Reviving a New Engine
China should let its consumers and entrepreneurs play a larger role in driving economic growth
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UPDATED: April 21, 2014 NO. 17 APRIL 24, 2014
Off to a Good Beginning
China doubles down on reform and consumption as future drivers in the wake of declining growth
By Zhou Xiaoyan

Eyes on consumption

Upbeat consumption data are the biggest highlight among the first-quarter results.

Consumer spending against the country's GDP was 64.9 percent in the first quarter, up 1.1 percentage points from the same period last year.

"Exports contributed less to GDP in the first quarter than the same period last year. Meanwhile, the growth in investment is slowing from the previous quarter. Therefore, consumption's contribution to GDP is on the rise, although the specific percentage is still under calculation" said NBS spokesman Sheng.

"It's premature to say the Chinese economy has already been transformed from investment-driven to consumption-driven. But it's definitely happening," said Sheng.

People's willingness to spend is directly connected to a stable job market and their deeper pockets.

Disposable income of urban residents increased 7.2 percent in the first quarter and rural residents' cash income surged 10.1 percent during the period.

Zhao Ping, Deputy Director of the Consumer Research Department under the Chinese Academy of International Trade and Economic Cooperation, said boosting investment alone will inevitably lead to overcapacity. Only by combining boosting investment and expanding domestic demand can the problem be solved. "It's quite necessary to release some incentives to boost consumption."

Wang Jun, the CCIEE researcher, said previous short-term incentives will no longer be adopted. Instead, a long-term mechanism will be established to stimulate consumption.

"For instance, tax related to the circulation of commerce and trade will be reduced to lower logistics costs. Also, the threshold of e-commerce will be lowered and infrastructure construction, such as broadband, will be strengthened."

China's ongoing drive toward urbanization boasts the biggest potential for boosting consumption.

The State Council released the National New-Type Urbanization Plan (2014-20) on March 16. According to the plan, by 2020, 60 percent of the population will be urban residents, while 45 percent of the total population will be residents with urban hukou, permanent residential registration.

According to the NBS, at present, 260 million migrant workers are living and working in cities. From now to 2020, about 100 million migrant workers will move to cities.

Liu Yuanchun, Vice Dean of School of Economics at the Renmin University of China, said the key to unlocking the consumption potential in the urbanization process lies in a stable job market, continuous increase of migrant workers' income and granting such workers equal access to public services, such as education, medical treatment and affordable housing.

"As more farmers become urban dwellers, cities should not only invest more in roads, bridges and buildings, but also earmark more funds on projects related to people's wellbeing so that those new urban dwellers can have equal access to public services as traditional urban residents," Liu said.

"Urbanization drive will bring about an increase in investment and consumption and provide continuous momentum for China's economic growth in the years ahead."

Email us at: zhouxiaoyan@bjreview.com

Major macroeconomic indicators in Q1

- Consumer price index (CPI), the main gauge of inflation, rose 2.3 percent year on year.

- Foreign trade declined 1 percent year on year to $966 billion. Exports declined 3.4 percent to $491 billion while imports increased 1.6 percent to $475 billion.

- Industrial output grew 8.7 percent year on year.

- Fixed assets investment rose 16.3 percent year on year to 6.83 trillion yuan ($1.11 trillion).

- Retail sales expanded 10.9 percent year on year to 6.2 trillion yuan ($1 trillion).

- The per-capita disposable income of urban residents stood at 8,155 yuan ($1,311), up 7.2 percent year on year.

- The per-capita cash income of rural residents stood at 3,224 yuan ($518), up 10.1 percent year on year.

- New yuan-denominated loans amounted to 3.01 trillion yuan ($488.9 billion).

- M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 12.1 percent year on year.

(Source: National Bureau of Statistics)

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