China's potential clout as a strong consumer market was most evident during Spring Festival, the Chinese Lunar New Year.

 

Total retail sales of consumer goods reached 190 billion yuan (US$23.5 billion) in only seven days, up 15.5 percent over the same period last year. In Beijing alone, local residents went on a spending spree of 21.5 billion yuan (US$2.66 billion). That roughly equals an average per capita expenditure of 1,500 yuan (US$185). This is a fairly considerable sum, given that around two-thirds of the country's population only earns about 3,000 yuan (US$370) per year.

 

Those who insisted on the "Golden Week" holiday system welcomed the initial statistics the Ministry of Commerce provided. They clearly demonstrated the effect of long holidays on consumption levels.

 

However, for policymakers eager and determined to turn consumption into a growth engine as powerful as investment and trade, increased consumption over the holidays is no reason for complacency. The authorities actually still have a lot to do if they want to expand the impact of consumption on the national economy.

 

The holiday consumption boom provides a useful lens through which different consumer demands and expectations can be interpreted. This information is crucial to drawing up supportive policies and measures to expand domestic demand.

 

For instance, though exorbitantly expensive New Year's Eve dinners grabbed headlines in local newspapers, dinning out has become increasingly popular in major Chinese cities. The surging revenue of the catering sector certainly calls for increased support, but it is misleading to rely on this as a means of stimulating long-term consumption.

 

A recent survey by a Beijing-based social psychology research institute shows that, measured by the proportion of income spent on food, living standards in Beijing have already reached a level that is acceptable in a wealthy society. Local residents only need to spend 35.2 percent of their income on food. Internationally this proportion falls between 30 and 39 percent. The lower the proportion is, the richer the society is.

 

As China's economic growth continues, residents in major cities will therefore become wealthier, and the amount they spend on food will shrink further.

 

That means the focus of urban consumption will gradually but steadily shift away from food to other things such as housing, education and healthcare.

 

All of these new growth areas in urban consumption patterns will be less sensitive to long holidays, at least compared to dining and shopping. They are of greater importance to overall annual consumption growth, however.

 

Policies that are adapted to the changing consumption patterns of urban residents will largely determine the success of the country's ongoing campaign to boost domestic demand.

 

Encouraging increased consumption among wealthier consumers is only half the battle, however. It is equally, if not more, important to encourage and enable rural residents to increase consumption levels to raise their living standards.

 

The huge income gap between urban and rural residents has become a huge drag on the country's sustainable growth.

 

Nevertheless, if specific consumption policies can be designed to meet the different demands of a range of domestic consumers, they can achieve more in improving the public welfare than merely fuelling economic growth.

 

(China Daily February 6, 2006)