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Nation to cut back savings rate

By Su Bei (China Daily)
Updated: 2006-03-29 06:38

China plans to accelerate reforms in the social security and education systems to reduce its 46 per cent savings rate, the People's Bank of China said yesterday.

The high household savings rate is closely related to the country's traditional culture, social structure and emphasis on family, Li Chao, spokesman of the central bank said in a statement.

"People make a large amount of precautionary savings for pensions and medical care, due to the incomplete social security system," he said.

The housing reform, which means people have to buy their own homes, and high education fees, have forced people to save.

With the aim of promoting pension system reform, the government has already exempted income tax, business tax and stamp duties relating to the social security fund, Li said.

From this year, the government will reduce the pension contributions by individuals to encourage more people to participate in the system, he said.

To further develop the system, the government will expand the pension coverage from the State-owned firms to the private and non-State companies.

Rural migrant workers are also expected to be included in the system soon, he said.

For medical care system reform, the government will expand the coverage of basic medical insurance to medium and small companies, as well as retirees and other types of employees, Li said.

"From this year, community health services in the urban areas will be vigorously developed, while in the countryside, constructions and planning of health projects will be forcefully promoted," he said.

According to Li, the government will beef up financial support for education by allocating more budgeted expenditures and encourage establishment of private schools and social contributions to education. Student loans will also be further developed.

The measures to reduce the savings rate will help increase domestic consumption, which the government expects to drive its future economic growth, he said.

The government has already taken measures such as tax cuts, increasing salaries and increasing infrastructure construction in rural areas to stimulate domestic consumption.

From this year, the personal income tax threshold is raised from 800 yuan (US$98.8) to 1,600 yuan (US$197.5), meaning people will have more money in their pockets to spend on consumption.

The Ministry of Finance estimates that about 30 billion yuan (US$3.7 billion) will be released after this policy adjustment.

"If the money was used for consumer expenditure, annual household consumption would grow by 0.4 per cent annually," Li said.

Related government departments have also come up with ideas on establishing a minimum wage system to increase the income of medium- and low-income households in urban areas, he said.

(China Daily 03/29/2006 page9)