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NECESSITY FOR BOOSTING DOMESTIC DEMAND
The most important part of economic restructuring is to boost domestic demand, a strategic base underpinning the country's social and economic development, Chinas Vice Premier Li Keqiang wrote in an article published on the latest issue of Qiushi magazine.
To stimulate consumer spending, Chinese government will speed up endeavors to transform the economic growth pattern and put more efforts to expand domestic demands, especially that of consumption.
Because of the gloomy investment market and long-lasting inflationary pressure, the wealth of Chinese people is being shrinked, which may create a vicious circle as it reduces demand for goods, economists said.
"This was the main reason that many people felt pressed for money last year," said Liang Da, an economist with the National Bureau of Statistics.
The cooling real estate market as well as slipping housing prices also dampened people's enthusiasm to invest, Liang said.
"Stubborn inflation means people are likely to change their consumption habits," Liang said.
More people will prefer to increase their savings in banks rather than expanding investment or consumption in the coming months.
"Increasing the earnings of low-income groups is a good way to promote consumption," Liang suggested.
The government is expected to take more measures, including easing monetary policies, cutting taxes and raising tax rebates for exporters, to maintain a relatively high economic growth rate and boost domestic consumption, said Liang.
The Peoples Bank of China (PBOC) cut the RRR for banks by half a percentage point to 20.5 percent on Feb. 24, which was the first time since December 2008.
The bank had hiked the reserve requirement six times last year in a bid to soak up liquidity and tackle inflation.
Lu Zhengwei, chief economist at the Industrial Bank, said the reserve cut was within expectations and was a response to tight liquidity.
"And it may be a start for several adjustments in the future." Lu added.
Experts also foresaw that PBOC may cut interest rate in the near future.
"We expect the People's Bank of China to cut the interest rate twice in the second and third quarters, by 25 basis points each time," said Chen Kang, professor of economics at the Lee Kuan Yew School of Public Policy at the National University of Singapore.
After those two cuts, China's benchmark interest rate will drop from the current 6.56 percent to 6.06 percent.
"As the external demand weakens, the renminbi further appreciates and the domestic economy slows down, we believe the inflation pressure will gradually ease this year," said Li Wenfu, a professor with Xiamen University. |
