China's middle class citizens - people making more
than 50,000 yuan (US$6,227) a year - are expected to double to 25 percent of the
country's total population by 2010 and become an even stronger driving force for
domestic consumption, a think tank associated with the State Council said
yesterday in a new report.
The wide-ranging analysis, submitted by the
State Information Center to the China Securities Journal, also suggested the
elimination of the 20 percent tax on savings interest to help increase spendable
incomes.
The report said the interest tax, implemented in 1998, heavily affects
low-income citizens because they tend to keep their savings in banks, and it may
also dampen consumer spending.
The think tank said another option would be to combine the interest tax with
the income tax so that different rates would apply at different income levels.
"Unlike rich people, who have many ways to manage their money such as buying
stocks and property, poor people generally put their savings in banks because of
the lower risks," said Shi Lei, a professor at Fudan University's China Center
for Economic Studies.
"Therefore, although the amount of savings interest tax paid by the rich is
usually larger due to their bigger savings, the weight of the tax is usually
heavier on poor people."
Shi cautioned, however, that the abolition of the savings interest tax might
encourage people to save more and spend less, which runs counter to China's
current macroeconomic strategy.
In other areas, the research group predicted the country's retail sales will
reach 7.58 trillion yuan this year, 12.8 percent after growing 12.9 percent in
2005. The growth will be higher in the cities than in rural areas, the report
said.
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