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Wealth gap curbing consumption (3)

By Cong Mu (Global Times)

09:08, November 19, 2012

The income inequality in China has suppressed consumption, Gan told the Global Times. Consumption stimulus policies have had little effect, because they are not strong enough to persuade poorer people to spend more, he said.

To help the transition to a domestic demand-driven economy, the government should invest more in the social security network including healthcare insurance and unemployment insurance, Gan suggested.

The central government currently spends about 3 percent of its budget on the social security network, far less than the 20 percent spent by the US federal government, Gan said.

Chinese people largely self-finance their social security and healthcare insurance, he said. "They pay for themselves, and this is not right."

Growth in domestic demand over the past decade has been driven by investment rather than consumption, which has led to industrial overcapacity, oversupply of money and inflation, said Yao Jingyuan, former NBS chief economist.

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