Economy

Improving social security net key to growth

(Xinhua)
Updated: 2011-03-21 18:15

BEIJING - China should improve its social security net to stimulate consumer spending as excessive fear-driven precautionary saving inhibits the growth of private consumption, a senior economist said Monday.

"While boosting wage income is a necessary step on the road to a consumer-led growth dynamic, it is not sufficient to guarantee a shift toward internal private consumption. The final step requires a reduction in China's outsized saving propensity," Stephen S. Roach, professor with Yale University, said at the China Development Forum 2011.

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According to a recent research published by the International Monetary Fund, the average saving rate for Chinese urban households has essentially doubled in recent years, rising from 15 percent in the early 1990s to 30 percent in 2009, Roach said.

"If such fear-driven precautionary saving persists, it will be exceedingly difficult for China to convert incremental growth in wage income into increased consumer spending," he said.

He stressed the urgency for China to expand the benefits of its still "embryonic" social security net more aggressively to encourage its consumers to spend more.

"Given the likelihood of a lingering post-crisis shortfall in the external demand for Chinese exports, China needs to move quickly in uncovering a new source of internal growth," he said.

In the 12th Five-Year Plan for National Economic and Social Development, approved by the national legislature on March 14, China pledges to boost domestic consumption and steer the economy away from over reliance on exports and investment.