China strives to stimulate domestic consumption

China, the world's second-largest economy, is striving to shift its economy toward self-sustaining growth based on domestic consumption. The move comes as a contracting European economy and weak recovery in the United States have slowed its exports.

And the country has made domestic demand expansion, especially household consumption, a long-term strategy to maintain healthy and stable economic development and transform the economic development pattern. CCTV reporter Xie SiSi spoke with top scholars on how to stimulate domestic consumption.

Changing direction. The Chinese economy has been propelled primarily by exports, fixed investment, and domestic consumption, and now the country is gearing up to boost its domestic demand.

Assistant professor Zhu Guozhong from Guanghua management school of Peking University, gives an outline on the country's plan for economic reform.

He said, "I think the economic reform still needs time. Data shows that consumption in China hasn't been so strong in the past few years. And the growth rate of spending is still weaker than the growth rate of investment."

Recent statistics show that the real estate and auto markets, major drivers of China's consumer spending, became sluggish due to government controls, the country is expected to rely more on new growth engines to support its increasingly crucial domestic consumption.

Although "Income distribution reform" is on the way; reform that may contain cutting taxes, urging enterprises to release financial resources to society and increasing salaries - Professor Zhu says the effects will be limited.

He said, "I noticed that our country tries to use income reform policy to re-distribute wealth as a means to boost consumption among the low income group. Of course it is reasonable to believe this will work as low-income people tend to spend more if they have more money. However I think the effects will be limited and could even have a negative impact. Redistributing income means higher tax revenue for the government. In China, middle-income earners are the main spending power, so higher taxation on their income may actually discourage them from spending."

Professor Zhu points out that in fact lower taxation is the best way to encourage spending.

He said, "Research I've done shows that the income uncertainties are relatively high in China. So that's why Chinese people tend to SAVE UP for a rainy day rather than spend it. And I also believe the middle-income group is the main driving force behind China's domestic spending. So lower taxes are key; high housing and car taxes only serve to put pressure on consumers."

Figures from the National Bureau of Statistics showed that Retail Sales, one of the China's key growth drivers grew 14.2 percent year-on-year to 18.68 trillion yuan in the first 11 months of the year.

In November alone, retail sales hit 1.85 trillion yuan, an increase of 14.9 percent over the same period last year. Urban consumption expanded 15 percent from a year earlier to 1.6 trillion yuan in November, while rural residents spent 244.6 billion yuan, up 14.6 percent.

The growth pattern of the Chinese economy has seen a great change this year with consumption replacing investment to be GDP's biggest contributor. Analysts say
with more stimulus measures in the pipeline, China's retail sales looks bright in the near future and people may buy more value-added products with increasing disposable income.