Solid retail growth set to continue
By Zhang Lu (China Daily)
Updated: 2006-07-19 08:49
China''s retail sales grew steadily during the first six months of 2006 and a solid consumption growth trend will be maintained in the second half of the year.
Retail sales rose 13.3 per cent year-on-year in the January to June period to 3.6448 trillion yuan (US$455.6 billion), the National Bureau of Statistics said yesterday.
Actual growth was 12.4 per cent, 0.4 of a percentage point higher than a year ago.
Sales in June alone rose 13.9 per cent to 605.8 billion yuan (US$75.7 billion).
"The relatively rapid growth of retail sales, accounting for around 65 per cent of the total social consumption, indicates consumption is now providing more support to the country''s economy," said Qi Jingmei, a senior economist with the State Information Centre.
According to Qi, consumption in both urban and rural areas registered more than 10 per cent growth. Such a high growth rate has seldom been seen in rural areas.
"The major reasons behind the strong consumption are the country''s robust economic growth and increasing incomes," she said.
The current round of economic growth began in 2003, creating a good market environment for consumers and boosting spending confidence, she said.
And as investment continued to boom, a significant portion directly or indirectly transferred into consumption power.
Consumer spending was also driven by higher incomes, Qi said.
Figures released by the National Bureau of Statistics said per capita disposable income in towns and cities was 5,997 yuan (US$749.6) for the first half of the year, a growth of 10.2 per cent.
Farmers'' per capita cash income was 1,797 yuan (US$224.6), 11.9 per cent higher than over the same period last year. Their income from working in the cities jumped 20.1 per cent, 3.5 percentage points higher compared with a year ago.
The trend of solid consumption growth will be maintained during the second half of 2006 and even into early next year, as economic growth continues and incomes increase," Qi said.
Rapid economic growth spurs consumption and the effect generally shows up four to five quarters later.
As for overall industrial growth, inhibiting factors like supply of coal and electricity weakened this year, allowing higher consumption ability.
Moreover, the recent salary rise for public servants, retirees and military staff, as well as anticipation of higher incomes, will boost China''s spending.
"The upgrading of the consumption structure will push up consumption volume as well," Qi said.
According to a recent report by the State Information Centre, consumption tends to be focused on high value-added products.
The top five categories for the January to May period were petroleum products, vehicles, telecom products, jewellery, and construction and decoration; all had a year-on-year growth of more than 25 per cent.
Statistics released yesterday said sales of telecom products grew 25.5 per cent in the first half, sales of petroleum products rose 38.4 per cent, while vehicle sales climbed 27.7 per cent.
Another factor that will push up consumption is more spending on services. In 2005, China''s per capita gross domestic product (GDP) reached US$1,700.
"History shows service consumption will enjoy a boom at this stage," Qi said.
However, compared with a 29.8 per cent growth in fixed-assets investment and a 23.4 per cent growth in trade during the first half, consumption growth, with a 13.3 per cent rise in retail sales, is relatively slow.
"Its contribution to the economy is much lower than that of investment and trade," said Zhuang Jian, an economist with the Asian Development Bank.
The percentage of household consumption of the GDP dropped from 48.4 per cent to 38.2 per cent in the same period.
The government has adopted a strategic focus to boost domestic consumption in the 11th Five-Year Plan Period, in a bid to reduce the economy''s reliance on investment and trade.
It is widely agreed that the current economic growth model, driven by fixed-assets investment, is unsustainable.
But making consumption into a powerful engine for growth in investment and exports may not be easy, said Zhuang.
"Inequality of income is one of the major factors hindering further consumption," he said. The small group of high-income earners tend to invest, while the large group of low-income earners have limited consumption power.
In addition, rising healthcare costs, housing prices and tuition fees have made consumers cautious about spending.
Though the government is moving to reform the distribution system and improve the social security network, it will take time before people are better off and the welfare infrastructure is established.
"As long as these two problems remain unsolved, consumption is unlikely to get a big boost," Zhuang said, predicting retail sales will maintain the growth rate of around 13 per cent in the second half of the year.
