Economists and market experts may talk about the need to steer China's economic growth by unleashing the spending power of 1 billion consumers, but the average Chinese just doesn't seem to be in the mood to go shopping.

By the end of May, personal bank savings had jumped 17.4 per cent to a record 15.4 trillion yuan (US$1.92 trillion). Economists have put China's personal savings rate (PSR) at more than 30 per cent. In stark contrast, the PSR or the fraction of personal income that is not consumed was negative 1.7 per cent in the United States in May.

Retail sales of consumer goods, another key indicator in gauging consumer confidence, grew by 13.2 per cent in the first five months of the year, a moderate figure compared to the whopping 30.3 per cent increase in fixed-asset investment and a robust 25.2 per cent growth in exports.

Consumption, investment and exports are the "three horses" driving China's economic growth. But consumption's contribution to the gross domestic product (GDP) has fallen below 50 per cent from a high of 73 per cent in the late 1990s. The figure usually hovers around 80 per cent in developed economies.

So what exactly is holding consumption back?

For years, it has been the subject of a running debate. While some attribute it to China's traditional culture of frugality, others point to the widening urban-rural income gap that is financially incapacitating hundreds of millions of farmers. Both arguments have some truth.

To a greater extent though, consumers' reluctance to untie their purse strings is the direct result of their feelings of uncertainty. They feel insecure about their finances and the future of their children. And uncertainty and insecurity induces fear.

China's transition from a planned to a market economy has already created uncertainties for people who are used to cradle-to-grave government care. Now, they have to pick up their own bills for things such as healthcare, education and a decent post-retirement life.

Consumers haunted by financial uncertainty and insecurity tend to save more for a rainy day.

Their resolve to scrimp and save has been hardened by reports of patients left unattended on hospital doorsteps because they couldn't afford ever-rising medical costs, or desperate parents committing suicide after being unable to afford their children's education bills.

So can the government do something to allay consumers' fears? And does it have the finances to do so?

If the government could afford to have a sound social safety net during the planned economy era, when its revenue was just a fraction of what it is now, it surely can do a better job today.

China's half-year fiscal revenue broke the 2 trillion yuan (US$250 billion) mark for the first time in its history of tax collections, and full-year receipts are expected to beat the budget target of 3.542 trillion yuan (US$442.75 billion).

The ever-swelling treasury has placed the government in an excellent position to deliver on its promise to invest more in health, education and public pensions.

Financial abilities aside, making life as predictable as possible for consumers boils down to political will.

Fear of the future eats into consumer confidence. Accordingly, consumption can be the driving force of the economy only when consumers are free from fear.

Email: zouhr@chinadaily.com.hk

(China Daily 08/04/2006 page4)