High Consumer Confidence Good for Chinese Economy

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Last updated at: (Beijing Time) Tuesday, July 09, 2002

High Consumer Confidence Good for Chinese Economy

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China's consumer confidence index has grown steadily since the beginning of the year. By the end of June it had recovered to 97.3 points, equal to last September's level and a mere 0.1 points below that of mid 2001.

Analysts say this augurs well for greater consumption and economic growth in the second half of the year.

The consumer confidence index which shows consumer views and expectations of the current and future economic situation, is based on a sample survey conducted among 4,200 consumers from six Chinese cities.

Since buying power accounts for around half of China's gross domestic product (GDP), the index is one of the most important signs of the country's future economic growth.

Macro-economy performed better than expected

China's macro-economy has performed better than expected. Exports, foreign investment and investment in fixed assets have all shown an upward trend, while the exchange rate for RMB has remained stable this year.

Compared with the beginning of this year, the proportion of consumers claiming to be "satisfied" or "relatively satisfied" with the current economic situation has risen markedly, statistics show.

Indications of a world economic recovery have helped boost consumer hopes for China's economic outlook.

China's stock market has emerged from a year-long downturn thanks to a halt in selling state-owned shares on the domestic security market in late June. The National Bureau of statistics (NBS) said 70 percent of consumers expressed satisfaction with the performance of the stock market, a barometer for the macro-economy.

Improved consumer confidence backed the rapid growth of the Chinese economy to a large extent. Retail sales climbed up month-on-month in the first five months, and such bright spots as commercial real estate, tourism and auto sales have gradually emerged. The sale of cars soared by 64.6 percent in May on a year-on-year basis.

Increased consumption contributed to the upward trend in economic growth. The Chinese Academy of Social Sciences predicts economic growth will reach 7.5 percent for the first half year dueto the combined push of buying power, investment and exports.

With stronger consumer confidence, it is also foreseeable that people will spend more in the second half of this year.

Statistics indicate that the percentage of consumers planning to buy durable commodities is higher in the second quarter than in the first. The consumer expectation index in June hit a second high for this year, indicating that consumers are optimistic about the prospects of the country's macro-economy and their personal incomes.

Consumers' rosy income expectation stem from economic growth and the improved business performance, as well as the Chinese government's series of measures to increase people's earnings.

Since 1999, China has repeatedly raised the salaries of its civil servants and subsidized local governments to ensure grass-root employees are paid on time.

More than 100 million people are estimated to have benefited. Chinese finance minister Xiang Huaicheng has pledged to raise the salaries of civil servants again from July 1.

Increased income does not lead to more spending

However, increased income does not necessarily lead to more spending. The NBS says consumers still have their own worries.

The Development and Research Center of the State Council also acknowledged in a report that consumers are still far from pleased with their income prospects due to job pressures brought on by economic restructuring.

The people's savings deposited in China over the first five months of this year rose by 671.7 billion yuan (80.9 billion US dollars), mirroring greater concern over education, health care and life after retirement plus relatively narrow investment channels.

Analysts are nevertheless optimistic enough to predict that given the active performance of the stock market and steady economic growth in the rest of the year, consumer confidence, will rise again which will further boost China's buying power.

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