Although it's still a month away from the traditional Chinese lunar new year-Spring Festival-Zhang Liang has already been making serious plans for holiday travel.

Beijing born and bred, Zhang usually takes a few days during this time to travel.

In the past two years, Zhang went to Singapore and Thailand. This year, Zhang, yearning to relive his childhood experience of a traditional Spring Festival, plans to go to the countryside in Shanxi Province, about 850 km away from Beijing. There he expects to see every household lighting a campfire and unrestricted lighting of fireworks.

He estimates the trip will cost perhaps 5,000 yuan and he's ready to spend it freely on things like petroleum and village souvenirs.

Meet China's new middle class. Constrained previously by family obligations to travel home, these new consumers are striking out on their own to see the country and the world, spending whatever is necessary to become in a sense international citizens for the first time.

It was reported that during the 2006 Spring Festival, millions of people left Beijing, which became rather deserted compared with the boisterous scene in non-festival time.

Chinese consumption has soared with these long festivals and holidays. Each of the three seven-day holidays-Labor Day, May 1-7; National Day, October 1-7; and Spring Festival, which varies in date year by year-is named "golden week," reflecting the surging retailing volume of social consumption.

Currently, domestic consumption accounts for a small portion of China's GDP. But these golden weeks are considerably helping to boost domestic consumption. Some people have even suggested that the number of golden weeks should be extended.

Certainly consumers like Zhang are helping to drive consumption growth, which many hope will really take off in 2007 and beyond.

Policy driven

Zhao Xijun, Vice Dean of the School of Finance, Renmin University of China, suggested that the Central Economic Working Conference's efforts to stimulate consumption were important.

The conference, held in December 2006, stressed that domestic consumption should be expanded in 2007. The conference also highlighted the research on how to take specific measures to improve residents' consumption.

"Insufficient domestic demand is a deep-rooted problem of China's economy, which has brought prominent negative impacts," Zhao said. "It's urgent to encourage consumption."

President Hu Jintao further stressed this point at the meeting.

"In 2007, we'll insist on increasing the consumption of residents, especially that of farmers, and try to raise the income level and consuming ability of farmers and urban low-income residents," he said.

In Zhao's view, domestic consumption should propel the growth of the national economy in 2007.

Bi Jinquan, Vice Minister in charge of the National Development and Reform Commission (NDRC), pointed out that the first thing to do is to stabilize general price levels.

"That's good news for us," said Zhang Liang. "Only when prices are stable, can we consumers have confidence. If prices fluctuate too much, we may hesitate before making a purchase."

The Chinese Government has also promised to allocate more of the central budget to social security so that citizens would worry less about saving for retirement and spend more.

"More of the central budget can be allocated to help low-income people whether urban or rural to increase their income and further enhance their consumption," said Ma Xiaohe, Deputy Director of the Academy of Macroeconomic Research of NDRC.

Deputy Director Zhang Yutai of the Development and Research Center of the State Council made a preliminary forecast that this year's retail sales of consumer goods will grow 13 percent year on year.

Leading consumers

Although the low-income group has government policy support, the middle class like Zhang Liang is actually the main force in China's consumer market.

At the beginning of 2005, the National Bureau of Statistics released this conclusion based on a survey, "An annual income of 60,000-500,000 yuan is a criterion to delimit urban middle-income households (calculated by an average of three persons per household)." It's generally accepted as a criterion to define the middle class in China.

Ma Rong, a sociology professor at Peking University, said that according to this criterion, about 20 percent of Chinese households become middle class. Generally, Chinese middle class comprises people of the 30-45 age group, with most of them having a university degree. In 2007, more households will likely to join this middle class group.

As a result, instead of just the bare necessities, domestic consumers are expected to buy more services and products involving wealth management, autos, real estate, brand commodities, luxuries, education, communications and recreation.

Zhang Liang is obviously one of these important new consumers in China. As China's stock market matures, Zhang doesn't deposit his daily savings but uses them to buy stocks.

In fact, many Chinese are now saving less.

According to the People's Bank of China, in October 2006, renminbi savings deposits dropped 7.6 billion yuan compared with the previous month, decreasing for the first time since June 2001.

In 2007, renminbi business will open to all foreign financial institutions, which will bring China's high and middle-income earners more money managing consumption channels and further stimulate their consumption.

Serve the people and profit

Different from Zhang Liang, Liu Qingping doesn't care much about her own consumption. But her business reflects rapid growth in China's domestic consumption.

