Household income reforms unveiled

By Zhang Ran (China Daily)
Updated: 2009-05-26 08:14

China will fast track its payment system reforms to boost household income, especially those of the medium- and low-income group, and spur consumption, the State Council said on Monday.

The cabinet Monday listed as many as nine steps to increase household income, according to a statement on the reform guidelines posted on its website.

Executives of State-owned enterprises may see their salaries trimmed to narrow the gap between the rich and the poor amid an economic slump that has put pressure on profits and wiped out millions of jobs, according to the statement.

Other measures to encourage spending include an improved social security net, reduced precautionary savings, and increased income for rural and low-income households through fiscal transfers, it said.

Analysts said these measures would help boost consumption, which accounted for just 40 percent of China's GDP growth in 2008.

"In the last few years the household income growth could not keep pace with the growth of treasury income and that of the national economy. As a result, consumption did not take off, " said Zhou Tianyong, professor from the Party School of the Central Committee of Communist Party of China.

According to Chang Xiuze, researcher, Academy of Macroeconomy Research, NDRC, China's labor payments have dropped to 11 percent of the GDP in 2007, compared to 17 percent in 1980.

"The government's policies to create jobs and raise household income will definitely boost consumption," said Sun Mingchun, economist, Nomura Securities.

"The real potential for consumption growth is in China's rural areas. While on an average almost every Chinese urban family owns a washing machine, refrigerator, and air conditioner, less than half of their rural counterparts enjoy such luxuries. But as rural household incomes rise, the demand for consumer durable goods will also go up," Sun said.

The cabinet yesterday released a reform package that almost tapped all the aspects of a national economy in a bid to lead the country out of the financial crisis.

"This is the most difficult year for the country's economy and development since we entered the new century. The financial crisis has not bottomed out yet, the speed of the economy has slowed down remarkably, bringing to fore the system contradiction accumulated from the past," the State Council said in a statement posted on its website.

"This requires us to deepen reforms and open up further," it said.