Boosting consumption in China

Special Report: Global Financial Crisis


BEIJING, April 19 -- The State Council's focus on
expanding consumption, especially that of households, shows that Chinese
policymakers are keen to seek a new engine for future growth in a bid to
mitigate the effects of the global economic downturn.

Though the country's consumption held up well in the
first quarter of the year, much more is needed to increase consumer spending on
a significant and sustainable basis.

The latest statistics show that China's retail sales
grew 15.9 percent in real terms, up 3.6 percentage points year on year and 1.1
percentage points higher than that for the whole year of 2008.

As the global financial and economic crises have made
it impossible for China to keep relying on exports for growth, steady
consumption growth is emerging as an increasingly important force to bolster the
nation's economic future.

The current boom in domestic consumption is, first of
all, spurred by solid increases in people's incomes. After years of double-digit
growth, disposable income of urban residents continued to rise by 11.2 percent
in real terms in the first three months of the year while the average cash
income of rural dwellers increased by 8.6 percent year on year.

Tax cuts and fiscal subsidies also stimulate consumer
spending.

After the sales tax on cars with engines of less than
1.6 liters was cut to 5 percent from 10 percent in January, China's auto sales
hit a monthly record of 1.11 million vehicles in March, exceeding U.S. sales for
the third month in a row. This shows Chinese consumers are capable and ready to
spend as long as the right incentives are offered.

At a moment when the Chinese economy is on track for
early recovery, policymakers are certainly expecting strong consumption growth
to continue.

But the robust increase of domestic income should not
be taken for granted given the still-gloomy global outlook. And it remains to be
seen how long the one-off tax cut can buoy car sales.

It is obvious that maintaining the momentum of
consumption growth requires more efforts to address long-term problems that have
prevented Chinese consumers from loosening their purse strings.

On the one hand, the government needs to further
increase household's purchasing power with all necessary measures, such as
lowering personal income tax and cutting social welfare burdens on individuals
with more government spending.

On the other hand, policymakers should step up
efforts to defend consumers' rights by substantially improving the domestic
consumption environment.

Admittedly, it will take time to deliver these goals.


But they are essential if domestic consumption is to
become the country's real major growth engine.

(Source: China Daily)