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Higher income fuels consumer spending

By Wang Bo (China Daily)
Updated: 2009-04-17 07:59

The beginning of the year is usually the slack season for automobile sales, but salesman Lu Wei saw his sales volume surge by a dozen in March, a growth he could not expect several months ago when the global financial crisis triggered the economic slowdown.

Related readings:  Consumers gloomy on income front  HSBC report: China consumer spending still strong  China's consumption to hit record low  Consumers tighten purse strings

"It seems consumers are loosing their purse strings after holding back for a few months," Lu said, but the question that lingered in his mind was whether such robust sales are sustainable amid the uncertain economic scenario.

Lu's concern, shared by many of his fellow colleagues, comes against the backdrop of hopeful signs emerging in the economy, suggesting domestic consumers are now less tight-fisted than in recent months.

In the first quarter China's retail sales grew 15.9 percent in real terms, up 3.6 percentage points from a year earlier and 1.1 percentage points higher than 2008, the National Bureau of Statistics (NBS) said yesterday.

"Domestic consumption enjoyed steady and fast growth, and the momentum is likely to continue in the near future," Li Xiaochao, spokesman of the NBS, said at the release of China's first quarter economic figures.

Hailing consumption as a "reliable force" bolstering China's economic growth, Li said sales in the domestic market would continue to grow in a steady and relatively fast manner driven by the solid increase in Chinese people's income and bank savings.

Disposable income of urban residents averaged 4,834 yuan in the first quarter, rising 11.2 percent in real terms, while the average cash income of rural dwellers was 1,622 yuan, up 8.6 percent year-on-year, according to the NBS.

Bank savings of urban and rural residents reached 24.3 trillion yuan, or more than 20,000 yuan per capita by March, Li said.

Sales in rural areas have been robust, surging 17 percent in the first three months, compared with the 14.1 percent growth in urban areas, suggesting rural consumption is gaining traction from the government program of subsidizing manufacturers to support sales of home appliance and automobiles in rural areas.

The country recently announced a slew of measures to jack up domestic consumption in a bid to offset the export slump as a result of lackluster overseas demands, which includes raising pension and minimum allowance for low-income people and issuing vouchers in some cities to boost consumption.

As the latest move, the government kicked off its 850 billion yuan spending program to offer universal accessible healthcare to China's 1.3 billion people in the next three years, which is expected to provide great sense of security for people to spend more in future.

Despite the recent upbeat signs, many analysts warned that the prospects of consumption is still uncertain, given rising unemployment and weaker income growth outlook.

Consumer income growth has seen marked slowdown in the first quarter, as the pace of growth decelerated from last year's 14.5 percent in urban areas and 15 percent in rural areas, Ken Peng, economist with the Citigroup said in a research note.

"As production cutback starts to erode corporate profit, people will see their income growth moderating and consumer demand may thus soften," said Liu Shijin, deputy head of the Development Research Center affiliated with the State Council.

A Chinese Academy of Social Sciences report released on Tuesday forecast Chinese farmers' income would grow by just 6 percent this year due to falling agricultural prices and rising unemployment, while migrant workers' income growth will moderate to 5 percent, compared to more than 10 percent last year.