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Policymakers ponder ways to spur consumption

By Wang Bo and Wang Xu (China Daily)
Updated: 2008-12-09 07:24

The government is expected to introduce more measures to spur consumption at the Central Economic Work Conference, a move necessary to secure balanced growth in the long run, economists said.

Special coverage: Economic Work Conference

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"As demand for exports and the momentum for fixed-asset investments looks set to slow, China's authorities are expected to push forward measures to rebalance the sources of economic development in favor of consumption," Jing Ulrich, managing director and chairman of China equities at JPMorgan, said on Monday.

Policymakers may raise the threshold for personal income tax at the three-day conference, which began on Monday, as the economic slowdown and a slump in property and stock markets have already hit income growth, forcing consumers to cut expenditures.

Meanwhile, some economists suggested that health and education services be expanded to low-income households and unemployment allowance be increased to help ease social pressure and increase consumption.

The government is also expected to increase social programs in the countryside, which could help boost rural consumption.

Over the past months, the government has introduced a host of measures to boost the economy, but most of them are targeted at bolstering investment, particularly in the construction sector.

Only 1 percent of the government's $586 billion stimulus package is slated for improving education and healthcare.

"Measures to spur consumption are critical for balancing the nation's growth model," Liu Wei, dean of the School of Economics of Peking University, said. "The massive investment in recent years has already restrained people's consumption demands."

Once the nation's annual fixed-asset investment grows more than 22.5 percent, the economy would face overheating, which in turn would fan inflation and reduce the consumer's purchasing power, Liu said. "This also means lower contribution to GDP growth from consumption."

From 2003 to 2007, China has averaged an annual investment growth of 24 percent, he said.

"Once fixed-asset investment growth goes beyond 30 percent, it would push the nation's consumption growth into negative," Liu said.

Some economists, on the other hand, said policies to increase consumption was not the most imminent task at the conference.

"Measures to spur consumption might be announced later," Song Hong, an economist with Chinese Academy of Social Science, said. "In terms of propping up the economy, such measures are deemed less effective in the short term."

The government's top priority is to create jobs for migrant workers, who are most affected by the shrinking overseas demand, Song said.