BIZCHINA / Center

Social security boosts consumption
(Xinhua)
Updated: 2006-07-15 16:12

A leading Chinese economist on Friday urged the government to invest more in social security for rural people in order to boost domestic consumption.

Zuo Xiaolei, chief economist at China Galaxy Securities, the country's biggest stockbrokerage, said the government should convert the nation's savings into funding for healthcare, education and social welfare in rural areas, rather than simply increasing investment.

A World Bank report says China's savings among individuals, companies and the government exceed those of every other nation except India.

By the end of May, corporate deposits totaled 10.13 trillion yuan (1.27 trillion US dollars), a rise of 15.7 percent over May last year, while individual deposits were 15.4 trillion yuan, up 17.6 percent.

The government is seeking to encourage domestic consumption in order to lessen the dependence on increasing investment and the trade surplus for economic growth -- and China's 800 million farmers are regarded as a huge potential market.

It has striven to curb investment and lending and cool economic growth in the first half year, but the gross domestic product (GDP) growth forecast is still 10.4 percent.

Zuo said if the government spent more on rural healthcare, education and social welfare, farmers would be more confident about spending.

Greater rural consumption would also help reduce individual savings, she told the Xinhua-run China Securities Journal.

Zuo's call echoed that of US economist Nicholas R Lardy, of the US Institute for International Economics, during a visit to China last month.

A reduction in both savings and investment would help balance the trade surplus.

She suggested encouraging microfinance services to allow poor rural households to obtain small loans or savings schemes.

Microfinance, especially for non-farming projects, would increase rural incomes and stimulate consumption.

She said two private microfinance agencies had been formed in Pingyao City, North China's Shanxi Province, offering small loans to farmers for small and medium-sized business projects.

A similar agency had been established in Southwest China's Sichuan Province, said Zuo.


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