As State subsidies are diminishing with the ongoing reform to build a market economy, China should establish a more viable social security system to bolster consumer confidence so as to sustain economic growth, said an article in the China Economic Times.

In an ongoing row which began in 1996, the central bank has cut interest rates seven times in a bid to divert part of the mounting personal savings of the 6 trillion yuan (US$720 billion) to private spending.

Commercial banks joined the effort in a surging craze of consumer credit offerings, which extended from housing and automobile loans to cover costs for durable goods, education and tour programmes.

But it seems that these measures were not effective enough in expanding domestic consumption.

The newspaper expressed belief that the real challenge was not the weak market demand and surplus production, but instead people's concern about their future.

Worrying about the guarantees of their pensions, health care, housing and education for their children, people, especially those with low incomes, are tightening their purse strings.

But up to now, not all Chinese people are accessible to such a safety net, noted the article.

To cut the labourers' cost, employers of the private sector would rather hire itinerant rural labourers than laid-off urban residents because rural labourers usually do not enjoy welfare benefits.

The absence of feasible unemployment insurance also weakened the confidence of some citizens.

People are not only worried about losing jobs, but also afraid of losing welfare benefits.

According to the housing reform plan released last August, China stopped allocating houses as a form of welfare. New houses and older public-owned housing are now sold rather than rented.

Urban residents who have enjoyed low-rent public housing for many years now have to buy their houses with their savings with support from the newly established public housing funds and bank loans or pay a much higher rent for their old houses.

However, housing reform should be a gradual process, especially in a developing country such as China, the paper pointed out.

In Beijing, for example, while the average per capita income in 1998 was 12,285 yuan (US$1,480), the standard price per square metre for an economy apartment was 4,000 yuan (US$482).

Based on this rate, a person would have to save for more than 10 years to buy a 60-square-metre home.

In this regard, the government should offer public housing to the low-income class instead of encouraging all citizens to buy their own homes.

And the reform of higher education has increased costs.

The ceiling level for tuition fees for one academic year can be as high as 10,000 yuan (US$1,200).

Although the government pays part of the fees, parents still feel the costs are expensive and have to keep their purses closed to save for their children's future.