PBOC head calls for plan to boost consumption

By Wang Yanlin  |   2008-12-26  |     ONLINE EDITION

CHINA should map out measures to boost consumer confidence, improve social welfare, create new demand and cut working hours to expand domestic spending to ensure stable economic development, said Zhou Xiaochuan, governor of the People's Bank of China.

"Since we decided to rely on domestic consumption to counter the global economic downturn, we should study further the elements of consumption and how to effectively navigate them," Zhou said during a financial forum in Beijing today.

He said unlike the United States where consumer demand was strong, China had untapped potential in expanding domestic demand as few Chinese people own houses or cars.

Retail sales jumped 20.8 percent in November, shrugging off the negative influence of declining consumer demand in some other countries.

Zhou said national spending may rise between 13 and 14 percent this year after adjusting for the effects of inflation.

The Consumer Price Index, the main gauge of inflation, may advance about 6 percent in 2008, he added.

To bolster spending, China launched a program last year to subsidize farmers when they buy big-ticket items such as refrigerators, air-conditioners, washing machines and mobile phones. Earlier this year, the country expanded the program to more provinces.

Zhou suggested policy makers study consumer psychology. He said if consumers feel their jobs are secure and there is an adequate social safety net in place, they will feel safe about spending.

Also, Zhou said China should spend more on research and development and create new demand, which can lead to increased spending.

"Usually supply should follow demand but it is not always true. Sometimes supply can create demand, such as the invention of the Internet," Zhou said.

He also said cutting work hours or giving more holidays can help bolster spending.