Crucially, Beijing is experimenting with scrapping the 50-year-old hukou system and allowing private investors to set up lending companies.

The system ties individuals to their birth place via registration, which determines their state benefit entitlements. It has retarded labour mobility, income growth and urbanisation and, hence, consumption growth.

This year, Jinan, the capital of Shandong, was the first to scrap the hukou system. The move could be a forerunner for a similar national policy later, which will be positive for consumer demand.

Meanwhile, a growing middle class is boosting retail demand. China's middle class, estimated to be only 4 per cent of the total population, is expected to grow by more than sixfold to about 360million by the turn of this decade.

The consumption power behind these forces has been unleashed by inefficient sunset industries being replaced by more efficient ones.

Financial liberalisation has also boosted consumption by allowing borrowing to fund current consumption.

China's personal loan market, including mortgages, is still in its infancy. Further liberalisation will sharply boost consumption.

Government policy is encouraging the shift to consumption-led growth. Monetary policy is likely to be less supportive of investment going forward, as past monetary expansion and a rise in energy prices have put the central bank on inflation alert. Meanwhile, the yuan's long-term appreciation and the ending of many export tax rebates will encourage manufacturers to switch from exports to domestic markets.

The 11th five-year plan, approved in March, has made boosting domestic consumption a top priority. To distribute income more evenly, Beijing has eliminated all agricultural taxes and lifted the personal income tax exemption allowance to spur consumption. It will spend more on infrastructure and power networks in the rural areas.

From a capital allocation perspective, China retail is appealing because retail properties in the United States and Europe have already experienced some steep run-up in recent years. However, all the developed markets' consumer sectors are facing a slowdown.

China's retail property market has just been opened up for foreign investment. Almost all international retail brands entered China last year with large expansion plans.

China's big city spending has just started to shift to western-style retail stores, which has led to tight retail clustering in core centres. These clusters near the most densely populated areas tend to attract both local and international retailers of various sorts.

In Shanghai, for example, the local and international home furnishing stores and furniture hyper-stores have located close to super grocery stores or to each other.

One caution is that while Beijing is clear on retail sector reforms, city development plans and their implementation remain volatile. This has created uncertainty for both the formation and development of catchment areas for retail business, thus affecting profits and the potential supply of retail property.

More foreign capital flowing into retail property development will also boost future supply, although robust demand, if sustained, should offset supply pressure.

Chi Lo is head of Asia Research at Grosvenor