"In 2009, excessive production will become a major problem," Liu told Beijing Review. "PPI and CPI will drop significantly in 2009, which will help boost consumption."

She estimates that total retail sales in 2009 will grow 18 percent taking into account shoppers' income growth, the employment situation, price fluctuations and the government's consumption policy readjustment. Liu believes the consumption market will remain robust.

"The Chinese save over 50 percent of their income, plus they have deposited about 20 trillion yuan ($2.9 trillion) in the banks," Liu said. "They do not lack money."

Evidence of this can been seen in the tourism industry, which has been growing vigorously in the past two years. A report issued by Beijing-based Tianxiang Investment Consulting Co. Ltd. indicated results that differed from those of the Horizon Group. Tianxiang said although demand for travel still existed at the beginning of this year, decreases in income would force people to change their travel habits, and more would choose short-distance tours instead of long-distance ones.

Government measures

China Consumers' Association held a nationwide meeting on January 8 to create a number of stimulus measures to boost consumer confidence. Its primary measure is to set up a sound rural distribution network by creating or revamping a number of rural product retail and trade markets to boost the distribution of rural products.

In addition, the National Development and Reform Commission (NDRC) is busy enacting a proposal dedicated to increasing residents' income and stimulating domestic consumption. An official with the NDRC who declined to be named because he was not authorized to talk to the media told Beijing Review that the proposal includes several aspects. Among these are increasing the personal income tax threshold and salaries for employees in all industries, establishing a sound minimum living allowance mechanism covering poor people in all regions, and raising housing allowance standards.

The government also is trying to boost sales of automobiles and real estate. On January 14, the State Council, China's cabinet, passed a series of policies to boost the auto industry by cutting the purchase tax on cars with small engine displacements of less than 1.6 liters to 5 percent from 10 percent from January 20 to the end of this year. The government also will set aside 5 billion yuan ($730 million) to subsidize farmers who discard their overused high-emission vehicles and buy vehicles with engine displacements of 1.3 liters.

Meanwhile, the government has pledged to fully support mergers and acquisitions among the country's major auto groups. It will set up a fund of 10 billion yuan ($1.5 billion) over the next three years to help car manufacturers to upgrade their technology and manufacturing processes.

In terms of real estate consumption, the government introduced a new policy for individual home sales last October 22. Under its provisions, those who take out loans to purchase individual homes only have to make down payments of 20 percent of the value of their homes instead of 30 percent and could receive interest rates that are 30 percent off of the benchmark loan rate.

Apart from the Central Government's stimulus policies, local governments are enacting measures to boost consumption as well.

Han Zheng, Mayor of Shanghai Municipality, said at a meeting on January 13 that his city was determined to boost consumption in nine areas this year, including the purchase of homes, cultural entertainment, education and training services and fitness-related services. It also would develop the local retail market and promote the purchase of other kinds of services. It was the first time that the Shanghai Municipal Government listed "encouraging consumption" in its work report in the face of bleak prospects this year. Consumption accounted for 53 percent of the city's GDP last year, and the city wishes to maintain that momentum in 2009.

Domestic Consumption Forecasts

1. China Iron and Steel Association: Commodity

consumption will decrease.

The association's preliminary estimate shows that commodity consumption will fall this year, including lower domestic crude steel consumption of 430 million tons, or 20 million tons less than in 2008.

2. Ministry of Commerce: Consumption will remain robust.

It estimates that China will become one of the biggest consumption markets in Asia this year. In 2014, China will become the biggest market for luxury goods and will account for around 23 percent of the world's total purchases of such items.

3. National Bureau of Tourism: Travel is still on consumers' agenda.

The bureau's survey conducted in early January shows that the Chinese are keen on traveling despite the influence of global financial crisis and that 92 percent of the respondents said they wanted to travel this year.