Consumer demand keeps growing

China's retail sales rose 13.6 per cent year-on-year in the first two months of this year, continuing an upward trend started in the fourth quarter of 2004.

Retail sales, an important barometer of the nation's consumer demand, stood at 1.03 trillion yuan (US$124.3 billion) during the January-February period, the National Bureau of Statistics said yesterday.

Peng Longyun, a senior economist at the Asian Development Bank, said the figures were encouraging, suggesting the country's consumer demand was growing.

"Retail sales will continue to grow at a double digit growth in the remaining months of this year," he said.

Liang Hong, an economist at Goldman Sachs (Asia), said: "We expect consumer demand to hold up well and to be a more important source of growth for domestic demand in 2005."

The leading Consumer Confidence Index compiled by the statistics bureau has been improving continuously since August 2004.

"We believe strong private consumption is likely to play an increasing role compared with investment in driving domestic demand and gross domestic product growth," she said.

"We expect fixed asset investment data to show further slow down when it is released on Wednesday."

Qi Jingmei, a senior economist at the State Information Centre, said China's retail sales are expected to grow 13 per cent during the first quarter and the whole of 2005.

Growing number of affluent people will continue to shift their consumption from small items such as washing machines and TVs to large items such as houses and cars, she said.

Consumer demand will also be fuelled by medium and low-income people in urban areas, who are expected to obtain more support from the government, and the vast rural population, whose income grew 6.8 per cent year-on-year in 2004, Qi said.

"More spending is what the government wants to see, because it wants to increase consumption but curb over-investment," she said.

China has long suffered from weak consumption demand compared with its fixed asset investment, which many economists believe would have a negative economic impact.

They believe that a rapid growth in fixed investment but weak demand would result in production oversupply.

In a bid to lift consumer demand, the government has taken a host of measures, including cutting taxes, increasing agricultural subsidies and improving social security for the urban poor.

It also strengthened macro-control measures to curb over-investment in sectors such as steel and cement.

China's consumer demand will remain stable this year, predicted Zhang Liqun, a senior researcher at the State Council Development Research Centre.

"There will be no major fluctuations," he said.

Source: China Daily