Expanding domestic demand is now the top policy priority for the the nainland, according to informed mainland observers. Premier Zhu Rongji wants to keep growth from dropping below the 8 per cent benchmark this year, yet no one seems to have a clue how this will bedone. The only visible new policy measure - housing reform - is not in the short term going to boost consumption or create many new jobs. Yesterday, the Economic Daily joined other newspapers in trying to keep morale high with an editorial expressing confidence that the government can raise consumer demand. Yet even this loyal mouthpiece hints at serious worries about the future. Everything points to a further decline in consumption. In the past five years, average annual income growth has slowed from 9.5 per cent to just 2.9 per cent last year. Rising unemployment means households will prefer to save more instead of splurging on new consumer goods. Yet some forecasters, such as Dresdner Kleinwort Benson, think that the corner is about to be turned, because, after four years of austerity, China is finally going to prime pump the economy with additional infrastructure spending. This is also the reassuring message of the Economic Daily, which is holding out the possibility of fixed-asset spending rising by 15 per cent this year. The only question, it says, is how to spend the extra money. It trots out a vague list of dull but worthy areas like agriculture, forestry, water irrigation, railways, highways and telecommunications, urban public facilities, environmental protection, the information industry and, of course, the prize exhibit - urban housing. The trouble is that mainland economists have been saying this sort of thing for nearly six months, but no details have emerged, suggesting there is not yet even a plan in some top drawer. Dresdner reckons China ought to spend an extra US$100 billion a year on such things over the next few years. Even if enough projects could be quickly set in motion to absorb such sums, this sort of spending, if it happens, will not actually do much to stimulate consumer demand or help factories offload inventories. What is more worrying is that the only existing new policy, creating a domestic housing market, might actually dampen consumer spending, according to a Merrill Lynch report. Consumers will have less money than ever to spend on goods. The report foresees a steep increase in cash wage payments, and an investment boom in economy housing next year. But it also concludes that housing is 'unlikely to have any significant near-term macro-economic impact'. The establishment of a housing market could create a million new jobs, but Merrill Lynch says this will neither dent the growing unemployment total nor reverse the slowing growth rate. Yet Premier Zhu has gone on record as saying that housing will become a key pillar of growth this year, and this is still the view amplified in the mainland media. Dresdner's report calculates that ending subsidised housing and selling off half the housing stock could over the next three years free up between $90 billion to $135 billion in unproductive household deposits. All in all, mainland households are reckoned to have about $600 billion in the banks, or 40 per cent of all financial assets. This could break up the log jam in the banking system, but even Dresdner doubts that growth can exceed 7 per cent this year and fears it might still be below 8 per cent next year. If Mr Zhu wants to be seen to stick to his promises in his first year as prime minister, he will either have to fiddle the figures or hope, like Mr Micawber, that something will turn up later this year. Even the loyal Economic Daily warns that there is no chance that exports will pick up in the near term.