A third consumption boom is in full swing in China, as consumers there loosened theirpurse strings, spurred by Government measures to boost their disposable incomes.
Shanghai folks went on a shopping spree during the three-day New Year break. In those three days, residents and visitors to Shanghai spent 1.6 billion yuan (RM747mil) on shopping and dining.
In some ways, this may explain China's third ranking in terms of retail sales, behind the United States and Japan, but ahead of Britain and France.
Even so, the government thinks its people are still not spending enough. This is despite the fact that retail sales were expected to hit six trillion yuan (RM2.8 trillion) last year, up 13% from 5.4 trillion yuan (RM2.5 trillion) in 2004.
Economists say China’s economy, which has grown at above 7% since 2000, is overly dependent on exports and foreign investments. Private consumption accounts for only 53% of China’s gross domestic product compared with the world average of 70%. In part because nearly 900 million poor, rural Chinese add little to total retail spending.
Given the rising trade friction and over-investment in industries like steel and motor, China wants consumption to play a more significant role to feed economic growth. The Chinese government is now finding ways to make its people, who are still big savers, spend more. Boosting income, particularly of the poor, is a priority in the country’s five-year plan which is out for the 11th time and starts this year.
Pay raise for civil servants, increased income tax threshold from 800 yuan (RM373) to 1,600 yuan (RM745), and abolishment of all agricultural taxes are among the measures the Government has taken to boost disposable income.
The central government has also allocated more public funds for healthcare and education to ease people’s burden.
One billion yuan of direct subsidies would be funnelled into grain production to improve farmers’ earnings.
Against the backdrop of increased income and government efforts to boost consumption, earlier worries about an economic slowdown have eased.
“The economy will begin to transform from investment into consumption mode going into 2006, so we are bullish on the consumption story,” said JP Morgan.
Besides the public policy to stimulate consumption, BNP Paribas Peregrine said, the change in the population demographics was another strong push for consumer spending in China. The brokerage is expecting a third consumption boom in China, with spending rising at 13% to 14% in three years.
It said the new generation of free-spending young Chinese would prop up the economy unlike their parents, who, having had to endure hard times before the country’s economic reforms, were more prone to save.
BNP Paribas estimates this group numbers about 90 million now. And as those born in the ‘80s and ‘90s mature, the figure could well reach 320 million.
So, there is an enormous potential for businesses in China, more so considering the total spending power of its 1.3 billion consumers.
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