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  Post-SARS sunny mood to drive up consumption
(WEI LING, China Daily staff)

Retail sales on the mainland are likely to post a mild growth of 8.4 per cent in the second half of this year thanks to restored consumer confidence following the end of the SARS outbreak.

A report from the State Information Centre (SIC) said this.

However, the whole year growth rate might be dragged down to 8.1 per cent due to slack sales in the second quarter when part of the country was hit by the outbreak of severe acute respiratory syndrome.

The growth rate will be 0.7 percentage point lower than that in 2002 and 2.2 percentage points short of the forecast made by the centre at the beginning of this year.

Qi Jingmei, a researcher with SIC's forecast department, said slower growth in retail sales will cut China's GDP growth by 0.5 percentage points this year.

She said that although some consumption demand suppressed in the second quarter will be released in the coming months, it will be difficult for retail sales to rebound to the level in the first quarter due to the lagging impact of SARS.

China witnessed a 9.2 per cent increase in retail sales in the first three months of the year.

The outbreak of the epidemic further lowered urban and rural people's expectation on income growth.

Farmers' income has been severely affected as many had to quit jobs in cities and returned home during the SARS period.

In urban areas, as more State finance investment went to the fight against SARS, the plan to raise salaries for civil servants might be aborted this year, while many enterprises, with production being disturbed by SARS, will also have to give up plans to raise salaries for their employees.

Moreover, the current low level of consumer price index (CPI) made consumers expect further price cuts and choose to wait-and-see rather than go shopping.

In the first five months of this year, the CPI recorded an 0.5 per cent growth year-on-year. Although the growth rate is 1.4 percentages points higher than that in the corresponding period of last year, it is 0.4 percentage points lower than the whole-year target of 1 per cent.

The rise was pushed mainly by price rises in water, power, vegetables and services.

Prices for industrial products, especially garments and durable consumer products, kept declining in fierce market competition. Prices for garments and durable consumer products dropped by 2.5 per cent and 4.2 per cent respectively in May.

Qi said it is almost impossible now to realize the CPI growth target this year with declining prices in fuel products and automobiles. Meanwhile, the central bank's new policy to tighten mortgage loans will contain a rise in the real-estate market.

The SIC predicted that the CPI will increase by 0.7 per cent this year, compared to a negative 0.8 per cent last year, but 0.3 percentages points lower than earlier predictions.

"More active policies must be taken to energize the market and shoot up the CPI," Qi said.

(HK Edition 07/12/2003 page7)


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