Income growth vital
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Weak consumer enthusiasm should propel Chinese policymakers to take immediate action to boost people's income levels as soon as possible.
A recent survey by China's central bank showed that Chinese depositors are now more reluctant than since 1999 to consume instead of saving or investing.
Since curbing price hikes remains a top priority for the moment, such depressed consumer enthusiasm may help prevent runaway inflation.
However, for Chinese policymakers who are eager to rebalance the economy away from excessive dependence on investment and export for growth, falling consumer enthusiasm does not bode well. If they want to boost domestic consumption into a key growth engine in the coming years, they must, at least, race against the clock to fulfill the country's new five-year income growth goal.
The newly approved 12th Five-Year Plan (2011-2015) has targeted an average annual income growth of more than 7 percent for both rural and urban residents.
That is not so ambitious compared with what the country has achieved in the past five years.
While China's gross domestic product (GDP) grew at an average annual rate of 11.2 percent to reach 39.8 trillion yuan ($6 trillion), the per capita disposable income of urban residents rose by an annual average of 9.7 percent and the per capita net income of rural residents by 8.9 percent in real terms between 2006 and 2010.
But the new income growth goal will not be easy to meet as Chinese authorities pragmatically lowered the country's overall annual growth target for 2011-2015 to 7 percent from 7.5 percent for the previous one.
Although the country has exceeded its growth target over most of the past three decades, achieving an average annual GDP growth of 7 percent for the coming five years will be more challenging than delivering double-digit growth in previous years.
Increasing uncertainties over the global recovery have laid bare the limit of export-led growth for a major economy like China. Long-standing problems in an economy that lacks balance, coordination and sustainability also made it impossible for the country to rely too long on investment for growth.
It is all too clear that China must substantially increase consumption to pursue more balanced and sustainable growth. To this end, people's income as a share of GDP has to be raised rapidly and continually.
By setting income increase targets higher than GDP growth expectations, policymakers have obviously made the latest five-year development blueprint the start toward tilting the distribution of national wealth in favor of rural and urban residents.
The current low consumer enthusiasm is a timely reminder of what is at stake. If policymakers cannot move fast enough to guarantee sound income growth across the country, domestic consumers will simply not loosen their purse strings as needed.
In combination with wealth redistribution policies that can narrow income gaps and with an improved social security net, it is predictable that people's income growth will largely determine how the Chinese economy transforms and grows.
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