Emma Wu, a 31-year-old manager at a state-owned auto manufacturing company, is a well-heeled but very worried Shanghai consumer.

Her husband, an educator, was laid off, her son attends a costly "aristocratic" kindergarten, her mortgage payments have 20 years to run and her parents are ill. Somehow, what would be considered an attractive salary at 20,000 yuan (US$3,174) a month doesn't seem to provide her much comfort nowadays.

Wu's situation may provide a clue for foreigners who can't understand why household consumption is so weak in a country of 1.34 billion people living in the world's second-largest economy.

Today's mainlanders, barely a generation removed from severe economic times in China, retain their penchant toward frugality and paying as they go. At the least sign of instability in their household budgets or in their future financial prospects, they pinch their pocketbooks tighter.

Wu said she is forgoing the little "rewards" she used to buy herself for working hard: new shoes, stylish clothes and designer cosmetics. The annual family holiday somewhere overseas was downgraded to a domestic trip and then scrapped altogether.

Wu is waiting for things to get better. Before that, she said she has to juggle priorities to live within her means.

Economic breach

"The Chinese government has pinned its hopes on domestic consumption filling the economic breach created by slumping exports," said Yao Wei, an economist at Societe Generale. "However, for Chinese consumption to grow into a major engine of growth still remains a long-term target."

Many Chinese people, especially in a thriving metropolis like Shanghai, earn decent wages and should form the backbone of robust consumer spending. But textbook economics doesn't always play out true to theory in the marketplace.

Sun Lijian, an economics professor at Fudan University, said whenever he gives lectures overseas and points out that Chinese people are rather reticent consumers, someone in his audience invariably asks why Chinese tourists can be seen flocking to luxury goods stores that Westerners are now shunning because of steep prices.

Put simply, China is facing a paradox. Those who need to spend more don't make enough money to instill personal confidence, and those who do have the money prefer to go offshore to do much of their discretionary shopping.

China retail sales rose 13.8 percent in May from a year earlier, the slowest pace in nearly three years.

Although the government last month resumed subsidies for purchases of energy-saving home appliances, such incentives are not a fundamental solution in the campaign to bolster China's household consumption, Yao said.

In her view, big changes in policy need to occur before people will feel more confident about parting with their hard-earned yuan. First, she explained, the government needs to raise its funding for social programs such as health care and education in order to reduce the volume of savings householders tuck away for those costs.

In China, the government spends less than 10 percent of gross domestic product on health care and education combined, compared with more than 13 percent of federal funding for public health alone in the United States.

"Currently, Chinese consumers spend too much for hospital care and schools - areas that increase their fears of the future and should not take such a bite out of household budgets," Yao said.

Pricing systems

Second, China should reform its pricing systems in sectors such as property, water and electricity, she said.

The price of land and the tariffs of utilities are largely set by the government, Yao said, and the government usually favors large state-owned manufacturers over smaller, privately owned companies in allocating resources.

Who pays for it? Consumers, said Yao. Reform is needed to allow the market to play a bigger role in setting prices and increasing competition, she said.

And thirdly, China should modify the tax system, she said. The dominant consumption tax in China is the value-added tax, which is assessed on the value added to a product at each stage in the cycle of production and distribution. It means that the more people spend, the more they pay as taxes. It's a disincentive to consumers, she said.

Since none of these remedies could be accomplished very quickly, Yao added, she remains dubious about big consumption growth in China.

Of course, there is a class of people in China that doesn't worry about such matters.

The super rich at the tiny top of the economic pyramid do most of the traveling and overseas shopping that foreigners take for the stereotype of the Chinese consumer.

Most of the wealthy don't spend much in China, Fudan's Sun said. Made-in-China domestic goods don't have the cachet and status as, say, a German BMW, a French Hermes handbag or a US iPad.

"One day, when China makes firm progress in economic restructuring and really steps up in the value chain, such people will increase their spending in the country and boost the growth of retail sales," Sun said.

Despite their bearishness, both Yao and Sun said they were surprised by the latest economic data showing that consumption in the first quarter contributed 76 percent to the gross domestic product growth. That was the strongest performance in two decades, bringing China closer to the level of the United States.

Could it be a sign that domestic consumption is poised to rev up as an engine of growth?

Far-fetched, said Lu Zhengwei, an economist at Industrial Bank.

"Our research shows that the consumption growth in the first three months mainly came from an increase in government spending, not household spending," Lu said.

"It is not healthy and not sustainable because sound government income is based largely on more taxes, which hurts the dynamics of the real economy."

Only when people like Wu feel confident about the future and their financial security will China's domestic spending become a solid backbone for the economy, analysts said.