When the National Bureau of Statistics (NBS) in October released
its consumption figures for the first three quarters, people were
surprised to discover that consumers are playing an ever-important
role in the growth of the economy.
The latest figures for October reinforced this role as retail
sales continued to go up.
Still, China needs to make some systematic changes if it is to
sustain this trend, analysts said.
China's retail sales grew by 15.9 percent for the first nine
months year-on-year. Growth for September was 17 percent.
Retail sales accelerated in October to 18.1 percent, pushing up
the January-October growth to 16.1 percent.
It was a rate that China had not achieved in a decade, giving
the public and economists confidence in the more balanced growth of
China's economy, driven by investment, exports and consumption.
Consumption had contributed more than foreign demand to China's
economic growth, Li Xiaochao, spokesman for the NBS, said at the
release of macroeconomic statistics for the first three quarters
last month.
Consumption contributed 37 percent of gross domestic product
growth while foreign demand, or net exports, accounted for 21.4
percent, according to Li. The remaining 41.6 percent was made by
investment.
This goes against the general impression that investment and
exports are paramount forces driving the economy and has aroused
doubt as to its reliability.
While exports are growing, imports are increasing at a faster
pace, narrowing the gap and leading to shrinking net exports,
according to Hua Min, Fudan University's Institute of World
Economy.
In September, China's exports increased by 30.6 percent
year-on-year while imports grew by 22 percent. In October, the
growth rates were 22.3 percent and 25.5 percent respectively,
indicating accelerated imports growth.
Some economists have offered a similar scenario to that of the
NBS regarding the share of consumption, investment and foreign
demand in economic growth.
Stephen Green, senior economist with Standard Chartered Bank
(Asia), said: "We think net exports will contribute about 26
percent of the 11.5 percent (GDP) growth (in the first three
quarters), according to our very provisional calculations ... (and)
we think investment will contribute about 44 percent of the growth
this year." That will leave consumption to contribute the remaining
30 percent to the growth.
"It is an illusion that China does not consume," Green told
China Daily.
"It's just that its share of the growth is small, especially
compared with investment."
Despite the difference in the exact proportion of consumption to
economic growth, consumption does have more weight than net
exports.
"This is a healthy development trend," Shi Jianhuai, an
economist with Peking University's School of Economics, said.
"We cannot depend on foreign demand (for economic growth) in
such a big economy as China."
It will incur trade frictions if China continues to rely on
exports to drive economic growth, he said.
China's GDP reached 21.09 trillion yuan last year, increasing by
11.1 percent over the previous year. It contributed to 13.8 percent
of world economic growth during the 2003-05 period, becoming the
second largest contributor following the US, which contributed 29.8
percent, according to NBS calculations based on World Bank
statistics.
Meanwhile, China has suffered from frequent anti-dumping charges
in recent years and is under pressure to revalue the yuan to reduce
its trade surplus.
"The sound growth of retail sales is expected to continue," Shi
said.
As the value of the yuan rises, which will reduce exports, China
may gradually shift its focus of growth to domestic demand, he
said.
Shen Minggao, an economist with Citigroup in Beijing, agreed:
"We continue to expect the government to introduce more
consumption-friendly policies (such as an individual income tax
cuts and a functioning social security system) to escalate the real
growth rate of consumption in the future."
But challenges lie ahead. Consumption will continue to grow, but
only slowly, analysts said, because the public are still bothered
by spending pressures like social security, health, education and
housing. With those uncertainties, they prefer to save rather than
spend.
China remains a developing country with a relatively low level
of income, which cannot provide a strong back-up for consumption,
Fudan University's Hua said.
Moreover, the government has yet to provide adequate public
services, such as education and health, and people prefer to save
more in anticipation of rising future expenditure, he said.
"It is better for the government to provide more public services
to lower their expectations about future spending increases," he
said.
The government said it was trying to redress these problems by,
for example, building more low-priced and public housing for the
poor to rent.
The widening income gap is another factor that may curb
consumption increases as a large proportion of the population is
weak in spending, he said.
Official figures have pointed to this widening gap. In 2006,
rural residents earned about one-third of the income earned by
urban residents.
The nation may also consider giving priority to the development
of labor-intensive industries, which will ease the gap, Hua
proposed. The capital- and knowledge-intensive hi-tech industries
do not accommodate much labor.
"Labor-intensive industries may be a better choice for China at
the current stage," he said.
(China Daily December 11, 2007)
