As a matter of fact, China's rapid economic growth has become a magnet luring international enterprises to the Chinese market. A recent report released by the American Chamber of Commerce in Shanghai and the management consulting firm Booz & Co. Inc. showed that China is forecasted by most analysts to become the second largest consumer market in the world by 2015, not far behind the United States, with enough purchasing power to buy 14 percent of the world's products, up from 5 percent today.

In addition, a report released by the World Luxury Association said that China is on the way to replace Japan to become the world's largest market for luxury goods.

According to a survey by the global investment banking and securities firm Goldman Sachs, China's consumption on luxury goods will reach $14.6 billion in the next five years, and the number of people who are willing to pay for luxury goods will exceed 100 million.

Zhao Xijun, Deputy Director of the Financial and Securities Institute at the Renmin University of China, suggested that wise entrepreneurs should seize business opportunities of the Chinese Government's efforts to boost domestic demand. Zhao also suggested a development trend for China's consumer market, namely, the emerging consumer market in some second-tier and third-tiers cities.

During the National Day holiday last year, most cities that scored a year-on-year consumption increase of 20 percent were small and medium-sized cities in central and west China.

Zhao urged enterprises to be aware of the importance of e-commerce in expanding their sales. According to China E-Commerce Research Center, the country's total e-commerce revenue reached 6 trillion yuan ($947.4 billion) in 2011, a year-on-year increase of 33 percent.

Suggestions

Despite the fact that the Chinese Government has launched a series of measures and policies to expand domestic demand in recent years, the contribution of consumption to China's GDP growth and the consumption level still lag far behind advanced countries.

According to Li Chang'an, associate professor at the School of Public Administration of the University of International Business and Economics, the root cause of China's weak domestic demand is structural imbalance in demands.

The primary task for China to expand its domestic demand is to cultivate private investment and consumption, said Li. In the past, China relied on government investment and consumption to boost its domestic demand, and private investment and consumption were constrained.

In addition, China should complete its market and competitive mechanism with the least delay possible. The existence of monopolies has fragmented the market and kept barriers to market entry high. While governmental investment remains high, chances for private investment are slim. In this sense, China needs to reform its management system of state-owned enterprises to restrain their business scope and leave more space for private companies. The most important thing in encouraging private investment is creating a market environment with fair competition.

At the same time, China should accelerate its income distribution system reform and cultivate the medium-income class, said Li. Despite the fact that statistical figures showed that the growth of incomes for urban employees outpaced that of overall GDP in the past decade, their real income and buying power have been largely eroded with high inflation and price surges of some major products for daily use. Furthermore, the widening gap in income distribution has made most average people feel powerless while the rich are able to spend more on luxury goods.

"China could form its economic growth mode propelled by consumption only if it could accelerate the cultivation of a large-scale and stable medium-income class," said Li.

Zhao also pointed out that the income gap has been widening in recent years and that the government should make efforts to increase the proportion of labor income and narrow the income gap through the adjustment of the taxation system and the fiscal transfer payment system.

"Only when average people feel that they can reach a reasonable consumption level, will the country's total consumption grow steadily and persistently," he added.

Consumer Market Projection

By 2015, China's total retail sales of consumer goods are expected to reach 32 trillion yuan ($5.08 trillion), an average annual growth of 15 percent; total added value of lodging and catering will reach 8.6 trillion yuan ($1.37 trillion), an average annual growth of 15 percent; total retail online sales will reach 2 trillion yuan ($317.46 billion), an average annual growth of more than 30 percent; and final consumption sales will reach 35 trillion yuan ($5.56 trillion), an average annual growth of 13 percent and an ultimate consumption rate of 50 percent.

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