China's economic shift awakening huge consumption potential

BEIJING - China's evolving economic structure and high-quality development have been accompanied with stronger, new consumer spending power, creating a growth engine with enormous potential.

While Chinese consumers are expected to spend more on services in 2019 as the economy becomes increasingly consumption-driven, rural areas will flex their muscles by further unleashing market potential.

More service consumption

Consumption has been the main driver of China's economic growth for five consecutive years, but the growth of total retail sales of consumer goods showed signs of slowing in 2018, fueling concerns of "sluggish demand" and "consumption downgrading."

Growth of total retail sales of consumer goods edged down by 1.2 percentage points in 2018. The reading did not take into account the fast-growing service consumption, which stands for 49.5 percent of total consumer expenditure, said Vice-Minister of Commerce Qian Keming.

For example, China's domestic tourism industry made an overall contribution of 9.94 trillion yuan ($1.48 trillion) to the country's GDP in 2018, accounting for 11 percent of total GDP, according to data from the Ministry of Culture and Tourism.

A booming tourism market is partly enabled by more emphasis on balancing environmental protection and economic growth, an important mission of China's high-quality development.

The National Forestry and Grassland Administration has recently released a guideline on promoting the forestry industry, vowing to expand forest tourism while conserving natural resources. In 2018, trips to forests grew by 15 percent year on year to account for nearly 30 percent of total domestic travel in China.

Qian said slower goods consumption mirrored the ongoing optimization of China's consumption structure. The Ministry of Commerce said service consumption would be a major driver of overall consumption growth in the future.

Huge potential

China's consumption potential is huge. Authorities have rolled out a slew of incentives to shore up consumption, and rural areas are showing more vigorous spending power.

Kevin Kang, KPMG China's chief economist, said policies to expand domestic demand, open wider the service industry and cut income taxes would inject new impetus into consumption growth.

A policy plan jointly released by 10 ministry-level authorities envisions that rural areas will see faster development of online shopping, e-commerce and tourism. It has also highlighted car replacement in rural areas.

Chinese e-commerce giant JD.com reported robust businesses during the Chinese New Year holiday, with fourth-tier and sixth-tier cities leading sales growth of over 60 percent, signs of rising spending power in the country's less-developed areas.

Kang said the rural market would play a significant role in unleashing consumption potential, citing a huge rural population, rapidly-growing rural income and a new appetite for trading up.

"Consumption is expected to contribute over 80 percent of GDP growth in 2019," said Guo Xiaobei, a researcher with China Minsheng Bank. The proportion was 76.2 percent in 2018.