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Experts: Higher salaries unlikely

By Tu Lei (chinadaily.com.cn)
Updated: 2008-11-24 16:12

Sources said the National Development and Reform Commission (NDRC), the country's top planner, is drafting plans to spur domestic need, including raising the individual income tax threshold, increasing salaries, setting up a guarantee system for low-income earners, and lifting housing subsidies.

However, experts today said there was only an outside chance of improving salaries to stimulate domestic need, according to the China Economic Times.

Cao Jianhai, an industrial researcher with the Chinese Academy of Social Sciences (CASS), said small and medium enterprises in China have been hurt deeply by the financial crisis, and their survival has been problematic, although the government is trying to save them through tax reductions, loan support, and market expansion.

"It is impossible to increase salaries to spur consumption," said Cao.

Human Resources and Social Security Minister Yin Weimin said earlier this month that almost 58,000 enterprises had gone bankrupt in Guangdong province. In the third quarter of this year, the number of job vacancies in Guangdong was much lower than the previous year and the growth rate of newly created jobs had slown.

The Ministry of Human Resources and Social Security suspended plans to raise the minimum salary on November 17 in an effort to "stabilize labor and management relations".

Cao's opinion was echoed by Hua Ruxing, professor from the School of Economics and Management with Tsinghua University, who said lifting salaries may be suspended as well.

The Ministry of Finance said last week that China's fiscal revenue fell 0.3 percent in October year-on-year to 533 billion yuan ($78 billion) owing to tax cuts, economic slowdown and the declining performance of enterprises. Fiscal expenditure in the same month rose 16.4 percent year-on-year to reach 414 billion yuan.

Zhao Xiao from the University of Science and Technology Beijing said the fastest and most effective way to stimulate domestic need is making stock markets healthy, which will help the middle-class, who have strong consumer power, to restore consumer confidence.

Tsinghua University's Hua Ruxing suggested the individual income tax threshold should stand at 5,000 yuan. CASS's Cao suggested the purchasing prices for agricultural products should increase by 100 percent, and peasants' improved income may help significantly to pull up social consumption.

Cao regards the impact of increasing the individual income tax threshold as limited, adding housing and consumption goods are two engines to pull up the domestic market compared with stimuli such as housing, medical treatment and education used in the 1998 Asian financial crisis.

Last Friday, sources said the monthly personal income tax threshold, which currently stands at 2,000 yuan, will be raised to a much higher level in order to boost personal disposable income and spending.

Also to spur domestic consumption, the government is adopting plans such as raising pensions for retirees nationwide by 10 percent from January 2009, and is considering dropping oil prices, cancelling road tolls, and launching a fuel tax.