China urged to increase domestic consumption to rebalance economy

The mainland must try harder to rebalance its business model, said analysts after reviewing year-end data that showed fixed- asset investment accounted for bulk of the country's gross domestic product last year.

"The trend lines in the past years have been that they've relied on investment to drive growth," said Patrick Chovanec, chief strategist at Silvercrest Asset Management. "We are talking about a shift from one kind of growth model that brought China up to this point … to another to grow investment, but it has to be matched with consumption domestically."

Recently, the nation's leaders have talked about moving from a traditional model that depends on exports and infrastructure investment to one focused more on domestic consumption. Analysts say that credit-driven investments are generating steadily depreciating returns and, left unchecked, would lead to debt defaults, bankruptcies, and in the worst case, a financial crisis.

Using a different method of calculation, Larry Hu, head of China economics at Macquarie Group, estimated national consumption to be about 30 per cent of GDP. That would likely increase to 40 per cent in the coming years, he said. By comparison, US domestic consumption was 69 per cent of GDP in 2012.

Consumption fell as a percentage of GDP, while fixed-asset investment rose. This happened despite buoyant retail sales data, with reported sales rising 13.6 per cent in December from a year earlier. Sales are expected to continue growing at 12 to 14 per cent annually, said James Roy of consumer spending analysts China Research Group.

For years economists have been urging China to rebalance its economy and Chinese officials seemed to have heard the call.