Article
--- Xu Shanda, former Deputy Director of State Administration of Taxation, CPPCC member
As the financial crisis spreads around the globe, the Chinese government has adopted many measures to spur spending and domestic demand, including reducing taxes on home purchases and cutting interest on savings and stamp duty of stock trading.
However, China's consumer spending has been declining over the past years, when the economy is either overheated or contracting. The share of final consumption in GDP dropped from 62% in the 1980s to 52.1% in 2005. And household consumption rate, namely the proportion of household consumption to GDP, declined from 48.8% in 1991 to 38.2% in 2005. Both hitting a record low.
At a meeting of the country's top political advisory body in this year's Two Sessions, the current CPPCC member Xu Shanda said that China's efforts to boost consumer spending should be made a long-term strategy to achieve sustained economic growth.
Coupled with increases in the society's wealth, how can China's consumer spending be boosted? How can we use taxation to bridge the gap between rich and poor?
Guest profile
Xu Shanda is former Deputy Director of State Administration of Taxation and current CPPCC member.
Consumption holds key to boost the economy
A: The government has implemented a number of measures to help boost domestic demand. They don’t appear to be working, what are your thoughts?
X: The government puts a lot of resource into the investment, into the consumption and encourages the export. But I think that consumption is the main element. For the investment, part of the investment, in order to increase the capacity of the production, in a short run, this investment will absorb the supply, but maybe in the future, they can make much more supply, maybe to meet less demand. So this is a risk, I think government maybe could make a new plan to emphasis on the increase of the consumption rate. As data shows, in last 15 years, in 1992, Chinese government takes the socialist market economy as a goal. Enough 15 years, the economy grows very fast, the wealth grows very fast. But the employment rate is increase, but the employment number year by year reduced. And the consumption rate reduced year by year. So I think it’s a main problem, the government can do a lot of things. But how to increase the consumption rate, I think it’s the core or key element for the government policy.
A: So do you think the measures the government has already put in place are strong enough?
X: I don’t think it’s strong enough, but the government did a lot of things. For example, the government makes plan to build 7.5 million ordinary flat for poor people. This will increase the supply for ordinary people. And they have some other policies, for example to issue the consumption token. And make some TV; some washing machine sold to farmers and the government gives some subsidies. All these I think are useful measures. But I think not enough. I think the main problem is how to narrow the gap between the rich and the poor. I think how to deal with increase employment rate, how to increase the social security, I think it’s very tough work, because Chinese has very high saving rate. Even poor people, they save money in the bank, but they have no intension to spend this because they worry about their future for their retired life, for their education, for their health care, something like that. If the government puts more resources into the social security system, people will think, the government guarantees this, so I can use the money to improve my life now.
A: I’m safe, I can spend some money.
X: We have to put this in maybe 3-5 years, maybe implement it maybe in 10 or 15 years.
Housing was a heated topic at this year's Two Sessions. Some CPPCC Members advocated that vacant houses should be taxed to increase the costs of possessing multiple homes and to promote a more equitable system. Pan Shiyi, a leading real estate developer in the country said that he agreed to impose taxes on house vacancies and in addition, the government should collect property tax from all home owners to stimulate the transfer of assets.
A: Let’s talk a little bit about real estate. There have been suggestions to replace the land purchase fee with the property tax. What do your thoughts for that?
X: In last 5 to 10 years, the real estate industry increase very fast, especially for the housing. But there’s something wrong with this. Many developers consider this as the main way to earn money. Some people calculated this, for the developers have the extra profit from the real estate industry. One of the main reasons is they gain the land as the low price, for the local government provide the land, and the local government share the profit from the low cost of the land. And the government uses this money maybe to do some construction to improve the road, to make water supply, do some useful things. But many developers get the extra money, extra profit from this. But the problem is all the developer put the useful resource into the luxury house, not the ordinary house. And I think, in 3 years, that price of the luxury house increased very fast. I think demand is limited, even many foreigners bought some luxury house here, but the demand is limited. But many ordinary people, they want to improve their house, their living conditions. So this makes a contradiction. At this side, supply is too much, but demand is limited; but at this side, demand is very strong, but supply is limited. This is the reason for the government to make a plan to build 7.5 million flat, ordinary flat to help poor people. Maybe, I think, in 3 or 5 years, this situation will change a lot.
A: Structure Change.
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