Anyone scanning recent business headlines in China would not recognise the country where people supposedly save and never spend. In September, China Mobile’s customer base crossed the half billion mark — a powerful symbol of the awesome size of the Chinese consumer market.
China has also become the biggest vehicle market in the world this year and car sales expanded an extraordinary 78 per cent last month from a year ago. Over the National Day holiday in early October, retailers say large flat-screen TVs flew off the shelves. Throughout the biggest external crisis to hit the Chinese economy in at least a decade, one of the most surprising features has been the apparent strength of consumer demand. The headline figure for retail sales has increased in real terms by 16.5 per cent in the first three quarters of 2009 — at least two percentage points faster than last year before the crisis. With Beijing insisting it wants to shift its economic model towards greater domestic demand, and with many foreign governments urging China to rely less on exports, consumer spending is central to the post-crisis fate of both the Chinese and global economies. The buoyant retail figures raise three questions. Is the increase real Is it sustainable And does it reflect a genuine rebalancing of the economy away from investment and exports While officials trumpeted the latest jump in retail sales on Thursday, economists are sceptical of the figures. One problem is that official National Bureau of Statistics data include some government purchases, which are bound to have surged this year due to aggressive stimulus spending.
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Government economists have played down the idea of booming consumer demand. A central bank report in August said urban residents’ “impressions” about their incomes were at the lowest level since 1999 . Meanwhile, Xu Xianchun, a vice-commissioner of the statistics bureau, published an article saying real consumption growth was well below the headline rate. Even if the growth rate has been exaggerated, there is plenty of evidence from specific industries of stronger consumer demand, especially in rural areas. “Rural residents have much more income than they did when I opened this store in 2003,” says Ge Zhongqiang, who runs an electronics shop in Xinba, a village in Jiangsu province. “They are spending a lot more on home appliances.” Some people doubt whether rising demand can be sustained, pointing to several one-off incentives. Rural people have been offered subsidies to buy “white goods”, and taxes on small cars have been cut. JD Power, the auto consultancy, thinks the car-sale growth rate will fall sharply to 2-3 per cent next year. Less temporary forces are at work, however. In recent years, the government has raised spending on health and education in the countryside, and is starting to introduce rural pensions. Urban demand, meanwhile, is being boosted as millions move into the $4,000-$6,000 income bracket and shift from spending only on essentials to being able to afford more expensive items such as cars. Chinese officials say such consumer demand is helping to rebalance the economy away from exports. They point to the fact that the current account surplus as a proportion of gross domestic product is likely to be much lower this year.
However, the latest data show that public investment has been the driving force behind the recent rebound. Yasheng Huang, an expert on China’s economy at the Massachusetts Institute of Technology, says that before the government’s stimulus spending, consumption accounted for only about 33 per cent of GDP, the lowest among the world’s leading economies. By increasing social spending, the leadership has started to repair some of the damage from the 1990s, when rural incomes barely grew. “But there is far too much emphasis on social transfers and not enough on the economic liberalisation that will really raise incomes,” says Prof Huang. And, he adds, China has still to get over its “investment fetish”.
