After more than 25 years of economic growth driven by exports
and fixed-asset investment, China is turning towards consumption to
sustain the boom.
Fostering domestic spending and reducing the heavy reliance on
exports and investment has been placed on top of the government
agenda this year.
Retail sales in 2005 reached US$827 billion, up 12.9 percent
from 2004, official data shows the biggest growth since 1997.
This year, retail sales are forecast to rise 12.5 percent in the
first half, according to a Ministry of Commerce
survey released last month.
"GDP growth in the past was spectacular but is not sustainable
if consumption keeps dormant and is not enough to absorb the
increased production," said Lin Yueqin, an economics researcher
with the Chinese Academy of Social Sciences.
"In particular, relying too much on investment and trade wastes
resources and creates trade rifts," he said.
China's foreign trade increased 23.2 percent last year to
US$1.42 trillion, generating a record US$101.9-billion surplus.
But at the same time, low-priced Chinese exports became the
world's top target of anti-dumping charges and other restrictive
trade measures.
China also consumed about 50 percent of the world's cement and
40 percent of steel amid an infrastructure-building and real-estate
boom. Fixed-asset investment jumped 25.7 percent in 2005, largely
unchanged from the 25.8 percent growth in 2004.
"Given high international oil prices and a possible slowdown in
the global economy as well the government's effort to rein in
investment, domestic consumption will play a bigger role in the
economy," said Lin.
"Noticeably, the government has moved to shift the economy to a
more consumption-oriented path and the current climate is favorable
to the pickup of consumption," he said.
The government announced a series of policies last year to raise
private income, including scrapping agriculture tax, raising
thresholds on income tax, increasing minimum wages and civil
servants' salaries, and providing free basic education in rural
areas.
Urban residents' per capita disposable income was up 9.6 percent
to 10,493 yuan (US$1,295) last year, according to the National
Bureau of Statistics (NBS). Rural residents' net income per capita
improved 6.2 percent to 3,255 yuan (US$402) over the same
period.
The government has announced that it would further encourage
private spending this year, especially by farmers. It also promised
to foster new consumption themes and improve market regulation.
The retail market seems to be in line with the government's
intentions. According to a recent Ministry of Commerce survey of
600 categories of consumer goods, 170 are forecast to have balanced
supply and demand in the first half of this year, whereas the
remaining 430, or 72 percent, will see overcapacity. Nothing will
be in short supply.
"Reasonable overcapacity is helpful to stimulate price
competition, promote upgrading of products and therefore encourage
spending," said Qi Jingmei, a senior economist with the State
Information Center.
Prices of most retail goods would remain stable in the first
half of 2006, but food items and jewellery would probably register
rises, according to the survey.
It noted a trend of moderate price drops in major consumer goods
such as electrical appliances and automobiles, saying this would
prod consumers to look for higher-end products.
Despite an obvious downward pressure on retail prices, it is the
consensus of economists that deflation is not imminent.
"The economy is still on a fast track, the demand for production
materials is robust, and oil prices remain high, which will combine
to offset flat retail prices," said Qi.
She said the consumer price index (CPI) is likely to rise
moderately amid stable GDP growth.
A recent report by the Chinese Academy of Sciences projected a
similar outlook, saying China's CPI would rise 1.97 percent this
year, compared to 1.8 percent in 2005 and 3.9 percent in 2004.
Assistant Minister of Commerce Huang Hai predicted last month
that China's retail sales would top 10 trillion yuan (US$1.2
trillion) in 2010 with an average annual growth of 11 percent from
now.
But making consumption as powerful an engine of growth as
investment and exports may not be easy. There are doubts whether
the potential purchasing power in China represented by over 14
trillion yuan (US$1.7 trillion) in bank deposits ?can be fully
tapped in the short term.
"The current 12-percent retail-sales growth is not slow, but
further acceleration may prove to be difficult because there are no
new consumption themes to inspire buyers to go out and spend, said
Tao Dong, chief regional economist at Credit Suisse.
Cui Jianhua, vice dean of Peking University's School of
Economics, said the potential demand would not transfer into real
spending until private incomes grow further and the social security
network is improved.
China had more than 100 million people living in poverty at the
end of 2004 and average per capita income ranked 129th in the world
at about US$1,500, behind Egypt and Iran, according to official
statistics.
"The costs of education, health care and pensions add to
citizens feelings of uncertainty and make many tighten their purse
strings for rainy days, said Cui.
The government is taking steps to improve the welfare system
and, particularly, the livelihood of the 750 million rural
residents who are seen as the mainstay in expanding domestic
demand.
"It takes time before the people get better off and the welfare
infrastructure is in place, said Lin of CASS.
"It's not difficult to have a big consumption volume considering
the number of people we have, he said." But to transfer the economy
into a consumption-oriented one would need more time and
efforts.
(China Daily March 16, 2006)