China plans to accelerate reforms in the social security and
education systems to reduce its 46 percent savings rate, the
People's Bank of China said yesterday.
The high household savings rate is closely related to the
country's traditional culture, social structure and emphasis on
family, Li Chao, spokesman of the central bank said in a
statement.
"People make a large amount of precautionary savings for
pensions and medical care, due to the incomplete social security
system," he said.
The housing reform, which means people have to buy their own
homes, and high education fees, have forced people to save.
With the aim of promoting pension system reform, the government
has already exempted income tax, business tax and stamp duties
relating to the social security fund, Li said.
From this year, the government will reduce the pension
contributions by individuals to encourage more people to
participate in the system, he said.
To further develop the system, the government will expand the
pension coverage from the State-owned firms to the private and
non-State companies.
Rural migrant workers are also expected to be included in the
system soon, he said.
For medical care system reform, the government will expand the
coverage of basic medical insurance to medium and small companies,
as well as retirees and other types of employees, Li said.
"From this year, community health services in the urban areas
will be vigorously developed, while in the countryside,
constructions and planning of health projects will be forcefully
promoted," he said.
According to Li, the government will beef up financial support
for education by allocating more budgeted expenditures and
encourage establishment of private schools and social contributions
to education. Student loans will also be further developed.
The measures to reduce the savings rate will help increase
domestic consumption, which the government expects to drive its
future economic growth, he said.
The government has already taken measures such as tax cuts,
increasing salaries and increasing infrastructure construction in
rural areas to stimulate domestic consumption.
From this year, the personal income tax threshold is raised from
800 yuan (US$98.8) to 1,600 yuan (US$197.5), meaning people will
have more money in their pockets to spend on consumption.
The Ministry of Finance estimates that about 30 billion yuan
(US$3.7 billion) will be released after this policy adjustment.
"If the money was used for consumer expenditure, annual
household consumption would grow by 0.4 percent annually," Li
said.
Related government departments have also come up with ideas on
establishing a minimum wage system to increase the income of
medium- and low-income households in urban areas, he said.
(China Daily March 29, 2006)