Opinion | How China's 13th five-year plan can make consumption a real driver of growth
Hu Shuli says to encourage Chinese to spend, there must be a concerted effort to improve key services and change attitudes to spending
China's 12th five-year plan concludes this year, and the work of drafting the 13th will begin soon.
Which way will China turn? In its work report to legislators at the National People's Congress meeting this month, the government pledged to create a development blueprint in the spirit of reform and innovation, yet grounded in facts. The actual drafting is expected to begin in early summer, with a version ready for review by the Central Committee at its fifth plenum in the autumn.
The highlight of the blueprint, which will chart China's development from 2016 to 2020, will no doubt be the leadership's strategy to stabilise economic growth and, in particular, boost domestic consumption, widely seen as the next major engine of growth.
For nearly two decades, the government has sought to transform the country's growth model from one based on intensive investment to one focused on raising productivity and efficiency. Many experts have also called for a greater reliance on the services industries and consumption for growth. But such ambitions have proved hard to realise: in 2012, the share of household consumption in fact dropped, to 29 per cent. Coupled with a high investment-GDP ratio, such growth is unsustainable.
The downward pressures on the economy are growing. The ostensible reason is a decline in investment, but the true reason is weak domestic demand, since as much as two-thirds of all investments support consumption.
By contrast, savings are high. Total savings had reached 50 per cent of gross domestic product by 2007 and have yet to drop. In these days of the new normal, when the economy is slowing from its breakneck pace, there is an urgent need to strengthen consumption and lower the savings rate.
How do we explain such high savings rates? Various reasons have been offered: people save because of inadequate social security; they need a lump sum for housing down payments, given the rudimentary mortgage financing available; the workforce population is huge relative to other countries, and people who work save more; China's state-owned enterprises tend to save rather than invest; Chinese save because of the traditional virtue of thrift.
