BEIJING - China's
consumer spending, which already makes a
lackluster contribution to the world's
fastest-growing economy compared with investment
and trade, may have hit a two-decade low as a
share of gross domestic product (GDP) last year,
despite anticipated growth in urban income higher
than that of the aggregate economy, according to a
Chinese government think-tank.
As housing
prices continue to rise, Chinese people's stronger
desire to buy their own homes may further curb
their consumption of other commodities.
Consumption by Chinese residents
contributed only about 36% to
GDP in
the first three quarters last year, according to
the report. That compares with around 60% from
1978 to 2002, when China just started its economic
reforms and opening up to the rest of the world.
The figure slipped to 50% in 2006.
The
latest decline comes as inflation-adjusted
disposable income of Chinese urban residents
increased by about 13% year-on-year in 2007, a
report by the Chinese Academy of Social Sciences
(CASS) said.
If that pace continued to the
end of the year, it will be the first time for the
past five years that growth of urban income
surpasses economic growth, according to the
report. China's economy was forecast to expand by
about 11.5% in 2007. The country's income growth
also outpaced economic growth in 1979, 1986, 1990,
2001 and 2002.
The CASS report said the
income of Chinese farmers would also be at an
11-year high of 8% growth last year.
The
smaller consumption contribution to the country's
sizzling economy, compared with an average 70%
across the world, had long been seen as a weak
link in the country's economic growth. The report
said consumer spending was mainly dragged down
last year by surging housing prices, with people's
stronger desire to buy their own houses curbing
consumption of other commodities, according to Li
Peilin, director of the Sociology Institute under
CASS.
Housing prices jumped 7.3% across 70
cities in January-November compared with a year
ago, even as the government took measures such
raising interest rates and acting against
speculators to limit increases. In some cities
such as Beijing and Shenzhen, Li said, prices rose
by more than 10% in the first 11 months last year.
In November alone, housing prices in the
70 cities were up 10.5% on average year-on-year,
the largest monthly gain since July 2005 when
China started to cover more cities in its monthly
housing price survey.
Li said another
factor was the surging price of food, especially
of pork, vegetable, edible oil and grain. In
November, the consumer price index rose 6.9%, more
than double the government's inflation target of
3% and the biggest increase since 1996. Food
prices, accounting for one-third of China's CPI,
ballooned 18.2% year-on-year in November, compared
with 17.6% in October.
Fixed-asset
investment, exports and domestic consumption are
considered as the troika pulling forward China’s
economy. However, in the past two decades,
domestic consumption has remained weak while
growth in investment and exports are strong. So
much so that there is a saying in China that the
cart of the Chinese economy is pulled by two
strong horses and one weak donkey.
In
January-September, 2007, China’s GDP totaled
16.604 trillion yuan (US$2.3 trillion), up 11.5%
year on year. Fixed-asset investment reached 7.825
trillion yuan, up 26.4%. Exports grew 27.1% to
US$878.13 billion (6.806 trillion yuan). By
comparison, social retail, the indicator for
domestic consumption, increased by only 15.9%
during the period to 6.383 trillion yuan.
During the period, domestic consumption
was equivalent to 38.4% GDP. By comparison,
exports and investment was equivalent to 41% and
47% of GDP respectively.
Traditionally,
Chinese people are fond of saving money, though
the Chinese government now wants to encourage them
to spend. By the end of November, private savings
in Chinese banks totaled 17.033 trillion yuan,
371.6 billion yuan more than the end of 2006, even
as many people withdrew their savings to play
stocks.
''China lacks a sound public
medical care system and a sound social security
system, and as a result, working people have to
save money for the rainy day and in case of
illness,'' a sociologist researcher with CASS
said, who declined to be named. ''Moreover, costs
in education have been growing like mad, and
parents have to save for their children’s future
schooling.
''To encourage people to spend,
the government cannot just shouting slogans. It
must take real action to put people’s mind at ease
about their future,'' he said.
Consumer
spending may get a boost from the National
People's Congress recent decision to raise the
individual income tax threshold from 1,600 yuan a
month to 2,000 yuan, effective from March 1. The
threshold rise will mean 70% of income earners
will be free from paying income tax compared with
the present 50%. The amendment will go into effect
as of March 1, 2008.
The country's leaders
have repeatedly called for a bigger role of
consumption in the economic growth to relieve its
reliance on investment and exports. The point was
stressed again at the 17th National Congress of
the Chinese Communist Party (CCP) in October last
year.
But in face of growing costs in
housing, medical care and education in recent
years, Chinese people are tending to save more. In
past couple of years, increasing numbers have also
been putting their money into the stock market,
instead of spending, analysts say.
The
number of new A-share stock accounts opened daily
reached about 350,000 in April. As the country's
stock markets became more volatile in the second
half, the number of new accounts opened per day
dropped significantly, but still hit 122,000 in
the last week of November.
Enthusiasm of
retail investors helped to drive up the benchmark
Shanghai Composite Index almost threefold before a
retreat towards the end of the year, after it more
than doubled in 2006.
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