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Sunday, 28 December 2008
Central Bank Urges Measures to Lift Spending
Beijing needs to adopt more comprehensive policies to stimulate domestic spending as an economic growth driver to ride out the global financial crisis, the country’s central banker said yesterday.
Beijing needs to adopt more comprehensive policies to stimulate domestic spending as an economic growth driver to ride out the global financial crisis, the country’s central banker said yesterday.
“Regarding the complexity of mainland consumers’ spending patterns, we need to adopt more comprehensive supportive policies, and not just from the perspective of increasing income,” said Zhou Xiaochuan, the governor of the People’s Bank of China.
Speaking at a financial forum in Beijing, Mr. Zhou also said more quantitative research should be carried out to determine which measures the government should take to increase spending and in which areas.
Facing the mainland’s biggest economic crisis in three decades, the government has pledged to boost domestic consumption to offset falling exports and slowing industrial production.
Exports and industrial output have weakened sharply in recent months in the shadow of the global financial crisis. Gross domestic product growth fell to 9 per cent in the third quarter from 11.9 per cent last year.
“Stimulating domestic demand is the most important factor to cope with the global financial crisis,” Mr. Zhou said, adding that more effort should be made to boost domestic consumption.
The mainland has announced a 4 trillion yuan (HK$4.53 trillion) stimulus package as well as subsidies for farmers to buy home appliances in a bid to boost rural consumption.
However, household consumption has remained below 40 per cent of GDP for the past five years, falling last year to 35.3 per cent - a record low for the world’s fourth-largest economy.
Rising incomes and rapid urbanisation have underpinned consumption, but the mainland’s thin welfare safety net means households still save about 30 per cent of their income.
Mr. Zhou said national expenditure on health care accounted for only 2 to 3 per cent of GDP. This lags behind spending in developed countries but also provides a large amount of room to boost domestic consumption.
Central bank deputy governor Yi Gang reiterated his confidence that the nation’s economy would hit bottom around the second quarter of next year as the process of companies drawing down their stocks ends.
“The basics of the mainland’s economy are good,” said Mr. Yi, adding that mainland residents, non-financial corporates, financial institutions and securities brokerages all had healthy and sound balance sheets.
Deposits by mainland residents total 20 trillion yuan, while personal borrowing stands at 3.7 trillion yuan.
“We have much leeway with which to develop [domestic spending],” said Mr. Yi.
Ha Jiming, the chief economist at China International Capital Corp, said in the medium term the mainland government should improve the social security, education and health-care systems so that residents did not feel the need to save as much to hedge against future risks.
“But in the near term, the government should push more measures, such as income tax cuts and consumption coupons, to boost immediate spending.”
He added the coupons, which should be designed to have a certain proportion of cash payment by consumers and an expiry date, should be launched during the peak shopping season of the Lunar New Year or in the spring because “the first quarter of next year is likely to be the weakest”.
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Central Bank Urges Measures to Lift Spending
Jasmine Wang
27 December 2008
Beijing needs to adopt more comprehensive policies to stimulate domestic spending as an economic growth driver to ride out the global financial crisis, the country’s central banker said yesterday.
“Regarding the complexity of mainland consumers’ spending patterns, we need to adopt more comprehensive supportive policies, and not just from the perspective of increasing income,” said Zhou Xiaochuan, the governor of the People’s Bank of China.
Speaking at a financial forum in Beijing, Mr. Zhou also said more quantitative research should be carried out to determine which measures the government should take to increase spending and in which areas.
Facing the mainland’s biggest economic crisis in three decades, the government has pledged to boost domestic consumption to offset falling exports and slowing industrial production.
Exports and industrial output have weakened sharply in recent months in the shadow of the global financial crisis. Gross domestic product growth fell to 9 per cent in the third quarter from 11.9 per cent last year.
“Stimulating domestic demand is the most important factor to cope with the global financial crisis,” Mr. Zhou said, adding that more effort should be made to boost domestic consumption.
The mainland has announced a 4 trillion yuan (HK$4.53 trillion) stimulus package as well as subsidies for farmers to buy home appliances in a bid to boost rural consumption.
However, household consumption has remained below 40 per cent of GDP for the past five years, falling last year to 35.3 per cent - a record low for the world’s fourth-largest economy.
Rising incomes and rapid urbanisation have underpinned consumption, but the mainland’s thin welfare safety net means households still save about 30 per cent of their income.
Mr. Zhou said national expenditure on health care accounted for only 2 to 3 per cent of GDP. This lags behind spending in developed countries but also provides a large amount of room to boost domestic consumption.
Central bank deputy governor Yi Gang reiterated his confidence that the nation’s economy would hit bottom around the second quarter of next year as the process of companies drawing down their stocks ends.
“The basics of the mainland’s economy are good,” said Mr. Yi, adding that mainland residents, non-financial corporates, financial institutions and securities brokerages all had healthy and sound balance sheets.
Deposits by mainland residents total 20 trillion yuan, while personal borrowing stands at 3.7 trillion yuan.
“We have much leeway with which to develop [domestic spending],” said Mr. Yi.
Ha Jiming, the chief economist at China International Capital Corp, said in the medium term the mainland government should improve the social security, education and health-care systems so that residents did not feel the need to save as much to hedge against future risks.
“But in the near term, the government should push more measures, such as income tax cuts and consumption coupons, to boost immediate spending.”
He added the coupons, which should be designed to have a certain proportion of cash payment by consumers and an expiry date, should be launched during the peak shopping season of the Lunar New Year or in the spring because “the first quarter of next year is likely to be the weakest”.
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