News Analysis: New consumption drive underscores shift of reforms

China's new policies to boost consumption have highlighted a shift in the country's economic reforms -- from stimulating consumer demand to upgrading the supply of goods and services.

The State Council, or China's cabinet, issued a guideline on Monday vowing to "add new supply, create new consumption and form new growth momentum" through new ideas in institutions, technology and products.

The move followed the release of another guideline on Sunday, in which the State Council urged an increase in the supply of services and strengthened support for consumer services such as health care and tourism.

The guideline comes as China faces "a historic juncture in upgrading the structure of consumption," said Chi Fulin, director of the China (Hainan) Institute for Reform and Development.

With old drivers such as investment and growth losing steam, the country is looking to consumption to take their place, he said.

China's economy is under increasing pressure as property and infrastructure investment continue to decelerate along with exports, which slumped further in the first 10 months of the year. Consumption was the only bright spot, gaining 0.2 percentage points in growth in October from September.

The days of over-reliance on investment are gone for China, but a consumption-led growth encouraged by the state has yet to take full effect. Many economists blame a shortage of supply in high-quality, high-end products and services, instead of a lack of consumer willingness to spend.

The supply-demand imbalance has resulted in a fervor for overseas goods and services, a phenomenon apparently raising concern among senior policy makers.

"The fact is that some products we export overseas are of higher quality than the same type of products sold within China, forcing many middle-income earners to buy China-made products in foreign countries," said Yang Weimin, vice minister of the Office of the Central Leading Group on Finance and Economic Affairs.

To address the imbalance, China needs to change the supply structure, putting more focus on the quality of supply rather than merely the quantity of it, said Zhang Liqun, an economist at the Development Research Center of the State Council.

The new pro-consumption policies followed a call by the country's leaders earlier this month to strengthen supply-side reforms in the broader economy in order to drive growth and elevate the overall productivity level.

China's previous response to economic slowdown has largely been tinkering with demand, loosening monetary supply and revving up fiscal spending. While those measures were counter-cyclical and necessary for short-term growth, there is now little room to maneuver on that front.

Instead, there is a growing need for supply-side reforms to create a better environment for enterprises to innovate and upgrade, thus providing more choices for consumers to meet their demand and sustaining long-term economic growth.

The shift of reforms is a sensible thing to do, as demand-side stimulation tends to be short-lived, said Stephen Phillips, chief executive of the China-Britain Business Council.

"You spike the demand and it may cause bubbles. If you address the underlying supply-side issues, there will be a much more long-term impact on the overall economy," he said.

Monday's guideline specified measures to encourage firms to improve quality and explore new products and services, increase the import of advanced equipment and daily consumer goods and further open up its service sector to foreign investors.

In Sunday's guideline, the State Council encouraged an improved business environment and to provide more land and price support for consumer service industries, such as family services, health care, tourism, sport and culture.

Upgrading the consumption structure is largely about boosting the growth of consumer services, which is expected to take up half of total consumption in China by 2020, up from the current 40 percent, Chi told the Shanghai-based newspaper China Business News. Endi