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Boosting consumption

(China Daily)
Updated: 2009-04-18 14:07

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.

Related readings:  Consumption is the key for sustainable growth  Waking up domestic consumption  Higher income fuels consumer spending  Consumers gloomy on income front

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 US 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.