Liu, who comes from a rural village in Shanxi Province, set up a card and chess entertainment establishment in Beijing, which also provides beverage services. Liu said she earned about 80,000 yuan in 2006, doubling the profits in 2005.

According to the National Bureau of Statistics (NBS), among the consumption growth in 2006, urban service consumption grew quickly-3.8 percentage points higher than per-capita consumption. Statistics also show that commodity consumption growth slowed down while service consumption growth picked up during the year.

An NBS sample survey among urban households showed that in the first three quarters of 2006, the average per-capita consumption expense reached 6,480 yuan, up 8.9 percent from the same period in 2005. Among the consumption expenses, those of food rose by 5 percent, household facility service by 11.9 percent, transportation by 17.9 percent, communications by 9.6 percent, and education, culture and entertainment by 10.8 percent.

Professor Ma Rong said given the present situation, the trend that the growth of service consumption is faster than that of commodity consumption will continue in 2007.

But it doesn't mean commodity consumption will slow down.

A Diamond High Council report showed that in 2006, Chinese jewelry consumption reached 140 billion yuan, second only to that of the United States. Gold jewelry consumption reached 241.4 tons, with a total value of about 45 billion yuan, making China the third largest gold consumption country after India and the United States. Diamond consumption reached 30 billion yuan, ranking China fifth in the world in this area.

According to statistics provided by GFMS Ltd., a metals consultancy, China has become the largest consumer of platinum jewelry with annual sales hitting 1.4-1.5 million ounces, accounting for 44 percent of the global total.

The National Bureau of Statistics also said that in the first three quarters, gold and silver jewelries sold at big shopping centers increased by 25.6 percent. As the fourth quarter is always a hot season for gold jewelry consumption, the growth rate in October and November 2006 reached 42 percent and 39.4 percent respectively, the fastest growth speed of all commodities.

Although Chinese jewelry consumption is considerable by total consumption quantity and value, per-capita consumption is still lingering at a lower level. The per-capita gold consumption is only 0.16 grams, far less than the world's average: 0.7 grams. The figure also indicates that there is room for growth in this sector.

Zou Guoying, an analyst with Industrial Securities, noted that in 2007, Chinese consumption will rise and the demand for gold will be higher. In the meantime, relevant service industries relating to luxury consumption will continue to experience growth.

From poor to picky

In China, low-income people still make up the majority of the nation's population.

Sixty-seven-year-old Wang Rong and his wife live in a 9-square-meter room and are supported by the government. Every month, they may receive about 600 yuan from the government. However, when hearing that natural gas prices will rise, Wang felt uneasy, as they have to spend more of this limited income.

Meanwhile, the Chinese Government has listed "raising low-income earners' consumption capacity" as one of the major tasks in 2007. NDRC is determined to resolve the pricing problems much concerned by the general public.

"In 2007, we will strive to ease the problems relating to the high costs of education, medicare and housing," said Bi Jingquan.

Meanwhile, upper- and middle-class citizens are looking for better products and services.

"First of all, all products should be in good quality with sound after-sale service," said Zhang Liang. "Secondly, convenience should be provided in consumption."

Certainly, Zhang was hoping for a convenient trip to Shanxi during the Spring Festival.

"Is the way to your hometown good?" he asked his friend Lu Liang.

Lu responded, "Most of the way is express way, and some sections are second- level highway."

"That's great!" Zhang exclaimed.

If all goes according to plan, businesses and government officials will feel similarly as consumers open up their pocketbooks wider in 2007.

Consume-More Culture Chinese aren't known as spendthrifts. In 2003, the People's Daily announced that Chinese citizens' saving had hit 10 trillion yuan for the first time and its savings rate was 41 percent of Gross Domestic Product (GDP). By comparison, the combined net savings of households, businesses and government was only 1 percent of GDP in the United States, the lowest level in 50 years, according to Foreign Affairs. But things are starting to change in China. Ranks of the middle class are swelling. The rich are getting richer. The economy is humming. The result? People are starting to spend. Thriftily at least. In October 2006, renminbi savings deposits dropped 7.6 billion yuan compared with the previous month, decreasing for the first time since June 2001. And if China's residents shut their pocketbooks again, foreigners are likely to pour more cash into China, especially as the 2008 Olympic Games approaches-not that market strategists are paying attention to them. After all, with 1.3 billion people, China is renowned for its domestic consumer potential. Whether China will ever live up to global businesses' expectation of unparalleled consumer volume remains to be seen well beyond 2007. But certainly, consumers-from local Chinese to expats-are creating market opportunities where they never before existed, as Beijing Review found out for this week's cover stories.