BEIJING -- China should give its public sector a fat pay rise to boost flagging domestic consumption, economists said in the official China Daily newspaper Sunday. The government should sharply raise the salaries of its seven million public servants and 30 million employees of government-sponsored institutions, said Liu Shucheng, director of the Economic Research Institute at the Chinese Academy of Social Sciences. The hike should be large enough to result in a strong push for economic growth, he said.

Wages in the public sector have been under very strict control and have grown slowly, making them significantly lower than average, added Zhang Xueying, researcher at the state Information Center. Social security standards for the poor should also be greatly increased, to boost demand for basic commodities, he said. This could be in the form of cash plus coupons that could be exchanged for food or clothing at fixed times and places, Zhang said.

The minimum level for individual income tax could also be increased to 1,500 yuan (180 U.S. dollars) from the present 800 yuan, to lift the real incomes of the low paid in order to boost consumption, he said. Individual savings deposits have reached nearly six trillion yuan, with 30 percent of depositors accounting for more than 70 percent of the total value of the deposits, said the report.

Job and wage insecurity, as thousands of state-owned enterprises close down or lay-off workers, have helped to keep China's economy in a deflationary rut. The retail price index fell 3.5 percent year-on-year in May, in the twentieth consecutive month of deflation, and was down 3.2 percent in the first five months of 1999. Domestic consumption contributes about 60 percent of China's gross domestic product (GDP). Beijing has targeted GDP growth of 7.0 percent for 1999, against 7.8 percent last year.

(AFP)