China, Socialism & Consumer Behavior: consumption stimulus to extend into 2010

Stimulus policies spurring Chinese domestic consumption will be maintained in 2010, while high sales growth of home appliances and automobiles due to the stimulus packages will not affect consumption, analysts predict.

China launched a series of stimulus programs following the global financial crisis to boost domestic consumption, including rebate programs to farmers who buy home appliances from qualified vendors, tax cuts for purchases of low emission cars and vehicle upgrade subsidies for rural residents.

The country saw 10.9 million automobiles sold in the first 10 months of 2009, up 37.8 percent over the same period of the previous year, the China Association of Automobile Manufacturers said in early November/2009.

Meanwhile, retail sales nationwide grew by 15.1 percent, or 17 percent without pricing factors, in the first three quarters of 2009. Consumer spending contributed about 4 percent of China’s Gross Domestic Product (GDP), according to the Chinese National Bureau of Statistics.

The high growth of auto sales this year will not affect consumption next year, according to Li Haiying, an analyst at Anbound Consulting.

“The growth this year was mainly caused by the release of suppressed demand held over from 2008,” Li said. “The policies to boost car sales will most likely stay next year, or new policies such as auto finance and credit will possibly come out.”

She estimated that auto sales would grow about 20 percent this year, excluding the demand from 2008, and continue to grow about 10 to 15 percent in 2010.

If the rebate policy is terminated, sales will likely drop in the short term. From a mid- to long-term perspective, however, the automobile market is far from saturated, said Niu Li, a researcher at the Chinese State Information Center.

The current rebate program to boost home appliances in the countryside will extend to next year, and procedures will be further simplified to facilitate implementation, said Lu Renbo, director of Consumer Electronic Product Survey Office at China Electronic Chamber of Commerce.

“Consumption will still grow next year, but much higher growth is not likely to happen,” said Zhuang Jian, senior economist at the Asian Development Bank.

However, supplementary policies are needed to maintain consumption in rural areas, including raising the income of migrant workers and continuing to improve the social security and welfare network so that people do not have to save money instead of consuming, Zhuang said.

But not all analysts are optimistic.

Strong consumption growth is not sustainable because rising housing prices, unbalanced income distribution and the enlarging income gap could easily suppress demand, Zhou Xiaozhi, an economist at China Construction Bank told the Economic Information Daily.

via China’s consumption stimulus to extend into 2010 (Xinhua).