Watching for a Consumer-centric China

It is good news for overseas firms looking to supply the Chinese market as the nation promises a more consumer-centric growth pattern.

After replacing Germany to become the world's largest exporter in 2009 and surpassing Japan as the world's second largest economy at the end of 2010, China has attracted more attention from the world.

Analysts believe it's time for people in the world's most populous nation to go more shopping in addition to save too much money, expecting the country to change its dependence from exports and investment and increase domestic consumption.

According to the government's draft of 12th Five-Year Plan (2011-2015), China will further unleash consumers' potentials and gradually develop the country into a major consumer market.

The draft document, which has been delivered to legislators for review, said that China will "increase the imports of consumer goods in a proper manner" as part of its efforts to optimize imports to achieve a more balanced trade and economic structure.

The government does not elaborate how it plans to increase consumer product imports, possible measures should include simplifying regulations and lowering import taxes, said Zhang Xiaoji, a senior researcher with the Development Research Center of the State Council.

According to Zhang Ping, head of the National Development and Reform Commission, China's top economic planner, the Chinese government will "focus on establishing a long-term mechanism to boost domestic demand, especially consumer demand."

The current economic growth in China, which relies on high input, high energy consumption and high capital accumulation, has resulted in negative effects on the sustainable and stable growth of the national economy.

To this end, China vows to promote the urbanization process, boost employment, readjust income disparities, improve the social security system and optimize the consumption environment.

"An export-oriented growth pattern is not sustainable for China because of its huge economic size. However, this will promise a good future by unlocking domestic consumer spending," said Jin Baisong, a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce (MOC).

China's shift from the "world factory" of low-end products to a major "international consumer market" will not only benefit the country, but also its trade partners and even the global economy, Jin said.

Actually, the Chinese government had embarked on a strategy to spur domestic demand since late 2008, which Premier Wen Jiabao said would continue in the coming five years.

Because of increasing domestic demand, China's imports growth has outpaced that of exports for five consecutive months, through February.

MOC minister Chen Deming said China is expected to become the world's largest consumer market over the next decade and will surpass Japan as the world's largest consumer of high-end goods by 2015.

China took advantage of the opportunity for an international industrial transfer over the past 30 years to become the world's manufacturing base, making use of its vast labor pool, said Liu He, a renowned Chinese economist who has participated in drawing up the draft of the 12th Five-Year Plan.

China is now at a turning point to shed its image as "world factory" and establish its status as a "global consumer market" on the backdrop of weak global demand and expanding domestic market, Liu said.

However, analysts say the transition will not be easy. The government must increase the income of mid- and low-income groups and expand the coverage of its social security network, Jin said.

"China's leaders will have to wage a sustained policy struggle on many fronts, combining relatively straightforward measures to encourage private spending, with fundamental reform of the nation's health and pension systems and sweeping changes in the economy's basic structure," according to a report from the McKinsey Global Institute.