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Economists have been talking for years about the need to boost domestic consumption toachieve more balanced and sustainable economic growth. To be sure, consumer spending, especially in the larger cities, has been increasing rapidly inthe past decade or so. But the rate of increase has persistently lagged behind GDP growth. Asa result, the proportion of domestic consumption to the overall economy is lower than the ratioin the United States, Japan and many European Union countries. It has long been noted that the over-reliance on exports to fuel growth exposes the economy tofluctuations in overseas demand and the prices of a wide range of raw and industrialintermediary materials, which are largely controlled by cartels of producers and foreign financialinstitutions that dominate trading in the commodity markets in the United States and Europe.What's more, the country's focus on exports has generated trade frictions with other countries,particularly the US, which has a large trade deficit with China. The bulk of Chinese exports comprises goods manufactured under contract to US andEuropean companies. Stiff competition is putting huge pressure on profit margins forcingcontract manufacturers to cut costs in whatever way they can. The over-emphasis on costcontrol has contributed to keeping wages low and encouraged environmental neglect. Unlikethe captains of capitalism in the US during the early 20th century, Chinese employers don't seeany benefit in paying their workers well because they don't count on them to buy the goodsproduced by their factories. Also the propensity to save is ingrained in traditional Chinese culture. This is now changing,albeit slowly, particularly in the cities where young working women are known to be willing tospend an entire month's salary on a bag. However, much more needs to be done to persuade China's burgeoning middle class to loosentheir purse strings. One proposal that has gained some traction is to lower the tax on luxurygoods. But what's the point? The luxury market anywhere in the world is remarkably priceinsensitive. There are reports that sales of yachts, luxury cars and designer clothing are risingin the US despite the sluggish economy, depressed property prices and high unemployment.Lowering the tax on imported luxury goods would only benefit the rich minority. Any policy to encourage consumer spending must be aimed at middle class families. A majorfrustration to many Chinese consumers is market inefficiency and the lack of transparency,which have combined to distort the pricing of agricultural products and a wide range ofessential goods. In the face of rising inflation, the Shanghai municipal government took theinitiative last year to address the issue. In a single stroke, the city abolished more than 200fees and charges added to the retail prices of many goods. Mayor Han Zheng said it was thefirst phase of a long-term plan to enhance Shanghai's administrative efficiency andtransparency. Not surprisingly, the response of residents in Shanghai to the wholesale fee waivers wasoverwhelmingly supportive. Without having to pay the numerous fees and charges, vendorscan lower their prices and sell more goods, thus maintaining their profit margins. Shanghai has set the example for other cities to follow. If they do, we won't be reading aboutsuch absurd phenomenon as Shenzhen shoppers crossing the border to Hong Kong to buyvegetables from the farms in Shenzhen. | 
