Li strikes a chord by talking shop
It's not unusual for China's officials to publish papers before they move to a higher position. But no one had ever written one on the importance of consumption - until now.
Vice-Premier Li Keqiang, widely tipped to become the nation's next premier, used the pages of the latest edition of Qiushi, a theoretical journal of the Communist Party, to extol the virtues of something the party used to scorn as the epitome of bourgeois economics.
Yet his celebration of spending and shopping could not have been more timely, given that two of the three horses pulling the wagon of the mainland economy were no longer generating enough power, said He Jun, senior economist with Anbound, an independent consultancy in macroeconomics.
The first horse, foreign trade, has been seeing unstable growth since the third quarter of last year.
Demand from Europe and the United States remained weak, and the yuan's value against the dollar had risen nearly 30 per cent since 2005, He said.
In January, partly because there were fewer working days than in the same month a year earlier thanks to the Lunar New Year holiday, exports and imports declined markedly year on year. In Guangdong, the largest trading province, exports fell by 9.2 per cent year on year. Imports dropped a steep 27.2 per cent.
The second horse, government investment, remained stable but on a tight rein, He said. The generous credit for government projects seen in 2009 and 2010, now 'would be impossible', after the easy credit of two years ago triggered inflation that troubled economists.
Only the third horse pulling the economy's wagon - domestic consumption - has the potential to do more work.
Li's recent article shows exactly how much importance the leadership attaches to the issue.
For Beijing to sustain the economy's continuing growth, it must count on mainland consumers, said Zuo Xiaolei, chief adviser to the chairman with Galaxy Securities, a domestic brokerage. Economists in Beijing widely expect the government work report of Premier Wen Jiabao, to be delivered to the National People's Congress tomorrow, to highlight a package of new consumer-friendly policies.
The Ministry of Commerce has set as a target retail sales growth of at least 15 per cent each year through to 2015. Last year, retail sales on the mainland totalled 18.1 trillion yuan (HK$22.3 trillion), up just 11.6 per cent year on year after taking inflation into account. That was more than 3 percentage points lower than 2010's retail growth.
Still, the ministry felt comfortable in setting a target of 30 trillion yuan for annual retail sales by 2015. 'Remember, this is a consumer market of 1.3 billion people - and its growth rate has recently been 18 per cent or more for many years,' said Hong Tao , professor of economics at the Beijing Technology and Business University.
The consumer market would boom if Beijing could design some consumer incentives and set policies that boost the general income level, Hong said.
But difficulties abound. In late January there were rumours of a downsizing plan at Li Ning, a sportswear and sports-shoe maker, triggered by a profit decline last year of 7 per cent.
The company had reported revenue of US$1.4 billion in 2010.
Domestic manufacturers of home appliances, kitchen equipment and toilet fixtures have openly complained about difficult sales, the result of government intervention in the housing market.
'Many of our clients said business has been getting more difficult since the Lunar New Year holidays,' said He, the economist.
Those holidays are as crucial to China's retailers as is Christmas in Western countries.
But this year, sales failed to grow as much as they did in the holiday period last year.
According to the Ministry of Commerce, key retail and service enterprises during the holiday week of January 22 to 28 generated 470 billion yuan in sales, representing growth of 16.2 per cent year on year.
The year before, growth was 19 per cent.
The appetite of mainland consumers is growing 'faster than that of any other country', according to the World Luxury Association. But they spend four times more on luxuries when they travel abroad than at home, where such goods tend to be more expensive, the association said.
Outbound tourist traffic may be rising - many travel agencies reported 20 to 30 per cent increases during the Lunar New Year season - but mainlanders in general have not turned into big spenders.
In Beijing, consumption of firecrackers fell this year by an estimated 40 per cent, the local press said, based on the weight of firecracker refuse reported by municipal waste-collection authorities.
A policy readjustment, however, would be unlikely to yield immediate results. Last September, after a public debate, the threshold for individual income tax was raised to 3,500 yuan per month from 2,000 yuan per month.