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Consumption to hit record low

(BEIJING) China’s consumer spending, blamed for lacklustre contribution to the world’s fastest-growing economy compared with investment and trade, will hit a record low in more than two decades, despite anticipated higher growth in urban income than that of the aggregate economy, according to analysts.

The inflation-adjusted disposable income of Chinese urban residents would increase by about 13 per cent year-on-year in 2007, a report by the Chinese Academy of Social Sciences (CASS) said.

It would be the first time the growth of urban income had surpassed economic growth over the past five years, according to the report.

China’s economy was forecast to expand by about 11.5 per cent in 2007.

The country’s income growth also outpaced economic growth in 1979, 1986, 1990, 2001 and 2002.

The report said the income of Chinese farmers would also be at an 11-year high of 8 per cent growth for 2007.

Despite a rosy picture about income growth, consumption by Chinese residents remained at a low level.

It contributed about 36 per cent to the country’s gross domestic product (GDP) in the first three quarters, according to the report.

The 2007 figure would hit a record low against around 60 per cent in the period from the country’s opening up initiative in 1978 to 2002. The figure had slipped by bigger margins thereafter to reach a low of 50 per cent in 2006.

The smaller consumption contribution to the country’s sizzling economy, compared with an average 70 per cent across the world, had long been labelled a lame duck in powering the country’s economic growth.

The report said consumer spending was mainly dragged down by surging housing prices in 2007.

Many Chinese had chosen to hold off purchases of other commodities in response to runaway housing prices. Chinese traditionally considered housing as their most important purchase.

From January to November, housing prices in 70 major Chinese cities jumped 7.3 per cent year-on-year.

Housing prices were up at an annual rate of 10.5 per cent in November alone.

The November rate was the largest monthly gain since July 2005 when China started to cover more cities in its monthly housing price survey. The country’s top leaders have repeatedly called for a bigger role of consumption in the economic growth to relieve its reliance on investment and export.

The point was stressed again at the National Congress of the Communist Party of China in October last year.

 

Source: Xinhua (Business Times 5 Jan 08)

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