Salary hikes will kick-start consumption

When China's economic growth is targeted at 7.5 percent and domestic demand becomes the main engine driving growth, it is crucial to implement measures to increase salaries and create an economy more conducive to consumption, officials and executives agree.

In working to hike domestic demand, China will focus on boosting consumption, Premier Li Keqiang said in his recent work report to the National People's Congress.

But since consumption is dependent on disposable income, salary increases become more significant and should be in line with the growth of the Consumer Price Index, CPPCC members said during a panel discussion.

"The government should have a specific target in improving the payroll level and release a guiding index," said Yang Yuanqing, chairman and chief executive officer of Lenovo Group Ltd.

Public institutions currently are finding it difficult to catch up with CPI growth, let alone private companies.

"Government offices are supposed to be the leader of salary increases," said Yang.

China's domestic consumption accounts for less than half of its GDP. Economic growth still relies on exports and investments, according to Yang.

"Once consumption is expanded, the economy will be less reliant on the changeable overseas markets. It will ease China's conflicts with trading partners," he said.

Still, the problem of creating consumption hot spots and getting people to spend more at home remains a tough one.

Chinese tourists tend to prefer shopping overseas. Creating a better consuming environment will be a critical part of pulling them back.

More than two-thirds of luxury spending by Chinese mainlanders was carried out overseas in 2013, up from 2012, according to the China Luxury Market Study from consultancy Bain & Co.

Of course, with the rise of e-commerce, the price of goods is more transparent, and the cost of logistics is lower.

"Still, the government can prompt a new round of consumption tax reform and lower high tariffs on imported luxury goods," said Yang.

Zhu Zhixin, vice-chairman of the National Development and Reform Commission, agreed, saying there is hope for salary reforms.

"We are now suggesting that residents' income should be in accordance with the increase of GDP," said Zhu.

In fact, salaries in China continue to rise. The trend has made the nation's workforce more expensive than in neighboring countries, according to Zhu.

"But for years, wages in government offices and public institutions were kept almost constant," said Zhu.

The government's work report also mentions that the government will support nongovernmental investors in various types of services, with a focus on elderly care, health, tourism and culture, as well as implementing a new system of paid vacations.

The number of domestic tourists amounted to 3.25 billion and total income in the sector reached 2.9 trillion yuan in 2013.

"Although we have rules on paid vacations, we are not strictly implementing these rules," said Zhang Xuewu, president of China National Travel Services Group.