Domestic consumption can undoubtedly help maintain the momentum of China's economic growth at a time when exports have shrunk due to global financial woes.
The State Development and Reform Commission is reported to be drafting a package to stimulate domestic consumption. It is said that the threshold for income tax will possibly be raised, and so will the salaries for residents. Subsidies for housing and for low-income earners will also be increased.
The 4 trillion yuan economic stimulus package announced early this month will undoubtedly help create a lot of jobs and boost domestic demands. Yet, economic growth can hardly be sustained only by large-scale investment in infrastructure construction. Furthermore, the economy is likely to be overheated once the investment is too huge in fixed assets.
It is therefore important to strengthen residents' spending capability so that increased consumption is able to sustain a relatively stable economic growth.
Yet, it is far from enough to only increase residents' income. Increasing the wages only for those in State-owned enterprises and government institutions can have a negative impact.
While making such a plan, the first question to ponder is whose income should be increased the most so that consumption by individuals is effectively expanded.
Actually, this stimulus plan provides a good opportunity to balance the distribution of wealth, which has tilted in favor of the privileged in the past three decades.
The rise in wages or subsidies for low-income residents can make a difference not only to the improvement of their living standards but also to the degree of consumption to be expanded. Such residents need to improve their living conditions, to purchase needed appliances and increase the spending on the education of their kids.
If the privileged from the government sector and some monopolized State firms get the large share of the stimulus plan, the gap between the haves and have-nots will further widen. This will be detrimental to political and social stability, and neither will it help maintain the healthy and stable growth of the national economy.
Also, consumption expansion does not mean that residents are encouraged to live in a wasteful and luxurious manner. Instead, they need to be encouraged to increase their spending in such a manner that their living standards on the whole are improved, and at the same time the pollution they cause to the environment is reduced.
So planning an expansion of consumption involves much more than just raising people's income and spurring them to spend more.
(China Daily November 24, 2008)