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Spur consumption, eliminating trade gap
(Bloomberg)
Updated: 2005-06-07 19:00
China will introduce measures to spur consumer spending to reduce a trade
surplus that's fueling tensions with the U.S. and Europe, People's Bank of China
Governor Zhou Xiaochuan said.
"We haven't seen much increase in consumption, but rather we saw rapid
growth in exports," he said at a conference in Beijing. "This isn't something
we want to see. Our policies are to cut the trade surplus to zero if possible.
We want to use new policies to increase consumption."
A pickup in consumer spending on imports would help ease pressure on China to
scrap the yuan's decade-old peg to the U.S. dollar and limit inflows of foreign
exchange that are hampering monetary policy, Zhou said. He said the central bank
won't raise benchmark interest rates "for the time being."
China is under pressure to cut a trade surplus that the customs bureau says
reached $21.2 billion in the first fourth months, compared with a deficit of
about $11 billion a year earlier. The government has resisted calls to curb
exports as that may deter hiring and hurt the economy, said Tao Dong, chief
regional economist at Credit Suisse First Boston in Hong Kong.
"They don't want to stop exports," said Tao. "So the government is saying
OK, if we can't do much on the export side, perhaps we should increase our
imports."
High Savings Rate
Exports rose 32 percent from a year earlier in April, twice as fast as the
nation's imports. Retail sales increased 12 percent, which was the smallest gain
in more than a year, excluding the distortion to January's data caused by
changes in the timing of the Lunar New Year holiday.
Zhou said the nation's savings rate is "pretty high" and the government
will encourage households to spend more freely. That might be achieved by
boosting welfare spending, said Qu Hongbin, an economist at HSBC Holdings Plc in
Hong Kong.
"One reason for high household savings is concern about social welfare,
pension funds, medical care, education," Qu said. Diverting more money to these
areas would "help to address public anxiety over these things," he said.
Zhou said stronger consumption won't deter the government from adjusting the
yuan's peg, which the U.S., the European Union and Japan say gives Chinese
exporters an unfair advantage by undervaluing the currency. Zhou said the issue
shouldn't be used for political gain, adding that Chinese banks and companies
need more time to prepare for any change.
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