy will be on the downswing in the coming years. However, reforms and innovations that are being worked on by the new leadership will lay a foundation for growth," he said.

The media has previously reported that the new leadership is working on a package of economic and financial reforms and major decisions are expected to be made at a Party meeting in the autumn.

Reform of the energy and resource-pricing system, the household registration system (hukou) and social security system, as well as reform of State-owned companies' role in competitive industries, should get top priority on the regulators' to-do list, said Ma.

Meanwhile, the investment-led growth model have led to a sharp increase of local government borrowing and added risks to banks by exposing them to local government debt.

Outstanding bank loans to local government financing vehicles totaled 9.59 trillion yuan ($1.55 trillion) at the end of the first quarter, said Shang Fulin, chairman of the China Banking Regulatory Commission, at a recent financial forum.

The risks of local debt need to be watched, but the risks are fragmented at the local level, which is not as serious as the sovereign debt crisis in the eurozone, said Ma.

To ease the fiscal constraints of local governments, the central government needs to further reform its fiscal and tax systems and allow local governments to gain larger financial power, he said.

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