After the longest austerity drive in its 18-year reform history, China has now indicated its roller-coasting economy has finally achieved a 'soft landing'. That means tight monetary policies have brought inflation figures down from the high teens in 1993, to single digits without triggering a sharp downturn in the economy. Latest official figures revealed the country's gross domestic product (GDP) rose at a stronger-than-expected 9.8 per cent in the first six months and was expected to rise by 10 per cent for the whole of 1996. That was faster than the 8 to 9 per cent target set in March, but much slower than the heady growth of 14.2 per cent in 1992 and 13.5 per cent in 1993. There are signs Beijing is turning on the money tap to bail out teetering state-owned enterprises by increasing working loans and fixed asset investment, which have been under tight controls for the past three years. A sharp expansion of money supplies is unlikely given the Chinese leadership's repeated vows to maintain an appropriately tight monetary policy over the next five years. An apparent shift in growth momentum over the past few months has shown Chinese consumers are currently the primary source of economic growth. Merrill Lynch economists Nicholas Kwan and John Lye believe China's economy has largely been supported by soaring exports since Beijing brought on its credit squeeze to curb excessive investment in mid-1993. Merchandise exports rose 32 per cent in 1994 and 23 per cent in 1995, with the visible trade balance swinging from a deficit of 2.2 per cent in 1993 to a 2.5 per cent surplus in 1995. Exports started to slow significantly after Beijing's decision to cut tax rebates on exports. In the January-June period, exports fell more than 8 per cent over the same period of last year. Fixed assets investment eased to 18 per cent year-on-year during the same period. By contrast, the six-month retail sales of consumer goods, a proxy of consumption demand, rose by 13.2 per cent in real terms after inflation adjustment. Mr Kwan and Mr Lye estimated that despite high inflation, per capita inflation-adjusted income of urban residents grew 7.6 per cent annually between 1993 and 1995, while farmers enjoyed a lower 4.5 per cent annual growth. Over the first six months, the average real income growth for urban residents rose 4.2 per cent while the per capita income growth for farmers grew by 11 per cent in real terms. While much of the mainland population tends to deposit earnings in banks for rainy days, recent policy changes have persuaded people to change their minds. A recent survey by the People's Bank of China, the central bank, concluded that more people were 'shunning banks' and 'shifting to consumption' after the bank's moves to abolish the index-linked interest subsidies on bank deposits on April 1 and an interest rate cut on May 1. The subsidy cut had an immediate effect, according to the survey, with April savings deposits plunging to 60.97 billion yuan (about HK$56.7 billion) from the average 123.09 billion yuan for the previous three months. The bank's recent hint of another cut in interest rates later this year will likely further spur consumer spending. Some economists said Beijing's decision to increase grain purchase prices by 20 per cent would boost the spending power of farmers. Economists at SBC Warburg said the central bank's recent announcement of an increase in working capital loans to the state sector was implying higher wage growth.