Updated: 2006-07-19 08:49
China''s retail sales grew steadily during the first six months of 2006 and a solid consumption growth trend will be maintained in the second half of the year.
Retail sales rose 13.3 per cent year-on-year in the January to June period to 3.6448 trillion yuan (US$455.6 billion), the National Bureau of Statistics said yesterday.
Actual growth was 12.4 per cent, 0.4 of a percentage point higher than a year ago.
Sales in June alone rose 13.9 per cent to 605.8 billion yuan (US$75.7 billion).
"The relatively rapid growth of retail sales, accounting for around 65 per cent of the total social consumption, indicates consumption is now providing more support to the country''s economy," said Qi Jingmei, a senior economist with the State Information Centre.
According to Qi, consumption in both urban and rural areas registered more than 10 per cent growth. Such a high growth rate has seldom been seen in rural areas.
"The major reasons behind the strong consumption are the country''s robust economic growth and increasing incomes," she said.
The current round of economic growth began in 2003, creating a good market environment for consumers and boosting spending confidence, she said.
And as investment continued to boom, a significant portion directly or indirectly transferred into consumption power.
Consumer spending was also driven by higher incomes, Qi said.
Figures released by the National Bureau of Statistics said per capita disposable income in towns and cities was 5,997 yuan (US$749.6) for the first half of the year, a growth of 10.2 per cent.
Farmers'' per capita cash income was 1,797 yuan (US$224.6), 11.9 per cent higher than over the same period last year. Their income from working in the cities jumped 20.1 per cent, 3.5 percentage points higher compared with a year ago.
The trend of solid consumption growth will be maintained during the second half of 2006 and even into early next year, as economic growth continues and incomes increase," Qi said.
Rapid economic growth spurs consumption and the effect generally shows up four to five quarters later.
As for overall industrial growth, inhibiting factors like supply of coal and electricity weakened this year, allowing higher consumption ability.
Moreover, the recent salary rise for public servants, retirees and military staff, as well as anticipation of higher incomes, will boost China''s spending.
"The upgrading of the consumption structure will push up consumption volume as well," Qi said.
According to a recent report by the State Information Centre, consumption tends to be focused on high value-added products.
The top five categories for the January to May period were petroleum products, vehicles, telecom products, jewellery, and construction and decoration; all had a year-on-year growth of more than 25 per cent.
Statistics released yesterday said sales of telecom products grew 25.5 per cent in the first half, sales of petroleum products rose 38.4 per cent, while vehicle sales climbed 27.7 per cent.
Another factor that will push up consumption is more spending on services. In 2005, China''s per capita gross domestic product (GDP) reached US$1,700.
"History shows service consumption will enjoy a boom at this stage," Qi said.
However, compared with a 29.8 per cent growth in fixed-assets investment and a 23.4 per cent growth in trade during the first half, consumption growth, with a 13.3 per cent rise in retail sales, is relatively slow.
"Its contribution to the economy is much lower than that of investment and trade," said Zhuang Jian, an economist with the Asian Development Bank.
The percentage of household consumption of the GDP dropped from 48.4 per cent to 38.2 per cent in the same period.
The government has adopted a strategic focus to boost domestic consumption in the 11th Five-Year Plan Period, in a bid to reduce the economy''s reliance on investment and trade.
It is widely agreed that the current economic growth model, driven by fixed-assets investment, is unsustainable.
But making consumption into a powerful engine for growth in investment and exports may not be easy, said Zhuang.
"Inequality of income is one of the major factors hindering further consumption," he said. The small group of high-income earners tend to invest, while the large group of low-income earners have limited consumption power.
In addition, rising healthcare costs, housing prices and tuition fees have made consumers cautious about spending.
Though the government is moving to reform the distribution system and improve the social security network, it will take time before people are better off and the welfare infrastructure is established.
"As long as these two problems remain unsolved, consumption is unlikely to get a big boost," Zhuang said, predicting retail sales will maintain the growth rate of around 13 per cent in the second half of the year.
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