Business / Domestic consumption

Senior official calls for policy to increase domestic demand

By Li Jiabao (China Daily) Updated: 2012-03-08 08:12

China is formulating new policies to expand domestic consumption, as foreign trade weakens.

"Government departments are discussing new moves to expand domestic consumption, but I cannot disclose the details now," Commerce Minister Chen Deming told a news briefing in Beijing on Wednesday.

The focus of the new policies will be to "promote projects such as the green economy, low-carbon emissions, energy-conservation and environmental protection projects," he said.

"Boosting consumption will increase domestic demand and could become an important driver of GDP growth," said Wang Haifeng, director of international economics at the Institute for International Economic Research, a think tank under the National Development and Reform Commission.

"The external economic situation and domestic demand have jointly contributed toward the move to increase consumption, which is a good way for China to transform its economic development model," said Wang.

Since the global financial crisis in 2008, the government has unveiled a series of subsidies and tax rebates to encourage domestic consumption of household appliances and cars and a scheme to see older items replaced and upgraded.

A move to encourage consumers to replace household appliances ended at the end of 2011, having registered sales of more than 90 million home appliances worth 340 billion yuan ($54 billion), according to the ministry. A second front, aimed at expanding consumption in 28 provinces and regions, will "last until the end of the year", Chen said.

"Exports of household appliances declined after the financial crisis, while domestic demand remained high. With the improvement in support services, including a reduction in the costs of power and water and enhanced after-sales services, the rural market for household appliances will be very promising," said Xu Wei, a researcher at the China Center for International Economic Exchanges.

By the end of February, a total of 230 million household appliances, mainly TV sets, refrigerators, heaters and washing machines, had been sold, with sales worth 537.85 billion yuan, according to the ministry.

Moreover, the ministry will "speed up the circulation of agricultural products and advance life services, in addition to improving the environment for consumers this year", Chen said.

Reforms to the logistics system will be advanced to reduce costs and thus promote consumption, according to Chen.

"In a market economy, consumption decides production through logistics. And logistics play a crucial role in transforming economic development, upgrading industrial structures and enterprise innovations. That's something we did not give enough attention to during the past decade," Chen said.

Excessive logistics chains, high costs and low efficiency are the major problems confronting logistics providers in China, said Chen. He added that logistics costs accounted for 18 percent of GDP in 2010 and 2011, even though these costs usually account for between 8 and 10 percent of GDP in most developed economies.

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