Soaring personal bank deposits endorse the government's decision to work towards boosting domestic demand.

 

But the pace at which levels of individual savings are increasing indicates the difficulties in sparking domestic consumption remain tremendous.

 

To deliver on its 11th Five-Year Guideline starting this year, the government has made clear its intention to make consumption a powerful growth engine for the national economy, compared to the country's robust investment growth and soaring trade volume.

 

The sheer size of bank deposits, which exceeded 14 trillion yuan (US$1.73 trillion) at the end of last year, demonstrates the huge potential of Chinese consumers.

 

Both to facilitate a shift in the pursuit of growth and to reduce international pressure on Chinese exports, the country badly needs to encourage its people to spend more.

 

Expanded domestic consumption will cushion the national economy from the shock of dropping the extensive growth mode, which has been powered by breakneck growth in inefficient fixed asset investment.

 

It will also help rein in the country's rocketing trade surplus that has resulted mainly from its comparative advantages in manufacturing. If the domestic market can consume more, Chinese companies will export less and other countries will be able to sell more of their goods and services to Chinese consumers.

 

In theory, the record amount of individual savings can provide financial support to any attempt to galvanize Chinese consumers' appetite. But an increase of some 2 trillion yuan (US$248 billion) in individual savings deposits last year really does not bode well.

 

One can cite low per-capita savings as an explanation. One could even attribute the phenomenon to the cultural tradition of thrift.

 

Both are of significance, but not pertinent to the underlying causes of the current double-digit growth in savings.

 

Average per capita savings of US$1,300 is still not enough to guarantee the living standards a well-off society promises. But rapid economic growth and less substantial but consistent income growth for many years certainly do not point to a lasting and intensifying penchant for savings.

 

Besides, the fact China has doubled its automobile purchasing in five years and replaced Japan as the second largest automobile market last year also empirically proves Chinese consumers are not as timid as many used to believe.

 

Chinese people have a strong desire to raise their consumption level and hence their living standards. What stands between them and a consumption boom is already largely known the high costs of education, medical health and housing.

 

Unfavorable consumption policies once hindered Chinese people's ability to buy cars. The enthusiastic consumption of automobiles bears full testimony to the contribution of the removal of some policies to the development of China's automobile industry in recent years.

 

To fix problems related to education, healthcare and housing, the price will be dear. A lot of political wisdom and government expenditure is required. But the prize will also be even greater if domestic consumption can be effectively vitalized to sustain the country's economic growth.

 

The ongoing trend of saving shows the public is still worried about barriers preventing them from loosening their purse strings.

 

Policy-makers that have resolved to make the most of the savings gold mine must heed and be ready to respond to these challenges.

 

(China Daily January 17, 2006)