The government should release more stimulus packages to maintain a steady and fast growth in domestic consumption, analysts said.
"Judging from a group of figures released last week for the first quarter, the country lacks momentum to maintain a fast consumption growth unless the government releases more stimulus policies," said Chen Menggen, analyst, Hong Yuan Securities.
These measures, according to Chen, should include policies to help boost sales of home appliances in rural areas, boosting spending on culture, tourism and information services, and increasing subsidy for low-income people.
Xu Jin, analyst, Shanghai Securities, said that the government should come out with more stimulus policies for the real estate and automobile industries.
"Future consumption growth would continue to be dependant on these two sectors," Xu said.
House and car purchase are the two main engines that have driven consumption in the first quarter.
Figures from the National Bureau of Statistics (NBS) showed that the country's retail sales in the first quarter grew 15.9 percent in real terms, up 3.6 percentage points from a year earlier.
Furniture sales went up by 24.1 percent year on year, while construction and decoration materials rose 20.2 percent. Vehicle sales went up by 11.1 percent in the first quarter.
Analysts, however, warn that sales of automobiles could fall in the future as household income slows down and fuel prices rise.
"It is difficult for automobile sales to maintain their current momentum, unless new favorable credit policies are released on the purchasing side," said Wu Tujin, analyst, Great Wall Securities Co Ltd.
China has recently announced a batch of measures to jack up domestic consumption in a bid to offset the export slump. These include raising pension and minimum allowance for low-income people and issuing vouchers in some cities to boost consumption.
But analysts warned that a slowdown in household income is inevitable due to the economic recession, dampening future consumption sentiment.
The disposable income of urban residents averaged 4,834 yuan in the first quarter, rising 11.2 percent in real terms, while the average cash income of rural dwellers was 1,622 yuan, up 8.6 percent year-on-year, according to the NBS.
In a recently released report, China Academy of Social Sciences (CASS) expects consumption to contribute 4.3 percentage points to GDP growth this year, and said investment may contribute 2 percentage points.
(China Daily April 24, 2009)
