China sees initial results in boosting domestic consumption

China's domestic demand, as the government had long wished, has started to become more of a driving force for the country's economic growth than in the past.

Signs of a domestic consumption boost are apparent as people are spending more on domestic commodities, export falls, and the government plans for more consumption stimulus.

Data from the National Bureau of Statistics (NBS) last Wednesday showed that China's domestic consumption had maintained an upward trend since the beginning of the year. For example, China's retail sales rose 14.8 percent in April year on year. It was 0.1 percentage points higher than in March.

Rural spending, driven by a government rebate policy on home-appliance purchases and other commodities, grew by 16.7 percent in April, which was 2.8 percentage points higher than urban growth, according to NBS.

The booming property and auto market also showed the same trend as China became the world's largest vehicle market again with more than 1.15 million cars sold in April, up 25 percent from a year earlier.

In the housing sector, China's real-estate climate index was finally back to growth after ten months of decline. Property sales rose by 17.5 percent in acreage from a year earlier in the first four months of 2009.

The growth was 9.3 percentage points faster than the first quarter level.

"China's economic structure has started to enter a transforming period to a consumption-driven growth model," said Li Daokui, director of the Department of Finance at Tsinghua University.

SUSTAINED DOMESTIC DEMAND GROWTH

According to Li, economic growth of China's inland western and central regions, which relied less on export, had exceeded that of the coastal areas in the first quarter, reflecting a strong pull from domestic consumption and investment.

Data from regional statistics bureaus had shown that western and central China accounted for nine of the 11 provincial areas that had seen double-digit economic growth year on year in the first quarter.

Such growth was contrasted by coastal regions whose economy has been mainly driven by export, such as Shanghai, Zhejiang and Guangdong, gross domestic production (GDP) growth dropped to three- to- six percent.

"Domestic consumption, together with fixed assets investment, had become the main forces of China's economic recovery as export continues to weaken," Li told Xinhua.

His view was echoed by Zhang Liqun, a researcher with the Development Research Center of the State Council, a government think-tank, who said the continual growth in domestic consumption had provided "very strong" power for China's economy to move on.

China's surging loans also implied booming domestic consumption, as personal loans saw accelerating growth from 7.5 percent in January to 24.9 percent in April year on year, according to the central bank.

Lian Ping, chief economist with the Bank of Communications, said a personal loans surge showed that banks had begun to pay attention to consumer loans in a move to boost domestic demand.

With the same intention, China Securities Regulatory Commission (CSRC) announced this week that it plans to let non-deposit-taking institutions both home and overseas to offer consumer loans to Chinese citizens in pilot cities like Beijing, Shanghai and Tianjin.

According to CSRC's plan, debtors will be able to borrow loans so long as they are less than five times of their monthly income.

Government stimulus policies have been playing a big part in consumption growth, such as reducing purchase taxes for small cars and subsidies for farmers to buy agricultural equipment, said Yuan Gangming, an economic researcher at Tsinghua University.

EXPORT: WEAKENING, BUT SIGNIFICANT

In sharp contrast with the booming domestic market, China's export is facing continuous slump from the fourth quarter last year.

Exports fell 22.6 percent in April from a year earlier to 91.94billion U.S. dollars, steeper than the 17.1-percent decline in March, according to the General Administration of Customs.

Long-term orders had been continuously cut into smaller and shorter ones by foreign buyers, which would make exporters' benefits unstable and unsustained, according to a report on the Web site of the Ministry of Commerce (MOC).

Canton Fair, China's leading trade fair that ended early this month, saw export orders fall by 16.9 percent from last year.

However, the MOC report had stressed that stabilizing external demand was key to maintaining growth, as the "grim" impact could affect "all sectors" of the economy.

Sluggish external demand, which had a significant bearing on stabilizing exports and employment, could deter domestic investment and consumption for a long period, it said.

RESTRUCTURING: A LONG-TERM BATTLE

Despite favorable economic data on domestic demand, economists had warned that time for China to retool its economy for domestic consumption might be longer than expected.

"There is still a long way to go," said Li Daokui, pointing out that the infrastructure-focused government spending and rising domestic consumption could provide stable and continual energy to economic recovery, but it might not be the solution in the long run.

Consumption had been rising, but far from enough, as it had so far accounted for only 38 percent of China's GDP, which was not adequate to become a pillar for long-term growth, he said.

Xie Guozhong, economist and board member of Rosetta Stone Advisors, said during the second Lujiazui Forum over the weekend that consumption boosted mainly by government stimulus could only temporarily keep the economy from going down.

Economic restructuring would only be completed when consumers are provided with abundant fortune, which means the government needs to do more to increase family incomes, he said.

Coinciding with economists' opinions, the government is planning to move further on its way to a consumption-heavy growth model.

Wang Yiming, vice president of Academy of Macroeconomic Research under NDRC, pointed out that China's next step would be further consumption expansion through either offering direct purchase subsidies or perfecting social security system.

The government's affordable housing projects and further implementation of health care reform are included in building a perfect social security system, said Xu Lin, head of the Department of Fiscal and Financial Affairs, NDRC.

(Xinhua reporter Zhang Ran also contributed to this story)

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