Consumption boom needed

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(China Daily)
Updated: 2009-11-12 08:52

Stronger retail sales growth in October not only highlights the ongoing acceleration of China's economic recovery into the fourth quarter of this year, but also points to the increasing power of domestic consumption as the new growth engine in the coming years.

Policymakers should build on the momentum to further boost domestic consumption to usher in a period of fast, consumption-powered growth.

Latest statistics show that retail sales gained 16.2 percent in October from a year earlier, accelerating from a 15.5 percent increase the month before, while fixed asset investment increased 33.1 percent year-on-year, 0.2 percentage points lower than that in the first nine months.

These figures indicate that China has rebounded from the global financial crisis faster and more strongly than any other major economy, and is well positioned to meet its target of 8 percent growth in gross domestic product (GDP) this year.

Separately, each of them reflects important changes in the development of the economy.

Robust growth of fixed asset investment, the most effective means to generate fast GDP growth, has contributed in large measure to the rebound of the Chinese economy, which grew 8.9 percent in the third quarter - the fastest clip in a year. That compares with 7.9 percent growth in the second quarter and 6.1 percent in the first three months, the slowest pace in about a decade.

However, many have realized that China cannot ride through the worst global financial and economic crisis in many decades with simply an investment-led rebound.

Though the dip of fixed asset investment growth in October does not necessarily mark a turning point, it shows that policymakers are trying to rebalance the economy away from excessive dependence on investment.

More important, retail sales, the main measure of consumer spending, picked up pace in October. Since a consumption boom is expected before the New Year and Spring Festival, policymakers can count on consumption to contribute more to economic growth.

By adopting a number of stimulus policies to boost domestic demand since the end of last year, the government has made clear its determination to make consumer spending a key growth engine for the economy. And many of these policies have borne fruit in improving people's living conditions.

But compared with both international consumption levels and the huge potential of Chinese consumers, domestic spending is far from growing fast enough. What the double-digit retail sales growth represents is only the tip of the iceberg of Chinese people's consumption power because the country has yet to make breakthroughs in education, healthcare and social welfare reforms.

A consumption boom is a desirable and practical goal for policymakers. A balanced and sustainable recovery of the economy will depend on how well the country can tap into the potential of domestic consumers.

(China Daily 11/12/2009 page8)