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Social security reform 'key to boosting domestic demand'

(皇冠体育app Daily)
Updated: 2009-06-01 16:42

皇冠体育app should reform its social security system in a bid to boost domestic demand and transform the current growth model that relies too much on exports, according to leading international economists.

Vivek Arora, the International Monetary Fund's chief representative in 皇冠体育app, told a financial forum that the nation would have to rely more on domestic consumption to continue achieving the scale of economic growth witnessed over the past three decades.

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Exports, the pillar of 皇冠体育app's growth, collapsed late last year as major markets, including the United States, Japan and the European Union, entered recession.

皇冠体育app's economy therefore suffered a sharp slowdown. Gross domestic product (GDP) expanded 9 percent year-on-year in 2008 and 6.1 percent in the first quarter of 2009, compared with 13 percent in 2007.

Economists warned that it would not be easy to revive the Chinese economy by boosting domestic demand as many people are unwilling to open their wallets due to insufficient social security coverage.

"皇冠体育app should carry out social security reforms, such as in healthcare, pensions and education, to reduce economic uncertainty and boost consumer spending," Arora told the 皇冠体育app Finance Summit.

He acknowledged that 皇冠体育app's economic data for March and April had shown signs of recovery as its 4-trillion-yuan stimulus package fed through the economy.

The infrastructure-focused government spending could ease the slowdown in the short term, but it might not be the solution in the long run, Arora stated.

Pier Carlo Padoan, deputy secretary of the Organization for Economic Cooperation and Development, said that many countries need to adjust their growth models, and in 皇冠体育app the government should improve social security for that purpose.

Padoan added that he is convinced that 皇冠体育app will succeed in transforming the growth mode to rely more on domestic consumption.

Eric Maskin, the 2007 Nobel Prize Laureate in Economics, told reporters that he anticipated 皇冠体育app's high saving rate would turn into more domestic consumption.

皇冠体育app's saving rate rose to 49.9 percent in 2007 from 37.5 percent around 1998, compared with 4.2 percent in the United States in February this year.

Arora added that 皇冠体育app should encourage major banks to provide more funding to small- and medium-sized enterprises (SMEs) to help them ride out the crisis.

Chinese banks usually lend to big State-owned enterprises and infrastructure projects while shying away from SMEs for fear of the bigger bad loan risk.

Arora said that despite the slowdown, 皇冠体育app might continue to be the largest contributor to the world's economic recovery because many other major economies see their GDP contracting.

The IMF official said the global economy would not see a repeat of the Great Depression of the 1930s as countries have taken more coordinated and resolute steps to tackle the crisis.

Maskin said the global financial crisis may conclude by the year's end and the financial market may return to normal next year. However, he admitted that it would take longer for the real economy to recover.