The government is clearly aware of the vital issues that may hold back its economic growth, as indicated by a recent comment made by China's top statistician.

Qiu Xiaohua, director of the National Bureau of Statistics, told a seminar last week that with housing prices, medical charges and tuition fees rising faster than the income growth rates of Chinese households, the public prefer to save money rather than spend it.

The logic is obvious: Uncertain future expectations thwart people's current consumption.

The People's Bank of China, the central bank, also expressed a similar view in its first-quarter financial report.

Official statistics showed that final consumption (household plus government consumption) accounted for 52.1 per cent of gross domestic product (GDP) in 2005, nearly 10 percentage points lower than in 1991.  The percentage of household consumption in terms of the GDP also dropped by about 10 percentage points during that period.

In recent years, China has attached paramount importance to stimulating domestic demand to balance its investment- and export-driven economy. But the demand has been supported mostly by government-sponsored investment, not individual spending.

As proof of this, household deposits reached 16 trillion yuan (US$2 trillion) by the end of the first quarter, 14.2 per cent more than just three months ago.

People's consumption inertia is well justified. Without a comprehensive social security net, it is rational for the public to save money for future contingencies. The rising costs of education, healthcare and housing only exacerbate their adverse expectations.

The recent developments signal that the State is keen to improve the situation and make people more financially capable to spend more.

In rural areas, it has cancelled the agricultural tax, is subsidizing farmers and the education of their children, and is significantly increasing fiscal input into rural development. The building of a co-operative rural healthcare system is also under way.

Meanwhile, some areas, including Beijing, Shenzhen and Hunan Province, have decided to raise their local minimum wage or basic living allowances.

More importantly, the State is making unreserved efforts to promote the establishment of a comprehensive social security net to rid people of their worries about their future.

Despite all this, the major test for the government still lies in whether it is able to stem the tide of rising housing, healthcare and education costs.

Success in this respect will help people save more money and encourage them to spend it as consumers.