By Zhu Qiwen (China Daily)
Updated: 2008-01-30 10:48

The country's retail sales have increased by an annual rate of 13.1 percent from 2002. And the latest retail sales figures clearly confirm the increasing strength of private consumption expenditure, supported by the persistent strength in household disposable income.

Chinese urban residents' average annual per capita disposable income jumped 17.2 percent to 13,786 yuan in 2007, according to the National Bureau of Statistics. Meanwhile, the per capita net income of rural residents was 4,140 yuan, or 15.4 percent higher than the previous year.

However, in spite of such strong income growth, Chinese consumers are still largely barred from spending sprees because of climbing inflation, inadequate supply of public goods, and the widening wealth gap across the country.

The country's consumer price index, a key gauge of inflation, jumped by 4.8 percent last year, compared to 1.5 percent in 2006. Especially, the double-digit growth in food prices had eroded the purchasing power of the poor more than other people.

Government expenditure on public welfare has increased in recent years but remains far from enough. It is estimated the country's consumption rate could be raised by more than three percentage points, if the government spent more on education and healthcare.

The income gap between urban and rural residents further widened last year. That explains why rural people, who account for two thirds of the population, consumed only one-third of the consumer goods in the country.

In view of these problems, the government should make good use of its growing fiscal strength to gradually remove all restraints on domestic consumption.

The Ministry of Finance declared last month it would offer farmers a 13 percent subsidy on the prices of home appliances. Such fiscal support to stimulate sluggish rural consumption and improve the quality of life is much needed.

Nevertheless, to boost overall domestic consumption, policymakers should offer a package of generous fiscal stimuli for the majority of Chinese consumers.

Today, many observers are optimistic about China's resilience against a possible global slowdown, believing that the Chinese government can readily resort to its ballooning national coffer to boost investments if its economic prospects become dim.

But long-term growth of the national economy requires that more fiscal incentives should be offered to consumers.

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