Domestic consumption must drive China’s economy in future: CASS report

Economic restructuring with a focus on boosting domestic consumption is needed to ensure sustained growth in China, according to a Chinese Academy of Social Sciences (CASS) report released on Wednesday.

The Chinese economy has been export-oriented and investment-led for many years, while consumption has played a lesser growth role, according to the Annual Report of China’s Commercial Sector 2011, compiled by CASS’s Institute of Finance and Trade Economics.

“Having growth depend on infrastructure investment and export is not sustainable. Domestic sources of growth, especially consumption, are important for China to maintain fast economic growth over the next 10 years and beyond,” Jing Linbo, deputy director of the Institute and chief editor of the report, told the Global Times on Wednesday.

However, the household consumption rate in China, defined as the ratio of total household consumption expenditure to GDP, decreased from 46.4 percent in 2000 to 35.1 percent in 2009.

Incomes must rise in order to boost consumption, Jing said, but household incomes, especially in rural areas, are growing at a slower rate than GDP. The ratio of household income to GDP has fallen from 60 percent in 1992 to 52 percent in 2010, the report said.

Meanwhile, the high cost of logistics leads to price hikes and further reduces households’ relative income, Gao Peiyong, director of the Institute, said.

“This is caused by the imbalanced taxation structure plus irregular charges. Compared with the US where most tax is direct tax paid by individuals, 70 percent of all tax in China is indirect tax paid by enterprises, which has a much greater impact on price,” he said.

China’s consumer environment, beset by safety scandals and low levels of public trust, and a lack of innovation also contribute to the decreasing consumption rate, Jing said.

However, sales of retail consumer goods continue to increase, up 14.8 percent in 2010 over 2009, signifying that a big consumer market is taking shape in China. Growth will maintain an annual rate of 17 percent and China will overtake the US to be the biggest market of consumer goods by 2015, Jing said.

According to the 12th Five-Year Plan (2011-15), domestic consumption rate is expected to grow by 2 to 3 percent over the next five years.

Source:Global Times

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